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Price Regulation of Plastic Money: A Critical Assessment of Spanish Rules

Published online by Cambridge University Press:  20 January 2006

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Abstract

Recent decisions by the Spanish national competition authority (TDC) mandate payment systems to include only two costs when setting their domestic multilateral interchange fees (MIFs): a fixed processing cost and a variable cost for the risk of fraud. This artificial lowering of MIFs will not lower consumer prices, because of uncompetitive retailing, but it will however lead to higher cardholders’ fees and, most likely, new prices for point of sale terminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders’ fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the payment networks. Moreover, the pricing scheme arising from the decisions will lead to the unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be provided either by third parties, by issuers for a separate fee, or not at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences of the fact that the TDC precludes pricing them in variable terms.

Type
Case Studies
Copyright
T.M.C. Asser Press 2005

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