POST Please stop the nonsense about interchange caps helping consumers

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According to the latest British Retail Consortium's (BRC) annual payments survey, cards were used to pay for £277.1 billion worth of goods in 2017, accounting for 76% of retail sales volume.

Meanwhile, cash continued its decline both as a share of retail transactions (down 0.5%) and value of sales (down 1.2%), where it now make up just 22%.

The BRC says that the rise of card payments is hitting its members in the pocket, with retailers spending an extra £170 million to process payments in 2017. Fees are now approaching £1 billion a year.

From Card payments dominate UK retail sales as cash usage falls.

 

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"In fact many smaller retailers have questioned whether savings were ever passed on by card companies. The BRC are now looking to the Government and Regulator to tackle the alarming increases to card scheme fees imposed on retailers, and for action to simplify the complex fees and charges levied by the card payments industry."

From Card payments dominate UK retail sales as cash usage falls.

 

I just read something from Alan Davis, a competition law expert at the lawyers Pinsent Masons, who summarised where we are quite nicely, by saying that "The Interchange Fee Regulation (IFR) capped credit card multilateral interchange fees at 30 basis points per transaction and debit card fees at 20 basis points. Although the IFR did not explicitly require it, it was always intended that this reduction would be passed on by merchant acquirers to retailers in the form of lower merchant service charges... However, the question then arises whether a review would also need to be undertaken as to whether merchants are passing or will pass on savings to end-consumers in the form of lower retail prices. There has always been a lot of scepticism as to whether consumers would ever really benefit from the IFR". There certainly has been, and a fair share of it has come from me.

There has never been the slightest evidence that government price-fixing in the payments sector (which is what an interchange cap is) has been to the benefit of consumers. The first country to do this was Australia, and I saw predictions at the time that even if acquirers did reduce their charges, retailers would simply trouser the cash. I've yet to see any learned papers that offer a different view.

What is puzzling to me is why governments think this nonsense will help. We saw the same thing in the UK earlier this year with banning of surcharges for electronic payments.

Ultimately, the way to deal with this is competition.