Electronic payment is valuable

Shutterstock.com

Article Highlights

  • Credit cards, debit cards and now newer technologies like PayPal have revolutionized a critical gear in our economy: payment.

    Tweet This

  • The ability to securely and effortlessly engage in consumer transactions facilitates commerce.

    Tweet This

  • Service providers for electronic payment transactions design, build and own costly networks and valuable intellectual property.

    Tweet This

Editor's note: This article originally appeared in The New York Times' Room for Debate in response to the question: Should the US follow the EU's lead in placing low caps on credit and debit card interchange fees?

Credit cards, debit cards and now newer technologies like PayPal have revolutionized a critical gear in our economy: payment. The ability to securely and effortlessly engage in consumer transactions — whether an online purchase or filling the gas tank — facilitates commerce. For buyers, conveniences like better record-keeping of purchases, fraud protection and faster transactions are all real and tangible benefits. For sellers, there are advantages to these payment technologies, not least of which is higher sales volumes.

Service providers for electronic payment transactions design, build and own costly networks and valuable intellectual property. They incur costs for the services they provide and they deserve to charge a market-based rate to their customers.

The notion that statutory or regulatory set price ceilings for these services would yield a net benefit to the economy presumes that the private market has failed and that a government-imposed price is closer to what the market price should be; which presumes that the “should be price” is knowable to these regulators. But one should not confuse the economics of mobile payments with the natural desire of every buyer to pay less for the services they enjoy.

Last week, a U.S. court struck down the debit-card transaction fee cap that the Federal Reserve Board set in 2011. While this decision argues that the Fed was too lenient in setting the cap, it also points to the fact that regulators struggle to balance the political objectives of lawmakers (and in this case merchants) with the evidence the Fed deemed appropriate for consideration in rulemaking.

Can the European Commission do better? Merchants believe so because the swipe fee caps proposed in the E,U. are even lower than the U.S. swipe fee caps. But, such a simple-minded determination of “better” disregards the value of the service being provided and embraces a view that the government can set a price more effectively than the market.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex
Brill

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Event Registration is Closed
Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.