The effects of the mandatory decrease of interchange fees in Spain

On 2 December 2005, a government-enforced Agreement to reduce Interchange levels for a five-year period (2006-2010) was signed by the main Spanish merchant associations and card schemes. The main results of the mandated Agreement have disturbed the necessary balance of the electronic payment system market and have damaged the majority of participants and society as a whole. The reduction in interchange fees was 3,329.96 million euros by the end of 2010. Although statistical correlations can never prove causality, and can be attributed to several factors involved, the average annual decline of more than 830 million has harmed consumers by raising cardholder fees and reducing card benefits, without any improvement of services being taken into account. But to different extents this is also true for the acquiring and issuing banks, which have been forced to protect themselves against loss of income, and even for merchants and card schemes which signed the Agreement. There is no evidence that prices have been lowered or the fulfilment of other objectives of the Agreement. This has altered the four-party system, which favours other less participatory systems and reduces incentives to innovate to improve the quality and safety of the service. In addition, it has also slowed the replacement of cash, which is more expensive and slower, less efficient and less transparent. This has benefitted the black economy, not income tax revenue or general welfare. As such, the main incentives to boost electronic payments as instruments of innovation, transparency and cost reduction have suffered. Nor has there been an increase in trade volumes, which have also been affected by the crisis and the increase in defaults, which has led to higher commissions.