Impact case study database

Since 2012, the EU aimed for a more integrated payment systems area on the continent. In this context, expanding the electronic card payments systems was a key part of the strategy since higher efficiency and lower costs for all parties could be achieved. The European Commission, the European Parliament, and the European Central Bank (ECB) instigated a public debate about how to make a substantial increase in merchant acceptance possible. Carbo-Valverde presented his research as working paper versions (subsequently published in 2016, [3.1]) at various high-level conferences and seminars, for example to the ECB in 2014 [5.1]. The audience included ECB officials, European Commission officials, antitrust authority officials and bank representatives of various EU countries, all of whom were relevant parties and policy makers in the later design of the new EU regulation on interchange fees. Following the seminars, the ECB and European Commission used the research to support the design of new regulatory actions and to explain the gains from those new regulations. At the early research stage, as the only existing empirical evidence explaining the distribution of the benefits of regulatory changes for all market participants, Carbo-Valverde’s working papers were pivotal in influencing the new regulation and have been cited in relevant policy actions. Consequently, a new regulation to lower interchange and merchant fees was formulated and approved, becoming applicable in the EU between 8 June 2015 and 9 June 2016.

Various testimonials attest how, as the first empirical research to address the issue of interchange fees, Carbo-Valverde’s work significantly influenced the EC’s decision to implement the Interchange Fees Regulation and his contributions were central in guiding EC policy development and application. Referring to the influence of Carbo-Valverde’s work, the Acting Director-General of Competition of the European Commission states how it ‘has been part of the supportive academic empirical background that the European Commission used for the change in the way interchange and merchant fees were regulated in the European Union… The Impact Assessment study of the European Commission for the Directive on Interchange Fees quotes Mr Carbo-Valverde’s research that provided evidence for these policy actions’ [5.2].

The ECB recommendation (followed by the EC and the European Parliament) to lower interchange and merchant discount fees instigated the introduction of regulation by all EU countries to lower those fees and set them close to zero from 2016 onwards. The Head of the Market Infrastructure Support Division at the ECB (Directorate General Market Infrastructure and Payments), emphasised the influence of the research on ‘retail payments policy-related work of the ECB’. Their testimony demonstrates the use of the research by a former member of the ECB Governing Board ‘in several public statements’ suggesting, overall that ‘Carbo-Valverde’s research provided research background for that change in regulation (…) that affected all banks operating in the EU, all merchants that use electronic payments in the EU, and EU cardholders’. The Head of the Market Infrastructure Support further adds ‘The research was also used as motivation in the impact assessment study of the European Commission and the European Parliament for the Directive on Interchange fees and merchant discount fees’ [5.1].

In 2016, the European Commissioner for Competition also used the research to motivate a response to the European Parliament on the convenience to reduce interchange fees in Portugal [5.3]. The European Commissioner’s response states: ‘various studies have also shown that interchange fee reductions led to higher card acceptance and usage’ and directly links to a footnote that mentions Carbo-Valverde’s research.

A Senior Economist of the Central Bank of the Netherlands stated that the research ‘has also produced a significant impact for academic discussion and among central banks and regulatory bodies’. He adds: ‘… these results (those of Carbo-Valverde) were cited by different and European authorities and were considered and explicitly mentioned in the impact case study of the European Commission and European Central Bank as a basis for the directive on Interchange Fee Regulation and merchant discount fees. The directive implied a fundamental change for all market participants in the card payment network in the EU countries. It affected 100% of banks operating in the European Union, 100% of merchants that use electronic payments in the EU and 100% of EU cardholders’ [5.4].

Earlier versions of the research (for official use only and not for distribution) were already considered as an indication of potentially significant economic effects and informed the findings of the impact assessment study of the EC and the European Parliament for the Directive on Interchange Fees [5.5]. The subsequent benefits of implementation of the 2015 EU Interchange Fees Regulation for consumers and merchants are widespread. Notably, by reducing the costs of card payments retailers pay less for such transactions, allowing consumers to use cards more widely, paving the way for innovative payment technologies to be rolled out [5.6]. The EC study on the application of the Interchange Fee Regulation (IFR) (impact study of 2020) corroborates the large benefits of the regulation change: ‘the increase in the usage of commercial cards has also been confirmed by merchants …. (a) majority …. (86%) that responded to the survey declared that the relative share of transactions performed with commercial cards has increased since entry into force of the IFR. More precisely, 54% of merchants reported an increase in commercial card transactions between 0 and 10%, 18% declared an increase above 10%’ [5.7]. The impact study concludes that after the implementation of the new EU interchange fee regulation there is significant evidence of card payments gradually replacing cash payments. Focusing on end-users (consumers and merchants), this increase has resulted in estimated annual benefits (between 2015 and 2017) of EUR1,200,000,000 (03-2020) for merchants and EUR587,000,000 (03-2020) for consumers [5.7].

Finally, the impact of Carbo-Valverde’s research has more recently expanded to non-EU countries. Several non-European government agencies have cited Carbo’s Valverde research in the context of their changes in interchange fee regulations. These include the USA Federal Reserve (introduction of a new regulation called the US Debit Card Interchange Regulation in the context of the Durbin Amendment, 2017) [5.8], the Bank of Canada (2019) [5.9] and the Institute for Democracy and Economic Affairs of Malaysia (2018) [5.10]. All these countries have lowered or set a limit on interchange fees since 2017. These institutions cite Carbo-Valverde’s research as the empirical background to demonstrate the benefits of lowering interchange fees.