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Assessing the Durbin Amendment’s Debit Card Interchange Fee Cap: An Application of the “Tourist Test” to US Retailer Data

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  • Layne-Farrar Anne

    (Vice President, Charles River Associates, 1 South Wacker, Ste 3400, Chicago, IL 60606, USA)

Abstract

Payment cards have been a perennial source of debate among economists. That debate received additional fodder in 2010 with passage in the US of the Durbin Amendment, which targets debit card interchange fees. I assess the Durbin Amendment, testing the interchange fee cap it imposes against the “tourist test” proposed in the theoretical literature. I first calculate merchant incremental payment processing costs across payment instruments. While I find that debit card bank fees are higher than bank fees for other instruments, a comparison of other incremental costs softens that conclusion. With the cost estimates in hand, I then compare the interchange fee suggested by the “tourist test” with that set by the Durbin Amendment. The empirical assessment of the tourist test highlights the importance of the instrument whose costs are “avoided” – whether cash or check is used dramatically alters the test and indicates that an optimal one-size-fits-all interchange fee cap will be difficult to achieve.

Suggested Citation

  • Layne-Farrar Anne, 2013. "Assessing the Durbin Amendment’s Debit Card Interchange Fee Cap: An Application of the “Tourist Test” to US Retailer Data," Review of Network Economics, De Gruyter, vol. 12(2), pages 157-182, June.
    • Handle: RePEc:bpj:rneart:v:12:y:2013:i:2:p:157-182:n:2
    DOI: 10.1515/rne-2012-0005
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    References listed on IDEAS

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    1. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-24, June.
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