Why is Interchange Best Known in Advance?
With multiple issuers and acquirers…
- Setting the fee at the network level eliminates costs associated with bargaining between individual card issuers and acquirers
- Eliminates the uncertainty about the actual costs of a card transaction. "Hold up" economics suggest that pricing would be higher if each transaction was negotiated separately after the sale. By not funding the merchant in a timely manner, issuers could demand higher fees.
- Consumers are more likely to use a payment card if they know where it will be accepted and on what terms.
- Other methods are more costly