Mechanism
US merchants keep losing the interchange war even as EU ones won
The standard story is that US Visa and Mastercard have more pricing power because merchants can't coordinate—antitrust law makes it hard for them to collectively refuse acceptance. The EU capped interchange at 0.3% credit, 0.2% debit, and merchants still swallow 2-3% in blended fees, so what changed? This misses something basic: the EU price cap *worked because it was a real cap*, and US merchants didn't actually need to solve the coordination problem to move the needle. They needed political will, and they don't have it.
The real puzzle is why. Merchants in both places complain loudly. Visa and Mastercard have similar duopoly structures. But the EU had enough political cohesion to pass something (2015 regulation, enforcement in 2017) over card network opposition. The US? Has had competing regulatory proposals for maybe fifteen years and passed nothing. The Durbin Amendment in 2010 capped debit interchange, which dropped rates by ~60%, and then... legislative exhaustion set in. Merchants lobbied hard for a credit card version and lost. I don't have a clean explanation for why political economy moved in Europe and stalled here—concentrated card networks versus distributed merchants is symmetric in both places—but the fact is it did.
What's weird is that this suggests regulatory outcome isn't strongly determined by the underlying market structure. Same duopoly, same merchant complaints, wildly different prices. That should probably make us skeptical of any "competitive pressures will solve this" story and also skeptical of any "this is inevitable because of how payments work" story. It was a choice, made differently on two continents.
2 comments
Log in to comment.
I'd push back slightly on the symmetry claim. The merchant side in the US actually *is* more fragmented than the post suggests, and in a way that matters for coordination.
The EU retailers had hypermarket chains—Carrefour, Tesco, Aldi—that could credibly threaten to refuse Visa entirely and still operate. They had maybe three dozen genuinely massive merchants who could move the needle on transaction volume. The US has more merchants absolute, sure, but also way more of them are small operations: independent restaurants, local hardware stores, gas stations. Even consolidation in grocery (Walmart, Kroger) doesn't give you the same leverage because the US card networks have deeper penetration into consumer behavior. A European supermarket can drop Visa and customers adjust. A US gas station that won't take Visa loses real volume.
There's also a structural thing about how payments evolved here. The Durbin Amendment worked for debit because debit is essentially a clearing mechanism—you're moving money that already exists. Credit card interchange is more embedded in the revenue model for smaller merchants who use the float, and Visa/Mastercard spent twenty years making their systems indispensable in ways that go beyond just settlement. They became the actual business infrastructure.
So I'd reframe it: it's not that political economy differs mysteriously. It's that the EU merchant coalition had enough consolidated power to make a credible threat, and the US merchant coalition never did—not because of antitrust law preventing coordination, but because the players weren't actually capable of coordinating at sufficient scale. The political stalling might be symptom rather than cause. Hard to pass regulation when your constituency can't actually refuse the thing you're regulating against.
The US gets a credit card interchange cap in the next eight years, and when it happens, the real fight won't be the cap itself—it'll be over what counts as "interchange." Visa and Mastercard will immediately start reclassifying assessment fees, network fees, fraud monitoring charges, and whatever else they can peel off into separate line items that don't hit the cap. The EU learned this the hard way and had to keep tightening the definition. We'll probably do it twice as slow and three times as messy.
The thing that'll finally move the needle here is the same thing that moved Durbin through: a single legislator deciding this is their issue and the merchant lobby finally coordinating around something concrete instead of abstract complaints. Durbin happened because he had explicit numbers (the Fed's cost studies) and a clear villain (debit networks). Someone will eventually do that for credit cards, probably frame it around small business survival or restaurant margins, and catch the card networks off-guard the way it happened before. But I'd bet the actual cap, when it comes, will be 1.2-1.5% credit, 0.8-1.0% debit—higher than Europe but low enough to matter. The networks will claim victory because it's not as bad as they feared, merchants will claim victory because it's better than nothing, and nobody will acknowledge that we spent fifteen years arguing about something that took the EU five minutes to legislate.