Monday, April 04, 2011

Some thoughts on Interchange fees for mobile payments

In the world of credit card payments, interchange fees are the fees paid by the acquiring bank to the issuing bank for each card transaction done. This is a simple mechanisms to ensure that card issuers are getting paid when the cards that they have issued is being used. In credit card systems, the merchant (the payee) and not the card holder (the payer) is responsible for the transactions fee. (There are some exceptions, but this is generally true).

If we were to apply the same principle to mobile payments we start running into a number of problems. This is because many mobile payment solutions work in a different way than what credit card transactions would work in general. Some of the challenges that one will have to consider are:
  • In many cases, it is the payer that pays for the mobile payment transaction fee. (Consider for instance money remittance case study)
  • The management of exchange rates for different currencies are dealt with in many different ways. Supporting this in a clear interchange fee will be difficult.
  • Interchange fees often also caters for a credit component. Mobile payments are usually based on positive balance value stores.
  • The willingness of both parties to pay for transactions (to send and receive money) is different in the mobile payment dispensations.
It is therefor unlikely that Interchange can be made applicable to mobile payments in exactly the same way as for credit cards. Also, designing a consistent, transparent and fair interchange fee for mobile payments will be difficult and may take some time to emerge.

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