We found another interesting document, courtesy of the New York Federal Reserve Bank – a research paper that was presented at a conference entitled Antitrust Activity in Card-Based Payment Systems:
Causes and Consequences in 2005 by industry researchers Alan Frankel and Allan Shampine.

Here is a link to the powerpoint presentation, called House Of Cards: The Economics of Interchange Fees.  Below I will summarize the main points for those who don’t want to bother downloading a .ppt.

* Average Visa credit card interchange rate grew at 2.2% / year from 1990 to 2004, resulting in 35.6% higher rates

* Issuing Banks’ income from credit card fees has increased 349% since 1992, from about $4B to about $15B.  This excludes debit cards, which have grown even faster.

* A credit card purchase for a grocery store costs about twice as much as a check purchase and about 7x as much as a cash purchase.

* Interchange fees increase consumer prices somewhere in the neighborhood of 0.6%.

* Merchants are in a prisoner’s dilemma – credit cards cost them more, without increasing aggregate consumption, but if they stop accepting credit cards they will lose business to other merchants.

* Interchange rates may have helped fund an explosion in junk mail credit card offers, from 1.1B pieces of mail in 1990 to 5.8B pieces in 2005.