Interchange fees would have to be much higher if they were a larger percentage of a credit card company's revenue (as they are for AMEX). This would end up resulting in higher costs for consumers.
That's a circular argument--there are obviously two ways that the share of revenue from interchange fees could become higher than they are now--increase the interchange fees, or decrease the interest rates, membership fees, and other revenue sources (or both).
Higher interchange fees would necessarily "end up resulting in higher costs for consumers" only if the interest rates didn't also decrease. Are you assuming the credit card company's total revenue is a fixed constant?
Or are you just suggesting that if a very large group of cardholders collectively decided to pay off their credit card balances in full every month so that credit card companies didn't make a cent in interest off them, that credit card companies would simply increase their interchange fees to compensate? Perhaps. But then a lot of merchants would stop accepting credit cards. They could face antitrust litigation again. Perhaps they would just add/increase yearly card membership fees, cut back on rewards, lay off customer service staff, etc. Who knows? They make their money in several different ways, and each of those they are already squeezing as much money as they possibly can out of consumers and merchants.
The way I see it, as a responsible cardholder who pays my bill in full every month, merchants and irresponsible users of credit are just subsidizing my free 30-day loans, cash back rewards, and frequent flyer miles, and I'd prefer that they keep doing so.
>>> Higher interchange fees would necessarily "end up resulting in higher costs for consumers" only if the interest rates didn't also decrease.
Businesses do not pass on interchange fees directly to the customer. It is not a line item that appears on your receipt after you make a purchase. This is largely because credit card companies forbid merchants from charging an additional fee to customers for using credit cards.
This means the only way for merchants to recoup interchange fees is to raise the prices of their goods across the board. This means prices go up for everyone, even those without credit cards. So a non-credit card user would see their prices go up as a whole, without the potential offset of reduced interest costs.
This is true in most cases, but merchants have a lot of tricks they use to try to reduce the amount of credit card interchange fees they pay. A lot of businesses actually do charge a "convenience fee" for using a credit card, or offer a discount for paying in cash, or they set a minimum purchase amount at which they will accept a credit card, etc. A lot of businesses also flat out refuse to accept cards like AMEX and Discover because of their higher interchange fees.
It would be interesting to see how this equilibrium might change if CC companies tried to increase interchange fees across the board. I think they would see a lot of resistance from merchants and possibly even government scrutiny and lawsuits. Don't forget that the CC companies have to compete with each other, and cannot collude to raise interchange fees.
Anyway, my point was not that higher interchange fees wouldn't get passed on to consumers somehow, it was more that if most cardholders stopped carrying a balance and paid much less interest to CC companies, and CC companies then increased their interchange fees to try to compensate for the decline in interest revenue, consumers as a whole might still be better off than they are now. There's more than one variable in the equation here, and right now credit card interest is probably a much bigger cost to consumers in the economy as a whole, than interchange fees are.
If it sounds like a circular argument to you then that's because economics involve systems of feedback. It's not as simple as A causes B. A has an effect on B which has effect on A. This isn't a very difficult concept that you needed to waste 4 paragraphs on.
Higher interchange fees would necessarily "end up resulting in higher costs for consumers" only if the interest rates didn't also decrease. Are you assuming the credit card company's total revenue is a fixed constant?
Or are you just suggesting that if a very large group of cardholders collectively decided to pay off their credit card balances in full every month so that credit card companies didn't make a cent in interest off them, that credit card companies would simply increase their interchange fees to compensate? Perhaps. But then a lot of merchants would stop accepting credit cards. They could face antitrust litigation again. Perhaps they would just add/increase yearly card membership fees, cut back on rewards, lay off customer service staff, etc. Who knows? They make their money in several different ways, and each of those they are already squeezing as much money as they possibly can out of consumers and merchants.
The way I see it, as a responsible cardholder who pays my bill in full every month, merchants and irresponsible users of credit are just subsidizing my free 30-day loans, cash back rewards, and frequent flyer miles, and I'd prefer that they keep doing so.