Since so much more activity is online, and online purchases can be more risky, we don't necessarily want to be watching the average to see if it is increasing or decreasing. We want to watch the change within categories. We normally associate innovation with decreasing fees, costs and profits as an industry matures. From this chart, we can see within categories, around 44% of rates increased over time, with only 12% decreasing.

What are the arguments for why this would increase? Sources from the credit card industry explained to me that the important thing to watch is the "effective rate" of all cards, which is the average in all cards, and that this hasn't changed over time. What's important to realize is that debit cards have less of a rate associated with them, and more people are switching to debit cards. However, as Felix Salmon noted, you can have the "effective rate" stay the same, or even fall, during a time period where all or some of the rates are increasing by having people switch to the lower rate.

This is, in Steve Waldman's phrasing, a move from transactional and revolving credit, and that is a move that could benefit consumers who have trouble managing revolving debt. It is worthwhile to know that the credit card bill passed earlier this year doesn't cover debit cards, and it is possible that fees and traps there could increase faster to compensate for the changes to the credit card industry.

What To Do?

Is it worthwhile to do anything about this situation? Critics like to point out that Australia recently capped interchange fees, and as one blog has summarized recent research, it "had the opposite effect of those that regulators were expecting. Retail prices are not lower. Instead, merchants enjoy stronger margins thanks to the lower cost of accepting cards." Indeed some industry insiders have spoken with skepticism on this situation, saying that the real benefiters from increased scrutiny in this area wouldn't be small businesses and consumers, but big box retailers.

I think this reflects a poor conceptualization of the credit card process. The business is the consumer of financial services too. So to say consumers haven't benefited from interchange fee scrutiny because businesses enjoy better margins is wrong, as the business is precisely the consumer who has benefitted.

In their conclusion, the GAO Report remains skeptical that the problem is so big, or that the government's tools are so strong, that action should be taken. They investigate the pros and cons of each of the following four options in detail in the appendix, and if the topic is of interest to you I'd recommend checking them out: (1) setting or limiting interchange fees, (2) requiring their disclosure to consumers, (3) prohibiting card networks from imposing rules on merchants that limit their ability to steer customers away from higher-cost cards, and (4) granting antitrust waivers to allow merchants and issuers to voluntarily negotiate rates.