Payment card interchange fee regulation and financial institutions: The effects on traditional and fintech financial conglomerates*

Abstract

This paper investigates the effects of credit card interchange fee regulation on the performance of traditional and fintech financial conglomerates. Using data from 2017 to 2021 of individual financial institutions and conglomerates operating in Brazil and parameters estimated by previous studies, we simulate the impact of that regulation on financial conglomerates. We find that an interchange fee cap increases the return of fintech conglomerates, whereas it decreases the return of conglomerates led by traditional financial institutions. Furthermore, we find that such regulation reduces the return of all conglomerates, traditional and fintech ones, that provide greater financial sophistication and credit growth.