Abstract This article examines the persistent challenges in European payment markets a decade after the EU Interchange Fee Regulation. Despite fee caps on debit and credit card transactions, merchants continue to face limited choice and high, often opaque costs, as international card schemes raise nonregulated fees and consumer reliance on cash diminishes. We argue that regulation focused solely on price caps has proven insufficient to address structural imbalances at the point of sale and, possibly to a lesser extent, in e-commerce. Although we also set out proposals for adjusting fee regulation, the core of our analysis is a shift in policy towards strengthening merchants’ effective choice of payment instruments. Two complementary approaches are developed: first, enabling merchants to initiate direct debit transactions directly from payment card data, thus creating a genuine outside option that disciplines card-based fees; second, breaking single-homing of cardholders by requiring banks to issue multiple branded debit cards or by preventing (quasi-)exclusive issuing arrangements. We also explore tentative remedies in e-commerce and mobile payments, where merchants may, on the one hand, enjoy a wider choice, but digital wallets and intermediaries may also create new ‘must-have’ bottlenecks. Overall, the paper advocates structural reforms to restore competition rather than relying exclusively on fee regulation.
Inderst et al. (2026) studied this question.