Who really controls the flow of money in payment systems? The answer might surprise you. In this eye-opening conversation with payments industry veteran Eric Grover of Intrepid Ventures (https://intrepidventures.net/), we uncover the fundamental power dynamics that determine how interchange fees move through the ecosystem.

Eric and Christopher Dryden, Esq., discuss how payment system economics fundamentally flow toward those who can affect transaction volume, explaining why interchange typically benefits issuers rather than merchants. He explores the regulatory challenges facing the payments industry, from CFPB restructuring to state-level interchange restrictions that threaten to create an expensive, unworkable compliance patchwork.

• Interchange fees flow to issuers because they can affect payment volume share, while merchants are typically price takers
• Asymmetric pricing is at the core of merchant and acquirer discomfort with the current system
• The CFPB is being dramatically scaled back under the new administration, potentially creating a regulatory vacuum
• State-level interchange regulations like Illinois' ban on fees for tax and tips pose multi-billion dollar compliance challenges
• Industry consolidation continues with Global's acquisition of WorldPay, though earlier mega-mergers are partially unwinding
• ISOs must evolve beyond payment processing to remain relevant, with software integration becoming essential
• Payment protectionism is increasing globally as countries develop national systems and resist foreign processors
• Central banks in countries like Brazil both regulate payment systems and compete directly in the market

Grover explains that despite merchant complaints about interchange costs, the flow of fees to issuers isn't primarily about covering expenses—it's about economic leverage. Banks can shift transaction volume between networks, giving them bargaining power that merchants typically lack. This creates what Grover calls "asymmetric pricing," where acquirers and merchants become price takers in the system. But what would happen if consumers became completely indifferent about which payment method they used? The entire economic model might flip, with interchange potentially flowing to merchants instead.

The regulatory landscape is undergoing seismic shifts as the CFPB faces dramatic restructuring under the new administration. While the Supreme Court upheld the bureau's funding mechanism, its staffing and focus are being radically curtailed. This creates a regulatory vacuum that states are rushing to fill—with potentially disastrous consequences. Illinois and Colorado are already implementing state-level interchange regulations that would cost billions to implement and create a compliance nightmare for payment processors, networks, and merchants alike.

Meanwhile, industry consolidation continues with Global's acquisition of WorldPay, though interestingly, we're seeing a reversal of the "mega-processor" trend from 2019-2020. Companies that once touted the benefits of operating across the entire payments value chain are now divesting units, suggesting that management complexity and cultural integration challenges can outweigh theoretical synergies.

Contact Eric Grover at eric.grover@intrepidventures.com to learn more about navigating these complex industry dynamics and staying ahead of the regulatory curve.

**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**

Visit Global Legal Law Firm today: https://www.globallegallawfirm.com/

A payments podcast of Global Legal Law Firm