Credit in a Tiered Payments System
Payments systems are typically characterized by some degree of tiering, with upstream firms (clearing agents) providing settlement accounts to downstream institutions that wish to clear and settle payments indirectly in these systems (indirect clearers). Clearing agents provide their indirect clearers with an essential input (clearing and settlement services), while also competing directly with them in the retail market for payment services. The authors construct a model of a clearing agent with an indirect clearer to examine the clearing agent.s incentives to lever off its upstream position to gain a competitive advantage in the retail payment services market. The model demonstrates that a clearing agent can attain this competitive advantage by raising the indirect clearer.s costs, but that the incentive to raise these costs is mitigated by credit risk to the clearing agent from the provision of uncollateralized overdrafts to its indirect clearer. The results suggest that tiered payments systems, which require clearing agents to provide overdraft facilities to their indirect clearers, may result in a more competitive retail payment services market.
|Date of creation:||Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Postbus 98, 1000 AB Amsterdam|
Web page: http://www.dnb.nl/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alvaro Bustos & Alexander Galetovic, 2003.
"Vertical Integration and Sabotage in Regulated Industries,"
Documentos de Trabajo
164, Centro de Economía Aplicada, Universidad de Chile.
- Bustos Alvaro E & Galetovic Alexander, 2009. "Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-52, September.
- Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
- Charles M. Kahn & William Roberds, 1997.
"Payment system settlement and bank incentives,"
537, Federal Reserve Bank of Chicago.
- Charles M. Kahn & William Roberds, . "Payment System Settlement and Bank Incentives," Center for Financial Institutions Working Papers 97-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Charles M. Kahn & William Roberds, 1996. "Payment system settlement and bank incentives," FRB Atlanta Working Paper 96-10, Federal Reserve Bank of Atlanta.
- Tapking, Jens & Yang, Jing, 2004.
"Horizontal and vertical integration and securities trading and settlement,"
Working Paper Series
0387, European Central Bank.
- Tapking, Jens & Yang, Jing, 2006. "Horizontal and Vertical Integration in Securities Trading and Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1765-1795, October.
- Jens Tapking & Jing Yang, 2004. "Horizontal and vertical integration in securities trading and settlement," Bank of England working papers 245, Bank of England.
- Holthausen, Cornelia & Tapking, Jens, 2007.
"Raising rival's costs in the securities settlement industry,"
Journal of Financial Intermediation,
Elsevier, vol. 16(1), pages 91-116, January.
- Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
- Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:126. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.