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Competition and innovation in the consumer e-payments market? considering the demand, supply, and public policy issues

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  • Brian Mantel
  • Timothy McHugh

Abstract

Significant debate has occurred over the last several decades regarding whether there is adequate competition and innovation in the non-recurring consumer payments segment of the banking industry. The Department of Justice and some retailers have sued Visa and MasterCard for limiting competition and innovation. There has also been a host of high profile product “failures” in the consumer e-payment market place (e.g., e-cash and smart card products). Meanwhile, some researchers have suggested that consumers are irrational and unresponsive to marketplace incentives (for instance, see Ausubel (1991)). ; Despite anecdotal reports which imply to some that “there’s something wrong” in this market, we find strong, though not yet scientifically conclusive evidence, that there is increasing competition, strong innovation, and customers who respond to market stimuli in the non-recurring consumer payments market. As a result, this paper argues that going forward, public sector involvement in the consumer non-recurring payment market will be less warranted. Based on the analysis of a unique 1,300 person survey, documentation and analysis of recent private sector-led developments, and a Federal Reserve payments benchmarking study, this paper discusses several of the demand-side, supply-side, consumer protection, and competition policy dimensions influencing this market. Four general lessons may be of particular interest to public policy makers and private sector firms.

Suggested Citation

  • Brian Mantel & Timothy McHugh, 2001. "Competition and innovation in the consumer e-payments market? considering the demand, supply, and public policy issues," Occasional Paper; Emerging Payments EPS-2001-4, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhop:eps-2001-4
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    References listed on IDEAS

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    Cited by:

    1. Liang Han & David Storey & Stuart Fraser, 2008. "The concentration of creditors: evidence from small businesses," Applied Financial Economics, Taylor & Francis Journals, vol. 18(20), pages 1647-1656.
    2. Joanna Stavins, 2003. "Network externalities in the market for electronic check payments," New England Economic Review, Federal Reserve Bank of Boston, pages 19-30.
    3. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. Bos, Jaap W.B. & Kolari, James W. & van Lamoen, Ryan C.R., 2013. "Competition and innovation: Evidence from financial services," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1590-1601.
    5. Leibbrandt, Gottfried, 2004. "Harmonizing Europe’s payment systems: an uphill battle?," Research Memorandum 020, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    6. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    7. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA.
    8. Kemppainen, Kari, 2003. "Competition and regulation in European retail payment systems," Research Discussion Papers 16/2003, Bank of Finland.

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    Keywords

    Payment systems ; Electronic commerce;

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