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When Interoperability Increases Market Power: Evidence from Peru's Instant Payment Systems

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  • Burga, Carlos
  • Cespedes, Jacelly
  • Parra, Carlos R
  • Cerón, Marcos
  • Quispe, Isaí

Abstract

Instant payment systems have rapidly gained global traction by enhancing transaction efficiency, yet evidence remains limited on how their designparticularly interoperabilityshapes market structure. We exploit Perus 2023 interoperability mandate as a quasi-natural experiment using a difference-in-differences design. Mandated interoperability increased deposit market concentration by approximately 2%. Incumbent banks linked to the dominant digital wallet expanded their deposit market share by nearly 10% and reduced deposit interest rates by 5080 basis points. We also observe more branch closures in high-adoption areas and declining microcredit. A model explains these results through an “amenity shock,” boosting digital wallet convenience for all adopters. Due to network externalities, the largest incumbent wallet captures a disproportionate share of new users in dual-platform markets an “amenity effect” that ultimately increases concentration. By contrast, in single-platform regions, interoperability lowers barriers for new providers an “entry effect” that spurs competition and erodes incumbent dominance. Our results show that this amenity effect in dual-platform cities outweighs the entry effect elsewhere. Overall, our findings show competitive effects of interoperability mandates critically depend on initial market structure and distribution of platform market shares.

Suggested Citation

  • Burga, Carlos & Cespedes, Jacelly & Parra, Carlos R & Cerón, Marcos & Quispe, Isaí, 2025. "When Interoperability Increases Market Power: Evidence from Peru's Instant Payment Systems," IDB Publications (Working Papers) 14435, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14435
    DOI: http://dx.doi.org/10.18235/0013871
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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