Regulation, competition and integration in electronic payments markets: the Spanish and European cases

The instruments used by regulators to promote competition and integration in the face of problems such as those related to payment methods can generate disincentives, especially in the absence of adequate information to guarantee the rationality of agents. This is particularly relevant because these markets exhibit particularities and asymmetries that differentiate them from other more traditional markets (different sides, network economies, cross-transfers, hidden costs, large externalities, and so on), characteristics which make them more dependent on the quality and quantity of information. Therefore, when this information is inadequate, more failures than can be solely attributed to market regulation tend to occur. In this paper we argue that interventions in "two-sided” payment cards markets (2SMs) to reduce costs to merchants may in the end harm the interests of consumers and discourage penetration of cards as a payment method and their increased use in retail operations. In our study we analyze and simulate the effects of the legislative package on electronic payments proposed by the European Commission in July 2013, which seeks to force a top-down convergence, similar to that designed for domestic interest rates with the euro, and which has proven to be a failure during the recent debt crisis.