A Mixed Duopoly in Interbank Payment Services

Carlos Alberto Arango and Yanneth Betancourt-Garcia

No 19-2022, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: In this paper, we analyze theoretically the coexistence of two means of payment, such as cash and digital or electronic payments, introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Lagos and Wright (2005) theoretical approach allows us to model explicitly the frictions in the exchange process considering money as essential. We introduce in this framework theft and informality (measured by tax evasion) as factors aecting cash usage and competition with a private digital payment platform. Considering heterogeneity in the seller's side by assuming dierent levels of productivity we nd the factors that explain the use of cash or digital payments. If a public provider enters the market with a less expensive platform the fees charged by the private provider have to be adjusted to the cost level of the public platform, decreasing the use of cash in the economy.

Keywords: Cash; means of payments; payments services; digital payments; instant payments (search for similar items in EconPapers)
JEL-codes: E40 E41 E42 E44 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-08-15
New Economics Papers: this item is included in nep-ban, nep-com, nep-ind, nep-iue, nep-mon, nep-pay and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp19-2022

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