Digital Payments Interoperability with Naïve Consumers

Milo Bianchi () and Andrew Rhodes ()
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Milo Bianchi: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse
Andrew Rhodes: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We consider a model in which consumers live in isolated villages and need to send money to each other. Each village has (at most) one digital payment provider, which acts as a bridge to other villages. With fully rational consumers interoperability is beneficial: it raises financial inclusion, which in turn increases consumer surplus. With behavioural consumers who have imperfect information or incorrect beliefs about off-net fees, interoperability can reduce consumer welfare. Policies that cap transaction fees have an ambiguous effect on consumers, depending on how the cap is implemented, whether consumers are rational, and on how asymmetric providers are in terms of coverage.

Date: 2024-08-21
Note: View the original document on HAL open archive server: https://hal.science/hal-04954738v1
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