Sequential payments and optimal pricing in payment systems

Tomohiro Ota ()
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Tomohiro Ota: Goldman Sachs

Annals of Finance, 2016, vol. 12, issue 3, No 7, 463 pages

Abstract: Abstract This paper studies the intraday payment behaviour between heterogeneous banks as well as optimal intraday pricing schemes. The paper shows the social optimality of payment sequencing, which allows a bank to delay payments until the bank receives payments from the counterparty. The payment sequencing allows a bank with high liquidity cost to ‘recycle’ payment inflow from another bank with lower liqudity cost, reducing the aggregate cost of funding of banks to settle all payments. But we also see that the banks have an incentive to delay payments more than the payment sequencing requires. This underscores the importance of social planner’s role reducing settlement delay, while leaving socially efficient payment sequencing. In this context, we compare two different pricing schemes, a standard throughput guideline and a time-varying intraday tariff, to discuss the optimal incentive mechanisms in payment systems for the ‘socially efficient sequential settlement’.

Keywords: Payment; Intraday liquidity; Two-part tariff; RTGS (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10436-016-0287-3

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