Digital Payments Interoperabillity with Naïve Consumers

Milo Bianchi and Andrew Rhodes

No 1559, TSE Working Papers from Toulouse School of Economics (TSE)

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
New Economics Papers: this item is included in nep-fdg, nep-fle, nep-mac, nep-mic, nep-mon, nep-pay and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:129664

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