Public vs. Private Payment Platforms: Market Impacts and Optimal Policy

Youming Liu, Francisco Rivadeneyra and Edona Reshidi

Staff Working Papers from Bank of Canada

Abstract: We study competition between a welfare-maximizing public platform and a profit-maximizing private platform in a two-sided payment market. We characterize the public platform’s optimal pricing and show that it balances the benefits of increased competition against the welfare costs of network fragmentation. While introducing a public platform generally raises aggregate welfare and financial inclusion, the competing private platform may respond by raising its fees, disadvantaging merchants that continue to accept payments from the private platform. Finally, we show that cost-recovery and zero-fee mandates constrain public pricing, making welfare improvements uncertain and conditional on network effects, user switching behavior, and the degree of platform differentiation.

Keywords: Money and payments; Digital assets and fintech; Payment and financial market infrastructures; Retail payments (search for similar items in EconPapers)
JEL-codes: D4 E42 E58 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2026-03
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