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A Mixed Duopoly in Interbank Payment Services

Author

Listed:
  • Carlos A. Arango-Arango

    (Banco de la Republica de Colombia)

  • Yanneth Rocio Betancourt-Garcia

    (Banco de la Republica de Colombia)

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.

Suggested Citation

  • Carlos A. Arango-Arango & Yanneth Rocio Betancourt-Garcia, 2022. "A Mixed Duopoly in Interbank Payment Services," IHEID Working Papers 19-2022, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp19-2022
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    References listed on IDEAS

    as
    1. Graeme Guthrie & Julian Wright, 2007. "Competing Payment Schemes," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, March.
    2. John A. Weinberg, 2002. "Imperfect competition and the pricing of interbank payment services," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 51-66.
    3. Ricardo Lagos & Guillaume Rocheteau, 2009. "Liquidity in Asset Markets With Search Frictions," Econometrica, Econometric Society, vol. 77(2), pages 403-426, March.
    4. Ricardo Lagos & Guillaume Rocheteau & Randall Wright, 2017. "Liquidity: A New Monetarist Perspective," Journal of Economic Literature, American Economic Association, vol. 55(2), pages 371-440, June.
    5. Aruoba, S. Borağan, 2021. "Institutions, tax evasion, and optimal policy," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 212-229.
    6. Chao Gu & Fabrizio Mattesini & Randall Wright, 2013. "Banking: A New Monetarist Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 636-662.
    7. Nosal, Ed & Rocheteau, Guillaume, 2011. "Money, Payments, and Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016281, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cash; means of payments; payments services; digital payments; instant payments;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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