Retail Payment Systems

In the OIC Member Countries

Some scholars distinguish between direct externalities, exemplified by communications

networks, and indirect externalities, exemplified by the hardware/software business model

(Katz & Shapiro, 1985). The distinction between direct and indirect externalities refers to the

source of benefits to participants in the network, not necessarily to the magnitude of the

network effect.

While direct externalities typically occur in a physical, two-way

communications network (Rohlfs, 1974), indirect externalities occur in the network of users or

systems of compatible devices, even if the devices owned by different users are not physically

connected (Katz & Shapiro, 1994).

3.5 Drivers and Impediments of Retail Payments

The scrutiny of institutions and social networks can be used to explain the diffusion more

convincingly and show the balance of forces among open competition, regulation and

environmental shaping forces. Since economic systems of many kinds can be found among OIC

countries, these different forces can be seen in many member states. When strategic decisions

are driven by efficiency concerns there is information about alternatives in the diffusion

process, which affects competition. When the decision is driven by legitimacy concerns, the

network serves as the basis for differentiation of status and companies with similar status tend

to imitate each other, which results in institutional isomorphism, or the confluence of practices

into single forms or standards. This explains why innovation in financial services, particularly

in the retail payments industry, tends to be different in packaging but identical in structure

and composition, leading to homogenisation.

Social networks serve as an information disseminator among the organisations involved in the

network (Rogers, 2003). This dissemination of information can result in companies adopting

the same practices because they believe the action will be efficient and make them more

competitive. Competitive isomorphism is ‘systematic rationality that emphasise market

competition, niche change and fitness measures’ (DiMaggio and Powell, 1983). Competition is

viewed as a mechanism producing isomorphism in which organisations become alike under

the selection pressures of the environment. Such network ties facilitate the match between

technology and companies by helping them learn more about the innovations which fit their

Network externality is not the same as economics of scale. ‘Economy of scale’ means that making many copies of

something is cheaper, per item, than making a few. ‘Network externalities’ means that there are benefits if many people use

the same thing. They both may encourage monopolies, but they are essentially different.