Retail Payment Systems
In the OIC Member Countries
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indispensable enabler of new payment technologies that bring social welfare. As Chakravorti
and Shah (2001) conclude in their review of models on interchange, the precise effect of
interchange on social welfare is not easy to determine and it is very sensitive to model
specifications. Perhaps as a result, to date regulators have not come to any clear point of view:
US regulators have wavered (see Chang and Evans, 2000, for a regulatory history of credit
cards), the European Commission has sanctioned the interchange for cross border debit card
transactions (European Commission, 2000), and the Australian regulator has laid the ground
for lowering interchange on credit cards and abolishing it on debit cards (Reserve Bank of
Australia, 2000).
The World Bank, the BIS, national and other bodies have addressed the question of who
regulates and to what extent. Most recently, HM Treasury of the United Kingdom (2015)
identify potential problems in the following areas:
1. Competition: the structure of the industry may It is give powerful incumbent institutions
the opportunity to erect barriers to entry, so that challengers and smaller players find it
more difficult to access payment systems on fair and transparent terms.
2. Innovation: the network nature of payment systems (i.e. all major players need to be
connected for the system as a whole to be effective) means that innovations in the shared
space do not give a competitive advantage to banks individually. The banks also have the
ability to slow the pace of development of new innovations if, for example, they are not as
well-placed to take advantage of them. There is therefore a concern that new innovations
might not be developed where they are in the wider social interest, but not in the narrower
interests of individual banks.
3. Service-user responsiveness: the network nature of payment systems means that, if a
payment system fails to respond to service-user needs, this does not necessarily give a
competitive disadvantage to any individual institution. This may lead to retail payment
systems not being responsive to service-user needs and wishes.
Since the British experience is both broad and exemplary of advanced practices, these views
are likely to frame much of the forthcoming public discussion.
3.9 Risk and Liquidity
Payment systems are generally multilevel systems that manage significant transaction
volumes and sizable monetary values. While the centralisation of some activities allow
payment systems participants to manage their risks in a more effective and efficient way, it