Stimulating Cashless Economy: The Role Of Tariff Regulations & National Payment Systems Creation
Egor Krivosheya, Moscow school of management SKOLKOVO ([email protected]) Mark Kevin Mital, Independent researcher ([email protected]) Agenda
• Introduction • Motivation • Theoretical framework • Hypotheses • Data sources • Data sample • Model • Results • Robustness checks • Conclusions • Practical implications 2 Introduction
Cashless economy Economy in which different payment methods have the same sets of barriers (are not discriminated against)
Interchange fees Key tariffs in retail payments market, which is usually paid by acquiring bank to issuing bank upon every transaction. Interchange fees affect fees of all other market participants
National Payment System (NPS) Payment system that is established for uses in a particular country or region. Could be implemented by bank association (JCB), commercial firm (EFTPOS, Bancontact) or regulator (Unionpay, NSPC)
Types of regulatory interference into retail payments market considered here: • Interchange fees regulation
• Implementation of NPS 3 Motivation
Idea: Empirically test the correlations between government interference (interchange fee regulation and NPS creation) into retail payments market and the market development (volume of cashless transactions)
Main ▪ Empirical evidence of consequences of government intervention in Additions: retail payments market development ▪ Cross-country analysis
Contribution: Empirical correlation between government intervention and retail payments market development allows understanding the directions for optimal stimulating policies development 4 Theoretical framework (1/2)
Interchange fee regulation effects
Lower interchange fee as a result of regulation leads to lower profit of payment systems => lower individuals’ benefits => lower incentive to use cards payments => in terms of welfare inefficient regulation (Rochet & Tirole, 2011; Krivosheya & Korolev, 2016, 2017; Krivosheya, 2018, 2020; Bedre-Defolie & Calvano, 2013)
Lower interchang fee => lower merchants’ costs => more merchants can afford accepting cashless payments => more card transactions => stimulation of cashless payements (Gurthie & Wright, 2007; Vickers, 2005; Rochet & Tirole, 2011)
Low interchange fee => lower merchants’ costs => lower market prices => stimulation of all types of purchases (Weiner & Wright, 2005; Evans. 2011; C. Arango & Taylor, 2008; Rochet & Tirole, 2011; Bolt & Mester, 2017)
5 Theoretical framework (2/2)
NPS implementation effects
• Better introduction into government payments (e.g., Multibanco) (Kayalidereden & Cetiner, 2018; Chaplin et. all, 2014) • NPS serves as operator of POS terminals => more possibility to use cashless payment (e.g., Unionpay) (Yip & Yao, 2015) • Targeting previous non-users (e.g., Rupay & Troy) (Kayalidereden & Cetiner, 2018; Gupta, 2017) • Providing cards without fees mainly for social transfers (e.g., NSPC) (Krivosheya & Korolev, 2016; Krivosheya, 2018; Krivosheya, 2020)
6 Hypotheses
H1: ▪ Interchange fee regulation (cuts) correlate with higher volume of cashless transactions.
H2: ▪ National payment systems introduction correlates with higher cashless payments usage, i.e. volume of cashless transactions.
7 Data sources
World Bank (Global Payment Retail payments market data Systems Survey); Bank for International Settlements
Macroeconomic variables World Bank
World Bank; Worldwide Control variables Governance Indicators
8 Data sample
Data: 34 countries in 2004-2017
Key Facts: Representative of global payments market
All the available data on global retail payments market
Distribution 3 7 Regulation & NPS of countries (number of Regulation, No NPS countries on NPS, no regulation the chart): 12 No regula