Faster Payments: Market Structure and Policy Considerations
The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. Although a few private‐sector firms are currently implementing new faster payments platforms, it is still uncertain how the market for faster payments will evolve in the long run.
As they did for legacy payment markets, economic forces such as economies of scale and scope, network effects, switching costs, and product differentiation will help shape the market for faster payments. Emerging technologies, however, could alter these forces and lead to new organizational arrangements or market structures. Various other factors, including industry and public‐sector efforts, will also influence the structure of the faster payments market.
In light of this uncertainty, this paper examines three hypothetical market structures that may emerge: a dominant‐operator environment, a multi‐operator environment, and a decentralized environment. Each of these market structures has different implications for the public policy objectives of efficiency, safety, and ubiquity. In particular, outcomes in the faster payments market will depend on the degree and allocation of market power among participants, which in turn may depend on factors such as available substitutes or ease of market entry.