The payments market has experienced a high level of diversification in recent years with the emergence of new channels and instruments, particularly in online payments for e-commerce transactions and m-payments using mobile devices. However, debit and credit cards dominate the non-cash payments market.
According to the World Payments Report 201490
, the global volume of non-cash transactions reached 334.3 billion in 2012. Card transactions totalled 203.4 billion or 60.9% of the total (debit cards 42.1%, credit cards 18.8%). Cheque usage on the other hand, is declining in all countries.
Payments are a low-margin industry and operators compete for market share to achieve economies of scale. This has led to highly concentrated markets and high barriers to entry. In addition, the complex pricing structures that govern payments are essentially based on interchange fees, which tend to restrict competition. In 2008, Bradford and Hayashi91
identified about 20 countries where public authorities have moved to limit the level of interchange fees or merchant discount fees. This list has grown since.
An OECD report92
concludes “there is no consensus among economists and policymakers on what constitutes an efficient fee structure for card-based payments, and it is not clear if payment competition might do the trick.” Cash ensures that there is competition among payment instruments.