Market Trends

Incumbent and Emerging Financial Service Providers

In his presentation at the Sorting the Hype Cycle Colloquim sponsored by Filene and the University of California, Irvine, Bob Chakravorti discussed the intersection between finance and technology and the opportunities in untapped market segments. 

Forces Shaping the Payments Environment: A Summary of the Chicago Fed’s 2005 Payments Conference

The migration to more efficient payment mechanisms is affected by innovations, incentives and regulation. While advances in technology have yielded numerous payment method alternatives, many have not been widely adopted. A Chicago Fed conference explored why certain payment innovations have been more successful than others.

Can Existing Payment Networks Meet Future Needs?

The proportion of retail, non-cash payments made electronically in the U.S. grew from 15% in 1979 to 40% in 2000. A recent Chicago Fed conference addressed the important question of whether today's payment networks can adequately support emerging payment technologies.

Digitization of Retail Payment Systems

Bolt and Chakravorti investigate the research on electronic payment systems. The rapid growth in the use of electronic payment instruments, especially payment cards, is a striking feature of most modern economies. Payment data indicate that strong scale economies exist for electronic payments. Payment costs will decrease through consolidation of payment processing operations as economies of scale are realized. They come to the following conclusions: competition does not necessarily improve the balance of prices for two-sided markets and the ability of merchants to charge different prices is a powerful incentive to convince consumers to use a certain payment instrument. The effect of interventions on consumers, merchants, and banks in Australia, Spain, the European Union, and the United States are discussed. The authors also consider a few areas of payment economics that deserve greater attention.

How Do We Pay?

In this article, Chakravorti argues that consumers’ use of newer, less expensive payment alternatives depends on the incentives merchants and payment instrument providers offer, along with consumers’ comfort level and faith in the instruments. Once consumers are comfortable with the newer electronic alternatives, cost of usage, convenience and frequent-use incentives will determine which payment instrument dominates


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