From the sharp growth in point of sale debit card transactions to the heavy consolidation of the regional networks handling electronic transactions, this new research paper from the Federal Reserve Bank of Kansas City’s Payments System Research Department explores the economic and public policy issues arising from the industry's transformation.
The document, authored by vice president and economist Stuart Weiner, economist Fumiko Hayashi and banking studies and structure economist Rick Sullivan, provides a comprehensive overview of the industry and begins to address important issues such as market concentration, vertical integration and economies of scope, pricing, access and risk.
The authors note that it is likely market concentration to date has improved social welfare by allowing economies of scale and network externalities to be realised, although further consolidation could potentially limit innovation. The authors also observe that changing pricing structures have been beneficial in some instances, but appear to have had mixed implications in others. Among other findings, the authors note that overall access to ATM and debit services has likely increased, but access for some has possibly become more costly.
The authors point out that much additional research needs to be done in areas such as the potential antitrust implications and how the changing wholesale fee structure affects network access.
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