Payments, Participants and Network Supply

Abstract

If New Zealand's EFTPOS networks receive stronger use than similar networks overseas because of differences in price structures what motivations lie behind the structures each has chosen? An analysis of the economic history of networks in New Zealand and a number of other developed countries provides an economic answer to this question. It indicates that it is potential competition between payment networkds for banks and other supply-side participants which promotes efficient networks. government controls that reduce this sort of competition risk harming the development of payment networks and the interests of those that use them.Starting with the introduction of Diner's Club payment card in 1949 the means of payment in the developed world have progressed well beyond the traditional instruments such as notes coins and cheques. Insights can be gained from economic analysis of new retail payment systems in Australia Canada Germany New Zealand Norway and the United Kingdom and United States. Mike uses such analysis to construct a framework to understand the incentives faced by the users of payment instruments and the payment networks that provide them. It also provices a means to assess the role of government in the evolution of retail payment systems.