Cashless payments: Market dynamics, SNB role, resilience
Petra Tschudin and Thomas Moser of the Swiss National Bank explained the technical and economic workings of cashless payments. They outlined the SNB's role in maintaining an efficient and resilient payments system.
Swiss payment habits and hidden mechanics
Swiss households increasingly favor cashless payments, with mobile apps showing the fastest growth, according to SNB surveys.
Cash is used in 30 percent of transactions, while cards account for 50 percent and mobile apps 20 percent.
The technical process involves multiple intermediaries: issuers provide cards, acquirers offer terminals, and payment networks (like Mastercard, PostFinance, TWINT, Visa in Switzerland) link them.
Funds are settled later via interbank systems such as the Swiss Interbank Clearing (SIC), operated by SIX Interbank Clearing Ltd for the SNB.
Economically, cashless payments are shaped by network effects and economies of scale, which can lead to market concentration.
Payment networks function as two-sided markets, connecting customers and retailers, influencing pricing strategies and incentives, such as customer rewards often financed by retailer fees.
Resilience, efficiency, and market balance
A macroeconomically optimal payments system must prioritize resilience and efficiency.
Resilience demands secure, continuously available, and widely accepted methods, with redundancy provided by options like cash, which the SNB is mandated to supply.
Efficiency involves a favorable cost-benefit ratio for users, while also accounting for costs borne by retailers.
Competition among service providers (banks, issuers, acquirers) is beneficial.
However, the central settlement infrastructure, like Switzerland's SIC, is a natural monopoly due to network effects and economies of scale, making a single provider most efficient, with the SNB overseeing against abuse.
For payment networks, a balanced level of competition is optimal, avoiding both monopolies and perfect competition to promote innovation and resilience without fostering inefficient reward schemes.
Pragmatic path for digital payments
This speech offers a pragmatic framework for understanding cashless payment dynamics, balancing technical realities with economic incentives and policy objectives.
The SNB clearly articulates its role in ensuring resilience and efficiency, advocating for 'balanced competition' in payment networks.
This underscores the critical need for central banks to guide market evolution while safeguarding public interest.