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Examining Market Structure Implications in the Faster Payments Market

Make sure to check out Faster Payments: Market Structure and Policy Considerations (Off-site) – a new working paper by Federal Reserve research staff that explores potential market structures in the new world of faster retail payments. This research aligns with the desired outcome of faster payments outlined in the Strategies for Improving the U.S. Payment System (PDF) paper, released by the Federal Reserve in 2015. In order to pursue safe, ubiquitous and faster payments, the Federal Reserve convened the Faster Payments Task Force, a diverse group of stakeholders who set forth a roadmap for the industry to achieve its vision for faster payments. The market structure paper explores what that faster payments market could look like and the potential implications of different market arrangements.

The paper discusses three hypothetical market structure scenarios – a dominant-operator environment, a multi-operator environment, and a decentralized environment – and considers how those scenarios may affect efficiency, safety and ubiquity of faster payments. Outcomes in these scenarios are driven by factors like coordination costs and the degree of market power among participants. Highlights include each scenario’s unique set of benefits and challenges and examines some of the tools available to overcome those challenges. For example, interoperability and cross-platform governance arrangements can help mitigate difficulties with market fragmentation in environments with multiple providers.

Learn more by reading the paper (Off-site) in its entirety.