Entry of FinTech Firms and Competition in the Retail Payments Market1. (April 2016)

• Record Type: Journal Article
• Authors: Jun, Jooyong; Yeo, Eunjung
• Other Names: Kim Yong H. guestEditor.
• Is Part Of: Asia-Pacific journal of financial studies. Volume 45:Number 2(2016:Apr.)
• Page Start: 159
• Page End: 184
• Publication Date: 2016-04
• Subjects: FinTech -- Entry -- Retail payment -- Front‐end -- End‐to‐end; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12126
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: We investigate the effects of entry of financial technology (FinTech) based firms on competition in the retail payments market. With a model of two‐sided market with vertical restraints, we derive the following results. When only the entry of a vertically integrated (or end‐to‐end service) provider is allowed, either all merchants opt for multi‐homing or no entry occurs, regardless of the regulatory requirement. On the other hand, if the entry of a downstream‐only (or front‐end service) provider is allowed, a partial multi‐homing equilibrium could emerge under certain conditions, in which the entry of an end‐to‐end service provider does not occur. Without regulation, however, the vertically integrated incumbent does not voluntarily provide the back‐end service to the entrant in general. This suggests the need for proper regulatory measures to reach a socially desirable outcome from the new entry in the retail payments market.