Digital Payments and Bank Competition

44 Pages Posted: 3 Sep 2020 Last revised: 22 Sep 2023

See all articles by Marianne Verdier

Marianne Verdier

Université Paris 2 Panthéon Assas

Date Written: August 14, 2020

Abstract

This article examines how competition between banks and a digital PSP impacts the lending rate and the consumers' use of payment instruments. The digital PSP offers a digital wallet and payment services, but does not offer credit. In contrast, banks invest their deposits in lending activities, which implies that they may incur some costs of adjusting their liquidity needs when consumers make payments. I show that the adoption of the digital wallet for payments may sometimes increase the volume of payments by bank deposit transfers and the lending rate. This results from banks' trade-off between lowering their costs of liquidity when consumers pay from their digital wallet and reducing the revenues they receive from bank transfer fees.

Keywords: CBDC, digital currencies, payment cards, money demand, banking markets

JEL Classification: G21, L31, L42

Suggested Citation

Verdier, Marianne, Digital Payments and Bank Competition (August 14, 2020). Available at SSRN: https://ssrn.com/abstract=3673958 or http://dx.doi.org/10.2139/ssrn.3673958

Marianne Verdier (Contact Author)

Université Paris 2 Panthéon Assas ( email )

France

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