The Impact of Central Bank Digital Currency on Payments Competition (IMF Fintech)

Summary

• Over 90 percent of surveyed central banks are engaged in some form of CBDC work, with more than half involved in experiments or pilot projects.p.7
• In Canada, four acquirers process about 85 percent of card transactions, reflecting high concentration in the acquiring market.p.11
• The State Bank of Pakistan capped interchange fees for domestic point of sale transactions at 0.2 percent for debit/prepaid cards and 0.7 percent for credit cards.p.12
• In Brazil, merchants faced an average cost of 0.22 percent to use Pix relative to 2.2 percent for credit cards.p.12
• In India, merchants accepting a prepaid instrument on UPI face a 1.1 percent interface fee for transaction processing.p.12

Key insights

1. Payment markets are two-sided networks where network externalities and economies of scale favor a few large platforms, creating significant market concentration.p.7
2. CBDC plays a dual role in payments as both an additional payment method for end users and a foundational payment platform.p.10
3. The competitive impact of CBDC operates through four main channels: pricing discipline, quality improvements, increased contestability, and broader financial access.p.13
4. CBDC offers the greatest competitive benefits in unregulated markets dominated by profit-maximizing private payment platforms.p.8
5. Jurisdictions with established and well-adopted public fast payment systems are unlikely to see significant competitive gains from introducing a CBDC.p.8
6. Interoperability between CBDC and existing payment platforms helps overcome coordination challenges and reduces user switching costs.p.9
7. Offering CBDC free of charge to all users risks crowding out private providers and harming the long-term diversity of the payment market.p.9