New Technologies in the Payment System Industries: The SEPA Project

Transcription

1 Amerian Journal of Eonomis and Business Administration (4): 84-94, 00 ISSN Siene Publiations New Tehnologies in the Payment System Industries: The SEPA Projet Armando Calabrese, Massimo Gastaldi, Irene Iaovelli and Nathan Levialdi Ghiron Department of Business Engineering, Tor Vergata University of Rome, Viale del Politenio, 00 Rome, Italy Department of Eletrial and Information Engineering, University of L Aquila, Monteluo di Roio, 6700 L Aquila, Italy Abstrat: Problem statement: The Single Euro Payments Area (SEPA) projet plans to establish an integrated market for extending European integration to retail payments; it aims to provide inentives for using payment systems instead of ash for all miro payments, in order to improve both effiieny and ompetition in the Euro area. In this study we desribed the SEPA and its effets on ompetition and innovation in the payment systems. Moreover, we will disuss the main tehnologial innovations (partiularly mobile payments, biometris payments and smart ards) and their impats on retail payments. Approah: In order to analyze the impat of new tehnologies on ash usage we employed a mathematial model. This model is an extension of duopolisti ompetition to three market players; it allows analyzing market hanges aused both by SEPA and tehnologial innovations. Results: Our numerial simulations showed that new tehnologies ause a redution of ash usage, suh as SEPA projet states. Conlusion: New payment tehnologies provided new benefits than the traditional payment systems. These new tehnologies redued the transation times and the logisti osts of ash management; moreover they improve the transations safety, their easiness and onveniene. Suh benefits push onsumers to use these new payment tehnologies for miro-payments (pubs and bars, nightlubs, fast food outlets, retail fuel, onveniene store and vending mahines), thus reduing the use of ash suh as SEPA projet states. Key words: Two-sided markets, payment system, tehnologial innovation, SEPA projet INTRODUCTION From 00 ash stoks have been onstantly inreasing. At the end of 007, the number of irulating banknotes was. billion and their value was billion Euros; these data, ompared to the data of late 006, show an inrease of 6.7% in volume and 7.7% in value. About oins, their number, at the end of 007, was 75.8 billion and their value was 9. billion Euros, with an inrease respetively of 9.% and 7.6% ompared to the levels of 006 (European Central Bank, 007). The withdrawal rate of banknotes (authentiated and heked in order to verify their validity for payments) from irulation is substantially steady (about %). In 007, about 5.5 billion ash have been onsidered as not appropriate for irulation and have been replaed; these data, ompared to the data of 006, show an inrease of 5.% and a rate of invalidity of 7.0% (6.9% in 006). Cash produed annually has to be suffiient in order to enable transations inrease, to manage ash replaement rate and to provide ash stoks of the National Central Banks in eah European member state. Suh ash stoks represent a buffer in order to deal with possible variations in ash demand; they are neessary for substituting void ash, for dealing with demand peaks and for optimizing the ash transportation among the several National Central Banks in the Euro area ( The above data show that ash management represents a problem for governments, ompanies and itizens in the European ountries and involve both human and finanial osts. In Italy, for example, ash management osts around 0 billion Euros a year, / of whih burden on enterprises, while the other / on the banking setor; these osts have to be added to osts afforded annually by Publi Administrations. The osts of ash management and ash lak of safety (due to loss and theft) is a limitation for ommerial transations. The preferene in using ash an be explained onsidering both the lak of awareness Corresponding Author: Armando Calabrese, Department of Business Engineering, Tor Vergata University of Rome, Viale del Politenio, 00 Rome, Italy 84

2 Am. J. of Eonomis and Business Administration (4): 84-94, 00 about the osts of its use and to the pereption that new tehnologial system are too expensive and inseure, espeially for miro-payment transations. In Italy, aording to Italian Banks Assoiation data (004), ash is used for 90% of overall payments. Sine ash transations represent a soure of ineffiieny for overall market, the SEPA projet aims to redue its use for making payments. The SEPA represents an important European assignment in order to fully exploit, Euro benefits for retail payments and to make a unified payment market, integrating nations by 00. Thus, the SEPA plans to extend the European integration proess to retail payments, using payment systems other than ash (redit ards, bank transfer and reeipts), in order to improve effiieny and ompetition in the Euro area. Sine the SEPA aims to make payment systems more effiient it provides inentives for improving quality in payment networks and for developing innovative solutions. The expeted outome of the SEPA will be the development of new market opportunities for both traditional redit ard operators and new entrants. Atually, in urrent payment systems market, due to new tehnologies (i.e., hips for ell phones and biometri systems), new players, suh as large distribution networks and teleommuniation operators may ompete effetively in this industry (Sarlak and Hastiani, 008). The tehnologial development in payment systems suh as mobile payments, biometris payments and smart ards, represents a hane both for inreasing the number of payment devies and for improving the market effiieny (through queues redutions, payment seurity enhanement, interoperability among different payment networks and redution of logisti osts of ash management). In order to reah the goal of an integrated market of retail payment it will be important to persuade ustomers about quality and reliability of new servies and to develop the use of devies whih are already widespread suh as ell phones (Sattar and AL-Fayoumi, 007; Bozinis, 007; Sadek et al., 00). This study analyses the main innovations in payment systems and, employing some numerial simulations, will show that benefits introdued by new tehnologies provide inentives for their use suh as the SEPA projet aims. The study is organized as follows: in the introdution we define a two-sided market, highlighting the main literature ontributions and the main differenes of our study with respet to existing researhes. Then, we desribe the SEPA projet and illustrate the main tehnologial development in the 85 payment system industry. In material and method we desribe our model while in results we show numerial simulation findings. In disussion, we fous on the impat of logisti and tehnologial benefits provided by new payment systems on the ash usage and finally, we onlude the study with some observations and omments. Literature review: Payment system servies are regarded as Two-Sided Markets (Armstrong, 006; Calabrese et al., 006; Doganoglu and Wright, 005; Rohet and Tirole, 004a; 004b; Roson, 005; Shiff, 00). More generially, the multi-sided platform markets an be defined as industries haraterized by the interonnetion between different groups of ustomers through a platform and by a ombined priing strategies for eah side (Evans, 00; Calabrese et al., 008a; 008b; Rohet and Tirole, 004a; 004b). These industries range from omputer games, to information tehnologies, to media, to teleommuniation industries, to payment systems. Aording to the above definition a platform allows to inrease the soial surplus only if are observed three neessary and suffiient onditions: distint groups of users, having their demand oordinated with eah other, by mean of a platform that oordinate their trade more effiiently than bilateral relationships (Evans, 00; Rohet and Tirole, 004a; 004b). In an industrial eonomis framework the multi-sided platform industries are related to the onepts of network externalities and of multi-produt priing (Rohet and Tirole, 004a; 004b). Therefore, the payment system is haraterized by the interation of two different ustomers ategories: onsumers and merhants. The interation between these ategories of users is influened by the presene of indiret network-effets: the benefit for onsumers of joining a platform depends on the number of merhants aepting that payment system and the benefit of joining a platform for merhants is related to number of onsumers using that platform (Evans, 00). Thus the opposite network size represents a quality parameter in the platform seletion (Roson, 005) and sine eah network size depends on its prie, the utility for a payment system user depends on both market pries (Roson, 005). Furthermore, suh an interation between the two market sides of a platform depends on their strategi hoies (Wright, 00a; 00b). Many authors have studied the ompetition among payment systems (Farrell, 006; Rohet and Tirole, 00; 00). In partiular, Chakravorti and Roson (006) analyze ompetition among payment networks and market equilibrium: oligopolisti ompetition,

3 Am. J. of Eonomis and Business Administration (4): 84-94, 00 artels, symmetri and asymmetri networks. Their results show how ompetition inreases both onsumer and merhant welfare. The relationship between tehnologial innovation and platform ompetition has reeived little attention in sientifi literature (Distaso et al., 006; Milne, 005; Zou, 006). Calabrese et al. (008a) analyzed the role that tehnology innovation has in the ompetitiveness and effiieny of the payment system industry. They showed that payment platforms an develop produt/servie innovations or prie differentiations in order to deal with market ompetition effetively. This study differs from the existing literature in several ways. Firstly, in our researh we will desribe the Single Euro Payments Area (SEPA) projet and its effets on ompetition and innovation for payment systems. Then, we will explain the main tehnologial innovations for retail payments and their effets on ompetition in payment systems. Finally, we will use the model proposed in our previous study (Calabrese et al., 008a) in order to shows how benefits improvements, due to new tehnologies, ause both inrease of onsumers usage of new payment tehnologies and a redution of ash usage, suh as SEPA projet states. The Single Euro Payments Area (SEPA): The SEPA projet has been planned and arried out by European Commission (EC), European Central Bank (ECB) and European Payments Counil (EPC).The European Commission has been responsible for politial leadership and normative frameworks (payment servies diretive). The European Central Bank has been involved with guidelines and ontrols of the SEPA proesses and it is responsible of its roadmap. The European Payments Counil, whih is a self regulation body founded in 00 on the initiative of European Banks, is responsible for deisions and oordination poliies about the SEPA. The SEPA projet involves European ountries: 6 European Union ountries whih utilize Euro as national urreny (Austria, Belgium, Frane, Finland, Germany, Greee, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, Spain, Cyprus and Malta Slovakia) European Union ountries whih use a national urreny different from Euro but make payments in Euro (Bulgaria, Denmark, Estonia, Latvia, Lithuania, Poland, Czeh Republi, United Kingdom, Romania, Sweden, Hungary) Ieland, Liehtenstein, Norway and Switzerland Fig. : Cash transation in Europe 004 (Soure: Datamonitor, 006) The SEPA aims to establish a oordinated payment system in whih European itizens may make or reeive payments by redit ards, bank transfer and reeipts, using only the same bank aount in all Euro area; its goal is to provide an effiient, seure, easy and osteffetive payment system (European Central Bank, 006). Thus, the SEPA allows payment systems to exploit sale eonomies and effiieny improvements; it is expeted to improve ompetition among payment system and to stimulate innovation and new servies development (European Central Bank, 006). Moreover, suh inreased ompetition is expeted to redue both osts of banking servies and ross-border transations osts. In Europe, ash usage involves high logisti osts suh as urrenies transport osts, seurity osts, insurane osts and for banks, urrenies management osts too. In Europe, 60 billion transations a year are made by ash and 80% of these are less than 5 Euros eah (Fig. ). The data presented in Fig. refers to the values of ash payments in the main retail setors suh as pubs and bars, nightlubs, fast food outlets, retail fuel, onveniene store and vending mahines for 0 European ountries (Austria, Belgium, Czeh Republi, Denmark, Finland, Frane, Germany, Greee, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey and UK). Moreover, the main European ountries using ash as primarily payment system for transation under 5$ are: United Kingdom, Germany and Italy respetively with US$ 58.7 billion, 5. and US$.4 billion (Datamonitor, 006). For example, in Italy ustomer s preferenes in using ash are due to distrust toward alternative 86

4 Am. J. of Eonomis and Business Administration (4): 84-94, 00 payment systems and to unlear understanding of their transation benefits; the osts of ash management are not pereived sine they are not learly harged on banking ustomers. Moreover, other fators, suh as ommere fragmentation, tax evasion, hidden work and onerns of fraud (i.e., redit ard), ontribute to ash preferene. Thus, sine ash ontinues to be widely used for miro-payments (Fig. ) and logisti osts of its management and transportation are high, it is neessary to indue ustomers to use alternative payment systems in order to inrease transations effiieny. The swith from ash to alternative payment system ould be aused leveraging both information and priing poliies. In partiular, priing of payment servies should be related with their real operating osts, in order to align ustomers hoies to the most ost-effetive system. At present, banks aording to the SEPA projet are involved in promoting infrastrutures improvement of redit ards (hip) and in adopting new international standards. The use, of more effiient and tehnology intensive payment systems, is stimulated by the Diretive 007/64/CE on payment servies (Payment Servies Diretive-PSD). This Diretive regulates the offer of retail payment servies in the EU; it represents the legal basis of the SEPA. The PSD aims to enourage the use of effiient and reliable non-ash payment systems. The PSD in addition to redit ards, bank transfer and reeipts (SEPA) also apply to eletroni money and to payments through teleommuniations networks or digital devies (European Central Bank, 007). The PSD will allow non-bank players (the so alled Payment Institutions) to provide payment servies, stimulating ompetition in payment setor; moreover it sets minimum quality requirements payment systems will have to provide. Thus, the SEPA is expeted to inrease ompetition in retail payment system market, to redue pries for ustomers, to innovate servies and to improve their quality. The payment systems industry: Over the last few years, payment systems have been haraterized by several tehnologial innovations, by a growing ompetition and also by new market players (teleom operators). In partiular, the innovation of information and teleommuniation tehnologies has made possible the development of new tools and new payment servies. At present, the most used payment system, other than ash, is redit\debt ard. Nowadays, new tehnologies are emerging suh as ontat and ontatless smart ards, mobile and biometri payments. In the following, these tehnologies and their impats on the market will be analyzed. 87 The latest generation of payment ards (debit and redit) is smart ards, plasti devies provided with an integrated mirohip in order to manage more data and more servies than the magneti strip. The ontatless payment system is based on a RFID (Radio Frequeny Identifiation) tehnology (a data mirohip and an antenna) allowing data transmission via radio frequeny using a RFID reader ( Currently, finanial iruits suh as Visa, MasterCard and Amerian Express are marketing new smart ards-more safety, speed and flexibility-over traditional hip ards ( These new systems use a dual interfae hip ard EMV (Europay MasterCard Visa), whih allows making payments both ontat and ontatless. In partiular, if the payment is below a ertain amount it is possible to pay simply bringing the ard to a POS (Point Of Sale) without using any type of PIN (Personal Identifiation Number) or reeipt signature. Instead, for higher payments it is possible to pay only in a hip and PIN mode. When a transation is arried out in an on-line mode, the ontatless off-line ounter will restore the available redit limit. The mobile payments are allowed by NFC (Near Field Communiation) tehnology, whih is a ommuniation tehnology for short-range wireless onnetions; it allows devies in lose ontat to exhange data. NFC tehnology, developed jointly by Sony and Philips, is an evolution of RFID and interonnetion tehnologies. A mobile NFC phone is omposed by a Central Proessing Unit (CPU), an antenna, an NFC hip and a seure element. M-payments use also (SMS) Short Message Servie, bluetooth and internet aess as means for making payments. An Italian Banks Assoiation Researh (January 008) estimates that by 0 there will be 0 million NFC phones in the world, around % of all mobile phones that will be marketed in that year. For example, in Japan NFC tehnology is provided by NTT DoCoMo ( the Japanese mobile operator, through the Sony FeliCa hip; it enables to make payments simply bringing the phone to a reader; it identifies the telephone smart ard and harges the ost of a produt or servie on a bank aount or on a redit ard assoiated with a prepaid SIM phone. Belgium mobile operators introdued a payment servie using GSM mobile phones. This servie is developed by Banksys and uses text messages and seret ode in order to enabling payments; the transation ourred is ommuniated to users by sending a message. In Italy, a mobile virtual operator

5 Am. J. of Eonomis and Business Administration (4): 84-94, 00 Poste Mobile allows bank transfers, sending telegrams, to hek bank flows and other servies using a mobile phone ( Poste Mobile is going to introdue miro-payments and to purhase tikets of mobility servies (as taxi, bus and train). Based on the same tehnology several banking groups are going to enter the m-payment market. The biometri system allows making payments through the sanning and measurement of somebody harateristis, suh as the finger imprint and, through algorithms, omparing them with a database. For example, Pay by Touh ( has reated a biometri payment system based on fingerprint reognition. The mehanism used is rather simple: at the hekout of a shop the onsumer plaes his/her finger on a sanner whih memorizes fingerprint and sends the information to a data proessing entre. The reorded fingerprint is then ompared to the one registered in a database, whih was taken when the ustomer signed up for the servie. After a buyer has been reognized by a entral database, he/she has to enter a seret ode number and he/she will immediately be harged on his/her bank aount. In order to utilize suh a system, merhants are required to install new terminals. MATERIALS AND METHODS We analyze the impat of suh new tehnologies on ash usage through a model desribed in our previous researh (Calabrese et al., 008a). This model is an extension of Chakravorti and Roson (006) model of duopolisti ompetition to three players (smart ards, M-payments and biometri payments); it allows employing an analysis of market transformation due both to SEPA and tehnologial innovations. The main tehnologies we onsider are M-payments and biometri payment, ompeting with the inumbent (smart ards) and ash. In the following, we report the main assumptions made in Calabrese et al. (008a): The total benefit that eah onsumer obtains by utilizing the platform i =,, is given by multiplying the transation benefit, h i, by the number of merhants, D i m. The benefits, h i, are distributed aording a uniform distribution in [0, τ i ], where τ i represents the maximum benefit that a onsumer may obtain from platform i and is alulated by adding different attributes (results setion) Eah onsumer pays the platform an annual fee, f i The onsumer utility U (in using one of the three platforms) is alulated from the differene between total transation benefits and fees. Moreover let us assume that one a onsumer beomes a member of a platform, he will use this payment system exlusively; thus the utility for the representative onsumer U an be expressed as: U max ( ) m m 0, ( h D f ), h D f, = m ( h D f ) () Eah merhant sells only one produt and is multihoming; he pays eah platform he uses a m transation fee, f i The transation benefit, h m i, whih eah merhant obtains from platform i, is distributed aording a uniform distribution in [0, µ i ], where µ i represents the maximum merhant benefit.µ i is alulated by adding different attributes (results setion) The merhant utility U m, in using platform i, is alulated from the differene between benefits and fees. A merhant will use a payment system if he obtains positive benefit from it; thus the utility for the representative merhant U m an be expressed as: { } m m m m { } { } U = max 0, (h f ) D m m m + max 0, (h f )D + max 0,(h f )D () Let us assume platform, represents the inumbent, i.e., smart ards; platforms and represent the new entrants, m-payments and biometri payments respetively. The fourth system, whih is not a tehnologial platform at all, is ash. The latter is available to all onsumers and merhants and does not require any additional fees; we suppose no utility is obtained by either onsumers or merhants in using ash All onsumers adopt a single payment system (single homing) where, D i represents the number of onsumers using the payment system offered by platform i. A onsumer utilizes an alternative payment system to ash, if suh a system meets two requirements: It produes a positive utility and the onsumer utility (U )-from the payment system hosen-is greater than any other payment system. In Calabrese et al. (008a), we use the same assumptions as the Chakravorti and Roson (006) model, but expand upon them in order to enompass ompetition among three platforms. The market share 88

6 Am. J. of Eonomis and Business Administration (4): 84-94, 00 an be seen in Fig., where eah onsumer is represented by a point whose oordinates (h D m, h D m, h D m ) express the total benefits of using platforms, or (eah point is obtained by multiplying the three transation benefits h i by the number of merhants who aept the payment system i, D m i ). In Fig., the parallelepiped is divided into 8 setions. Eah one is derived from intersetion of the parallelepiped with the three planes that are obtained aording to the values assumed by f i. Consumers within setion use ash, sine the net benefits offered by the three platforms are negative. In setions 5, and 4 onsumers hoose the system whih offers them positive utility-the smart ards, the m- payment and the biometri payment, respetively. In setions 6, 8 and the ompetition is only between the two platforms that offer a positive net benefit. In Fig., we show setion 6 of parallel-piped (Fig. ) where, in this partiular ase, the ompetition is between platform (the smart ards) and (the M- payment). In fat in setion 6 sine h D m >f and h D m >f, the smart ards (platform ) and the M- payment (platform ) offer positive net benefits; while given that h D m <f, the biometri payment (platform ) offers a negative net benefit to ustomer. Figure shows a volume divided into two parts. The grey setion represents the perentage of demand equally divided between two platforms. In fat, if platforms offer onsumers the same value of net benefits (grey volume of Fig. ), onsumers hoose on the basis of relative utility and the border between the two market shares is given by a 45 degree plane that splits the grey volume into two setions (Chakravorti and Roson, 006). The white volume represents the additional perentage of demand to be added to the platform whih offers the greatest net benefit to the onsumer. Only the network offering the highest onsumer surplus (τd m -f ) attrats onsumers in the white volume (Chakravorti and Roson, 006); for example if (τ D m -f )>(τ D m -f ) the onsumer utility is the greatest using platform. Setion 7 represents the only volume in whih onsumers obtain positive utility in using all three platforms. The market share of eah platform is represented in Fig. 4. Fig. : Consumer market shares on platform i (Calabrese et al., 008a) Fig. : Enlargement of setion 6 of the parallelepiped in Fig. (Calabrese et al., 008a) 89 Fig. 4: Enlargement of setion 7 of the parallelepiped in Fig. (Calabrese et al., 008a)

7 Am. J. of Eonomis and Business Administration (4): 84-94, 00 In order to obtain the grey volume in Fig. 4 we found the intermediate value among τ D m -f, τ D m - f and τ D m -f. The two platforms that offer the greatest net benefits gain the half of grey volume to sum to their respetive market shares. The white ube at the bottom left of Fig. 4 is obtained by the third power of the minimum among τ D m -f, τ D m -f and τ D m -f, that is the utility of the payment system whih provides the minimum net benefit among all platforms. Sine eah platform provides a positive utility, eah platform gains / of the white ube. In order to obtain the white parallelepiped at the right of Fig. 4 we alulated the maximum among τ D m -f, τ D m -f and τ D m -f ; then we alulated the volume of this parallelepiped. Only the platform that provides the maximum value of net benefit gains the additional market share represented by this parallelepiped. The market shares of onsumer demand, for eah platform, is obtained by adding the volumes (-8) in Fig., divided by the total market demand (m * m * m ). The total ustomer demand for eah platform is represented respetively by the following Eq. : D = {{[b ] + [ ( min ( b,b )) + (b ( ) ( ( )) ( ( )) min b,b )* min b,b ] + [((min(b,b )) * ( ( ( ))) ( ( )) f + b min b,b * min b,b ] + Z i} / m *m *m } *C D = {{[b ] + [((min ( b,b )) ) + (b ( min ( b,b )))*(( min ( b,b ))* f )] + [((min(b,b )) * () f + ( b ( min ( b,b )))*( min ( b,b )) ] + Z i} / m *m *m } *C D = {{[b ] + [((min ( b,b )) ) + (b min b,b )*( min b,b )] + [((min(b,b )) * ( ( )) ( ( )) ( ( ( ))) ( ( )) f + b min b,b * min b,b ] + Z i} / m *m *m } *C Where: m i = τ i* D i m i =,, b i = m i -f i i =,, C = Total number of onsumers B = Min {b,b, b } A = Max {b,b,b } M = Max {min{b,b }; min{b,b }; min{b,b }} 90 B if theplatform"i"produes net benefitslower than theother platforms B M *B B + if theplatform"i"produes net zi benefits between theones produed byother platforms B M *B B + + if theplatform"i"produes net benefits ( A M)*M *B greater than other platforms represents the white ube in the left of parallelepiped in Fig. 4: aording to Eq. for eah platform, /*B has to be added to market shares. M *B-B represents the grey area in Fig. 4: aording to Eq. for two platforms that offer the greatest net benefits, /*(M *B-B ) has to be added to /*B. (A-M)*M*B represents the white volume in the right part of parallelepiped of Fig. 4: aording to Eq. for the platform that provide maximum net benefits (A-M)*M*B has to be added to /*B +/*(M *B-B ). Under the assumption that the merhants aept the payment system i if and only if the benefits are greater than the osts (h m i f m i ), the demand of the merhants is equal to: B ( ) D = Pr(h ³f )*M = ( K f )*M (4) m m m m m i i i i i where, M represents the number of merhants on the market. For simpliity let us assume that the merhants benefits are distributed with a uniform distribution, K i m, in [0, µ i ]. Eah platform faes two types of osts: the annual ost, g i, for serving a onsumer and a transation ost, i, for serving a merhant. The profit of eah platform is given by: ( ) ( ) π = f g D + f D D (5) m m I i i i i i i i The platforms hoose the fees of onsumers and merhants simultaneously and not ooperatively in order to maximize their profits. Although, our model differs from Chakravorti and Roson (006), we obtain similar results. The fees that maximize profits are determined by a modified Lerner s index: m m m m m p + f = (p / ε ) = f / ( ε + ε ε ε ) (6)

8 Am. J. of Eonomis and Business Administration (4): 84-94, 00 where, p = (f -g)/d m is the per-transation revenue minus ost from serving a onsumer (Chakravorti and Roson, 006). For simpliity, let us assume that both elastiity of the onsumer s demand, ε and elastiity of the merhant s demand, ε m, are for the onsumer, ε = /τ and for the merhant, ε m = /µ. So, if the benefit τ for the onsumer and the benefit µ for the merhant inrease, eah market side is not partiularly sensitive to prie variations. As regards the elastiity, ε m (variation of the onsumers demand with respet to a variation of the merhants fee) let us suppose that it is diretly proportional to /µ, multiplied by a onstant λ (Calabrese et al., 008a). In fat the lower the platform sets merhant fees, the more the merhant demand inreases and indiretly the more the onsumer demand inreases. RESULTS Consumers and merhants show some opposition towards adopting and aepting innovative payment systems alternative to ash. In this study we assume that any innovation in a payment system will be more easily adopted if potential onsumers and merhants pereive it as being advantageous in terms of benefits provided. In the following we refer to logisti and tehnologial benefit or to onsumers and merhants benefits indifferently. In order to ollet our data for numerial simulations, we employed some interviews to experts on suh tehnologies and industries. Firstly, we identified onsumer and merhant attributes on whih depend their inentives to adopt new payment system and seondly, we defined the onsumer s benefit, τ and the merhant s benefit, µ. Therefore, on the onsumers side the drivers on whih depend adoption of new payment systems are: learning osts; safety; speed (aording to Datamonitor (006), a onsumer obtains greater benefit by ontatless payment than traditional payment systems ( a ontatless payment made at an offline terminal will take no more than 500 milliseonds to be verified, ompared to several seonds for a standard ard transation One of the big problems with the use of ards for low value payments is the time it takes. But ontatless is faster than ash in these irumstanes as you don t have to wait for hange )); interoperability; redution of transation times; easiness of use; multipurpose; onveniene of using. Instead, on the merhants side the attributes that determine their inentives to adopt new payment systems are: redution of logisti osts of ash management; safety; speed; interoperability; redution of transation time; easiness of use; onveniene of using; multipurpose. In this study in order to alulate the maximum onsumer s benefit, τ and the maximum merhant s benefit, µ, we gave, for eah platform, a value between 0 and 0.5 to eah attribute listed above. The values τ and µ are the sum of eah attribute, thus they an have a value between 0 and 4. For example, it is possible to assume that the lower the learning osts of a payment system, the more its diffusion will be; the greater the transation safety and speed of a payment system, the more its diffusion will be; moreover the interoperability of a payment system failitates its use in the markets. In the results, we analyse the ompetition between ash, smart ards, biometri and ell phone systems. Through some numerial simulations whose input data have been tested through interviews with experts on suh tehnologies and industries. We assumed as starting values [4] for smart ards, [.6] for m-payments and [.] for biometri payments. Aording to our panel of experts, in the urrent market situations, smart ards are the most used tehnology, followed by m- payments and biometri payments, thus the hosen value [4,.6,.] means to represent suh situation numerially. Our simulation inputs are: τ, µ (Table ) and merhant fees (determined as a mark-up). Our simulation outputs are ustomer fees, market shares and platform profits. We assumed that top management of both biometri and mobile payment platforms an hoose between two opposing options: proative and reative strategies. The proative strategy onsists of an improvement in logisti and tehnologial benefits both on the onsumers side, τ and on the merhants side, µ. Moreover when top management of platform i deide to be proative, it inreases both τ and µ with respet to the data in Table. The reative strategy does not involve any investment in logisti and tehnologial benefits and onsequentially does not generate any hange in benefit level ompared to Table. Table : A proxy of Italian market situation Input and output Smart ards M-payments Biometri payments τ µ f m f D m D π

9 Am. J. of Eonomis and Business Administration (4): 84-94, 00 Top management of a smart ard platform an hoose between two options, proative and reative strategies. The proative strategy is the same of Table (smart ards are haraterized by the greatest benefits) and it onsists in lowering merhants fees. The smart ards reative strategy does not involve any investment in tehnologies with regard to urrent situation and does not generate any hange in benefit levels ompared to Table. We assumed that platforms hoose their strategies simultaneously and not ooperatively and that eah platform has a onsumer demand as defined by equation (). The demand of eah payment system depends both on net benefit of the system itself and on net benefit generated by the ompetitors (Calabrese et al., 008a). The Table -9, show the results of numerial simulations aording to both the above assumption and the model desribed. In eah table, the urrent market situation is showed in the white olumns of eah table, while the simulated senarios are showed as the bold olumns. Table : Smart Cards (SC) and M-Payment (MP) management hoose a proative strategy, Biometri Payment (BP) management a reative strategy τ µ f m f D m D π Table : All three payment system management (Smart Cards (SC), M-Payment (MP) and Biometri Payment (BP)) τ µ f m f D m D π Table 5: Smart Cards (SC) and Biometri Payments (BP) management hoose proative strategy, M-Payments (MP) management reative τ µ f m f D m D π Table 6: All three payment system managements hoose a reative strategy (Smart Cards (SC), M-Payment (MP) and Biometri Payment (BP)) τ µ f m f D m D π Table 7: Both M-Payments (MP) and Biometri Payments (BP) management hoose a proative strategy, Smart Cards (SC) management reative τ µ f m f D m D π Table 8: Both Smart Cards (SC) and Biometri Payments (BP) management hoose a reative strategy, M-Payments (MP) management proative τ µ f m f D m D π Table 4: Smart Card (SC) management hoose a proative strategy, both M-Payments (MP) and Biometri Payments (BP) management reative τ µ f m f D m D π Table 9: Both Smart Cards (SC) and M-Payments (MP) management hoose a reative strategy, Biometri Payments (BP) management proative τ µ f m f D m D π

10 Am. J. of Eonomis and Business Administration (4): 84-94, 00 DISCUSSION The first olumn in Table 0 (P stands for proative strategy and R stands for reative strategy-as we have defined in results setion) represents different strategi ombinations (i,j,y): i represents the top management strategy of a smart ard platform, j the top management strategy of m-payments and finally y the top management strategy of biometri payments. The seond, third and fourth olumns present the onsumers demand; its depends on both onsumers benefits and merhants benefits of payment systems (i,j,y). Finally in the last olumn there is the ash demand; it depends on both onsumers benefits and merhants benefits of payment systems (i,j,y) (Fig. ). Aording the above results, we have eight different ompetitive senarios. Table 0 represents the omparison among ustomers demand (in bold; these values are from Table ) and ustomers demand that we obtained by simulations employed for eah strategi ombinations (in white). The present situation line shows that the most used payment systems are both ash and smart ards; the first one is used by 9% while the seond one by 7% of onsumers (Table ). These simulations are onsistent with the data of Italian market. Moreover, the simulation results (results and Table 0) show how the logisti and tehnologial benefits of smart ards, m- payments and biometri payments impat on market demand of ash. The market demand of ash is minimum when smart ards, m-payments and biometri payments provide simultaneously high logisti and tehnologial benefits (that is, all three platform management adopt a proative strategy); in fat the simulation results show that ash demand shift from a value of 9% (a proxy of the present Italian situation) to a value of 56%. Instead, when smart ards, m-payments and biometri payments simultaneously provide low logisti and tehnologial benefits (that is, all three platform management adopt a reative strategy), the ash demand is equal to 90%. CONCLUSION New payment tehnologies (smart ards, m- payments and biometri payments) provide new benefits than the traditional payment systems (ash and magneti ards). These new tehnologies redue the transation times and the logisti osts of ash management; moreover they improve the transations safety, their easiness and onveniene of using. Suh benefits enourage onsumers to employ these new payment tehnologies for miro-payments (pubs and bars, nightlubs, fast food outlets, retail fuel, onveniene store and vending mahines), thus reduing the use of ash suh as SEPA projet states. These results are onsistent with an explorative study on the fators that affet onsumer adoption of new payment systems (Mallat, 007). Our findings show that the onsumers preferene towards new payment systems depends on some benefits (learning osts; safety; speed; interoperability; redution of transation times; easiness of use; onveniene of using; multipurpose), seleted aording to experts interviews on suh tehnologies (results setion). Partiularly, aording to our results (Table 0) the more the benefits provided by new payment tehnologies the more will be their substitution effet with ash. The fators on whih depends the adoption of new payment systems are slightly different from the ones desribed from Mallat (007). The differenes an be explained onsidering that it refers exlusively to m- payments while in this study we onsider also smart ards and biometri payments. Moreover, in this study a simulation analysis provides some strategi senarios about the SEPA impats on ash redution for retail payments while the qualitative approah of fous groups interviews of the explorative study (Mallat, 007) was aimed to disover the fators on whih depend the inentives in using m-payments. Table 0: Consumers demands in different ompetitive senarios obtained ombining strategi hoie of eah payment system i Strategi ombinations SC MP BP Cash Present situation (P;P;P) (P;P;R) (P;R;P) (P;R;R) (R;R;R) (R;P;P) (R;R;P) (R;P;R) REFERENCES Armstrong, M., 006. Competition in two-sided markets. RAND J. Eon., 7: DOI: 0./j tb0007.x Bozinis, I.A., 007. International eonomi relations and Information Communiation Tehnologies (ICT) use: Eonomi globalization via eonomi digitalization. Am. J. Applied Si., 4:

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