Financial Innovation in Retail and Corporate Banking

Financial Innovation in Retail and Corporate Banking

New Horizons in Money and Finance series

Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt

This valuable book discusses in detail, through a blend of theory and empirical research, the processes of innovation and the diffusion of new financial instruments.

Chapter 6: How do Internet Payments Challenge the Retail Payment Industry?

David Bounie and Pierre Gazé

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, money and banking


* David Bounie and Pierre Gazé INTRODUCTION 1 Since the mid-1980s, the role of money and banks has been affected by various innovations. The rapid development of financial markets, new behaviours in terms of investments and new modes of financing and so on have transformed the financial sphere. These significant changes have taken place in a context of financial globalisation, an internationalisation of payments and a mutation of monetary systems which have gradually imposed new rules for payment systems. All these transformations have affected the orientation and control of monetary policy, which has become increasingly difficult to implement as the concept of money becomes harder to define. In the context of a changing monetary system, the current electronisation of retail payment systems provides a new set of challenges for banking and monetary authorities. Faced with the ongoing transformation of the payment environment through the development of electronic face-to-face transactions (vending machines and so on) and electronic remote transactions (the internet, wireless networks), numerous product innovations have appeared, including electronic purses, electronic payment systems on the internet and mobile payments. Among these innovations, the development of electronic payment systems on the internet is probably at the origin of the most surprising developments. Numerous electronic payment systems have been conceived by institutions, other than banks, as a way of contesting the bank monopoly on payment instruments. Some innovative payment instruments are now competing with traditional payment instruments (for example, the payment card) for specific payment services. In...

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