Economics of Payment Systems

2018-2019

Course Objective

The primary objective is to provide students with a sound understanding
of payment systems and payment markets. The payment landscape is
changing fast: new players, new technologies, and new business models.
How can we assess and evaluate these ongoing changes from an economic
viewpoint? Based on "the economics of two-sided platforms", a 'state of
the art' economic framework is presented and studied.

After following this course, you will be able to:
- understand the economics of payment systems including the role of
multi-sided platform strategies and network effects,
- understand the main drivers of optimal business strategies in the
payment industry and adoption of (new) payment instruments by consumers
and merchants,
- discuss the impact of entry and exit, competition and key innovations
(FinTech, Adyen, virtual currencies, blockchain, instant payments,
mobile money, Apple Pay, Google wallet, Uber, etc) on the international
payment landscape and assess critical factors for effective competition
policy and regulation.

Course Content

The global payments industry is going through a period of significant
change. New technologies, higher customer expectations and changing
regulations are creating both opportunities and risks for payment
providers. FinTech players are introducing advanced innovative solutions
in an attempt to get a piece of the 'payment pie'. In particular,
Bitcoin and its ‘blockchain’ algorithm has tapped a nerve in the
financial ecosystem. From an economic perspective, what does this mix of
entry and exit, innovation and regulation mean for the future of
payments and its business models?

Payment economics lies at the intersection of banking, monetary theory,
and industrial organization. Tapping from these areas, this course
analyzes the economic incentives of payment behavior. The course
contains a general introduction to the function, structure and
efficiency of payment systems and markets. Key issues of interest are
pricing, competition, innovation and regulation. Network effects are
also important, and their role – in particular in relation to innovation
– will be studied as well. A workhorse model – based on “the new
economics of multisided platforms” – is analyzed in depth. Central
outline of the 6 study-weeks is:
1. Setting the stage
2. Platform economics and workhorse model
3. Pricing, competition and regulation
4. Innovations, impact of FinTech and cryptocurrencies
5. Guest lectures
6. Future of payment systems and new business models

Teaching Methods

Lectures (2 times 2 hours per week) and tutorial (1 time 1 hour per
week). Two guest lectures will be presented by expert practitioners.

Method of Assessment

Written exam (80%; min. grade 5.0) and take home exercises (20%)

Literature

Selected research articles and news clippings.

Recommended background knowledge

The recommended knowledge is in line with the entry requirements for the
Master Finance and Master Financial Management as a whole. Undergraduate
level knowledge of mathematics and statistics is recommended.
Undergraduate knowledge of microeconomics is helpful but not necessary.

General Information

Course Code E_FIN_EPS
Credits 6 EC
Period P4
Course Level 400
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator prof. dr. W. Bolt
Examiner prof. dr. W. Bolt
Teaching Staff prof. dr. W. Bolt

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Study Group, Lecture
Target audiences

This course is also available as: