Fast payment systems (FPS) enable the instant transfer and availability of funds on a 24/7 basis, offering an alternative to cash and payment cards. While FPS adoption is growing globally, a key open question is how fast payments should be priced. Pricing schemes in FPS need to balance the competing goals of enhancing usage and incentivising the participation of payment service providers (PSPs).
The authors of the BIS Working Papers No 1295 entitled Pricing in fast payments: a practical and theoretical overview, provide: (i) a practical overview of pricing in FPS at three levels – system-level (between FPS owners and participants), participant-level (among PSPs) and end user level (between PSPs and their customers); and (ii) a theoretical overview of the implications of several pricing schemes applied in practice.
The authors provide a global overview of FPS pricing practices, using a theoretical framework to analyse pricing in person-to-merchant (P2M) transactions. The pricing model explores how pricing schemes influence the incentives of participants and end users, the adoption of FPS and overall social welfare. The findings offer insights into the trade-offs between affordability, adoption and long-term sustainability in FPS pricing.
Pricing schemes vary considerably across FPS at all three levels. Some systems (eg Türkiye, Brazil) avoid joining or fixed fees for participants to encourage adoption, while others (eg Australia, the United Kingdom) use a mix of fee types. At the end user level, many (eg Brazil, Malaysia, Thailand) offer free or low-cost transactions for individuals. Fees for merchants can be market-based or regulated (eg Türkiye, India, Mexico). Our expository model analysing the P2M use case shows that fast payment usage may be sub-optimal under many pricing schemes that are currently applied in practice. Moreover, when all fees are zero, fast payments are unsustainable without external subsidies or alternative revenue streams for participants.
Fast payments are at the forefront of payments digitalisation globally. By enabling immediate availability of funds on a 24/7 basis, they offer the potential to enhance efficiency, promote financial inclusion, drive innovation and foster competition. Despite their growing adoption, key questions remain regarding the design of fast payments systems (FPS), particularly concerning pricing.
Open issues around pricing of fast payments exist at three levels: between the FPS owner and participants (system level), among participants themselves (participant level) and finally between the participants and their customers (end user level). This paper provides a comprehensive overview of global practices in FPS pricing at these three levels.
To relate these practices with the academic literature, particularly for the person-to-merchant (P2M) payments, we use a classical two-sided market model and analyse how different pricing schemes at the end user level might influence the volume of fast payments and overall social welfare.
„Our expository model shows that fast payment usage may be lower than socially optimal in many cases. Moreover, when all fees are zero, fast payments are unsustainable without external subsidies or alternative revenue streams for participants.” – concluded the authors.
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