@misc{37609,
title = {When Interoperability Increases Market Power: Evidence from Peru's Instant Payment Systems},
author = {Burga, Carlos and Cespedes, Jacelly and Parra, Carlos R and Cerón, Marcos and Quispe, Isaí},
year = {2025},
doi = {10.18235/0013871},
abstract = {Instant payment systems have rapidly gained global traction by enhancing transaction efficiency, yet evidence remains limited on how their designparticularly interoperabilityshapes market structure. We exploit Perus 2023 interoperability mandate as a quasi-natural experiment using a difference-in-differences design. Mandated interoperability increased deposit market concentration by approximately 2%. Incumbent banks linked to the dominant digital wallet expanded their deposit market share by nearly 10% and reduced deposit interest rates by 5080 basis points. We also observe more branch closures in high-adoption areas and declining microcredit. A model explains these results through an “amenity shock,” boosting digital wallet convenience for all adopters. Due to network externalities, the largest incumbent wallet captures a disproportionate share of new users in dual-platform markets an “amenity effect” that ultimately increases concentration. By contrast, in single-platform regions, interoperability lowers barriers for new providers an “entry effect” that spurs competition and erodes incumbent dominance. Our results show that this amenity effect in dual-platform cities outweighs the entry effect elsewhere. Overall, our findings show competitive effects of interoperability mandates critically depend on initial market structure and distribution of platform market shares.},
url = {https://doi.org/10.18235/0013871}
}