We discuss and evaluate the incentives for vertical expansion and vertical mergers in the payments systems industry paying particular attention to the implications of the existence of network effects in this industry. We assess the incentives of merchants to extend vertically into payments systems, noting that this incentive is maximized when there is significant market power in payments system...

CyberCash is developing a general payments system for use over the Internet. The structure and communications protocols of version 0.8 are described. This version includes credit card payments only. Additional capabilities are planned for future versions. This document covers only the current CyberCash system which is one of the few operational systems in the rapidly evolving area of Internet p...

In many auction problems, we consider a selfinterested seller who is allocating item(s) to bidders in exchange for payments. The highly celebrated VCG mechanism provides an auction mechanism in this case that is efficient, strategy-proof, and ex post individually rational (IR). If the seller’s goal is to maximize revenue, alternative mechanisms include the Myerson optimal auction, which maximiz...

1. Introduction and Executive Summary This paper analyses the role of the central bank in the modern world, focusing in particular on its involvement in the payments and …nancial systems. I provide an overview of the functions of central banks. I then focus on the role of the central banks in promoting an e¢ cient payments system and I disucuss their role in supervising and regulating the payme...

A new “payments space” has emerged in the past five to ten years that promises to bring access to funds transfer, banking and financial services to millions of unbanked people in developing countries and in the diasporas that remit funds to them. This payments space is characterized by the innovative use of new information and communications technologies. This paper summarizes the experience to...

Views stated in Policy Discussion Papers are those of the authors and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Materials may be reprinted, provided that the source is credited. Please send copies of reprinted materials to the editor. In this paper we provide a survey of the payment literature in a unifi ed framewo...

We introduce a new payment architecture that limits the power of an attacker while providing the honest user with privacy. Our proposed method defends against all known attacks on the bank, implements revocable privacy, and results in an efficient scheme which is well-suited for smartcard-based payment schemes over the Internet.

We introduce a model in which agents face random and unobservable needs to transact over time. We characterize the optimal setup for incentive compatible transactions, the optimal payment system. The existence of an equilibrium in which agents transact through a payment system might require certain caps on short-term borrowing. Networks that have knowledge of agents’ histories support efficient...