Payments are becoming increasingly digitized, and what used to occur with a plastic card or paper check now often happens by presenting your phone or entering details on a computer. Changes in the payments industry may be driven by technological innovation, changes in government policy, and other legal and institutional factors.

In this article we discuss how digitization and technological innovation is reshaping competition in the payments sector. In particular, we assess how the impact of technological innovations on competition depends on the what level of the supply chain the innovation occurs and how it interreacts with the existing “rails” of the payment system. Specifically, we examine the impact on competition of three types of innovation:

– Over-the-top (OTT) technologies, such as Venmo, that operate using existing payment rails.
– Innovations that improve existing payment rails, like real time payments.
– Innovations that create new payment rails, including cryptocurrencies such as Bitcoin.