## ftnea2025007a - Introduction

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---

### Overview and objectives
- Central banks are exploring or piloting retail central bank digital currencies (CBDCs) and assessing whether CBDC could improve competition in concentrated payment markets.
- This Note provides an analytical framework and practical guidance to examine CBDC’s potential impact on competition; it does not opine on whether countries should issue CBDC.
- Focus: help policymakers take stock of the existing payment landscape and analyze how CBDC could affect competition in the market for payments.

### Policy objectives motivating CBDC interest
- Policy objectives cited: improving payment system efficiency, promoting financial inclusion, supporting monetary sovereignty, adapting to declining cash use.
- Some central banks have explicitly indicated a desire to increase competition in payments by issuing a CBDC (examples cited: European Central Bank, Sveriges Riksbank, Bank of Canada, Bank of England, Bank of Israel).
- CBDC may affect competition even when competition is not the primary motivation.

### Market dynamics, concentration, and participants
- Payment markets are two-sided markets with strong network effects and platform dynamics favoring a few large platforms.
- Sources of concentration: network externalities, economies of scale, proprietary user data accumulation.
- Example concerns:
  - U.K. Payment Systems Regulator warned of long-term risk to competition due to high market concentration (U.K. Payment Systems Regulator 2022).
  - Largest platform antitrust settlements and fines exceeded U.S.$ 5 billion.
- Market participants grouped as:
  - Payment platforms (private: Visa, Mastercard, Big Tech; public: FPS, ACH, RTGS depending on design).
  - Intermediaries (consumer-facing: issuing banks, credit unions, fintechs; merchant-facing: acquirers).
  - End users.
- Some e-money networks combine platform and intermediary functions, reducing layering.

### Competitive frictions along the payment chain
- Platforms set rules affecting access, pricing, and competition (interchange fees, surcharging restrictions, "honor all cards" rules, steering bans).
- Merchant-facing intermediaries are often more concentrated than consumer-facing intermediaries (example: four acquirers process about 85 percent of card transactions in Canada).
- Evidence: small merchants in the U.K. faced opaque, bundled pricing and did not benefit from interchange fee caps because acquirers did not pass savings to merchants.
- Typical two-sided pricing: merchants face high fees while consumers are often subsidized; merchants may pass costs to consumers indirectly.

### Existing policy tools and limits
- Tools used: capping fees, introducing public fast payment systems (FPS), mandated interoperability, fee transparency requirements.
- Public FPS (not necessarily central-bank operated) can operate in the public interest to limit fees.
- Regulatory action can produce regulatory arbitrage: interchange fee caps may prompt platforms to raise scheme fees or introduce new consumer charges; caps do not guarantee intermediaries will pass savings to merchants.

### How CBDC could affect competition (four channels)
- CBDC can act as both new platform infrastructure and a payment method, influencing competition via:
  - pricing discipline
  - quality/value improvements
  - increased contestability
  - broader financial access
- CBDC likely delivers greatest competitive benefits where dominant private platforms exist and regulatory oversight is limited/ineffective.
- In jurisdictions with well-functioning public FPS, CBDC is unlikely to deliver significant additional competition improvements; focus should be on residual gaps such as inclusion.

### Adoption, interoperability, and incentives
- Competitive impact depends on adoption by users and intermediaries; adoption drivers: user trust, feature relevance, intermediary incentives.
- For competitive pressure, CBDC must be perceived as a viable alternative and mirror valued features (credit/fraud protection, anonymity where relevant).
- Full-scale adoption is not required; the possibility of switching can increase competitiveness.
- Interoperability reduces switching barriers and coordination challenges, extending CBDC’s reach and pressuring incumbents.
- Interoperability challenges: technical, legal, investment-cost constraints. Public-sector use cases (paying salaries, government transfers, taxes) can help build critical mass.

### Design choices and trade-offs
- CBDC design and ecosystem rules shape competitive impact and trade-offs; central banks should define:
  - intermediary participation rules
  - fee structures
  - interoperability standards
- Poor design can preserve incumbents’ dominance (e.g., allowing only incumbent intermediaries, incumbents retaining control over user pricing).
- Aggressive CBDC pricing (free access) risks crowding out private alternatives and reducing market resilience and choice.
- Policymakers must balance competitive pressure benefits against risks to resilience and payment-market diversity.

---

### Structure of the Note (sections)
- Section I: Market for domestic retail payments — participants and dynamics.
- Section II: Role of CBDC — conceptual framework and channels of competitive impact.
- Section III: Scenario analysis — baseline CBDC assumptions and three scenarios with subcases.
- Section IV: Design levers — key CBDC choices and competitive implications.
- Section V: Conclusion.

*Source: ftnea2025007a - Introduction (IMF Fintech Notes).*

---

### Box 1 — Regulatory interventions in payment markets (key points and examples)
- Regulatory approaches: direct pricing regulation (caps, benchmark ranges), mandated participation, interoperability and fee-transparency rules.
- Kansas City Federal Reserve August 2024 update: interventions in 43 countries; 10 have imposed explicit caps on interchange fees: Andorra, Argentina, Australia, Brazil, China, Costa Rica, Denmark, the European Union, the United States, and the United Kingdom.
- Card-scheme pricing regulation typically targets interchange fees or merchant discount rates (caps/benchmark ranges); scope can vary by good type, mode, and location.
- Examples:
  - Pakistan: interchange cap for domestic point-of-sale at 0.2 percent for debit/prepaid cards and 0.7 percent for credit cards (State Bank of Pakistan 2023).
  - India: merchants accepting a prepaid instrument face a 1.1 percent interface fee for transaction processing.
  - Brazil: merchants faced an average cost of 0.22 percent to use Pix (relative to 2.2 percent for credit cards).
  - Central Bank of Sri Lanka (March 2025): capped online digital transfer fees at 25 Sri Lankan Rupees per transaction.
  - Central Bank of Nigeria: some fee regulation on merchant payments at 0.5 percent of the transaction value up to a maximum of 1,000 Nigerian Naira [U.S.$ 0.65] (Central Bank of Nigeria 2019).
  - United States: no regulation of fees for FPS; Federal Reserve cannot directly influence end-user costs in FedNow.
- Observations: pricing regulation is increasingly considered; interventions can produce heterogeneous outcomes (e.g., EU interchange cap linked to increases in scheme fees and acquirer margins).

---

### Baseline CBDC design assumptions (used in scenario analysis)
- CBDC objective: promote a well-functioning market for payments rather than be a profit-generating platform.
- Two-tier distribution: CBDC distributed to end users through intermediaries (banks and payment service providers).
- Central banks assumed unconstrained in setting CBDC fees (practical constraints noted: cost-recovery mandates, political limitations, regulatory zero-fee requirements).
- No holding or transaction limits assumed.
- Section IV examines deviations from these baseline assumptions.

---

### Scenario I — CBDC in markets dominated by profit-maximizing platforms
- Structure: Scenario subdivided into 1.a Unregulated markets and 1.b Regulated markets.

- Scenario 1.a — Unregulated markets: key findings by channel
  - Pricing:
    - CBDC can enhance price competition by offering a low-cost public option; retail CBDC at minimal/zero cost disciplines merchant-facing fees charged by dominant private platforms.
    - CBDC entry can lower consumer-facing fees but private platforms may raise merchant fees to offset revenue (two-sided dynamics).
    - Literature cited: Liu, Reshidi, and Rivadeneyra (2025) find CBDC improves payment market functioning via strategic pricing shifts and increased financial access.
  - Value:
    - Private providers compete on features for high-margin users; CBDC likely delivers modest, incremental improvements (transparency, faster settlement).
  - Contestability:
    - Well-designed CBDC can lower entry barriers (transparent, low-cost infrastructure; central bank wallet with APIs lowers fixed costs).
    - Legacy platforms may resist via restricted integration or access—regulatory intervention may be required (example: European Commission antitrust on Apple NFC access; Apple committed to opening NFC on fair nondiscriminatory terms).
  - Financial access:
    - Universal, low/no-fee CBDC can attract unbanked and low-margin customers; intermediaries may lack incentive to distribute CBDC to excluded users absent mandates/incentives.

- Scenario 1.b — Regulated markets: key findings by channel
  - Context: jurisdictions with fee caps or routing rules (example references: EU Interchange Fee Regulation, Australia, U.S. Durbin Amendment).
  - Pricing:
    - CBDC can strengthen price competition by addressing gaps regulators do not cover (scheme fees, acquirer markups, opaque consumer charges).
  - Value:
    - CBDC can provide a public benchmark for features (instant settlement, transparency, interoperability), pressuring private platforms to improve.
  - Contestability:
    - CBDC can support wider intermediary access if regulators permit diverse licensed providers and prohibit restrictive practices (reference: PSD2 compels banks to open infrastructure).
  - Financial access:
    - CBDC can target structural barriers (offline functionality, simplified onboarding) to reach those excluded by public FPS or bank-account requirements.
  - Overall: impact more moderate than in unregulated markets but can address remaining gaps; careful implementation needed to avoid duplication.

---

### Scenario II — CBDC in markets with a public Fast Payment System (FPS)
- Context: many countries have public FPS (examples: Pix, UPI, Singapore FAST, NAPAS FastFund 247).
- Notable usage figures preserved:
  - Pix estimated used by 76 percent of the adult population in Brazil (Banco Central do Brasil 2025).
  - UPI estimated actively used by 25 percent of India’s population (based on 350 million active users; Shukla 2024).
- Key findings:
  - When public FPS are widely used and low cost, CBDC’s additional competitive space is limited.
  - Interoperability between CBDC and public FPS is critical to avoid fragmentation and preserve network effects.
  - Pricing: CBDC likely exerts less competitive pressure on private platforms when a public FPS exists; price decreases after CBDC introduction are unlikely to be significant.
  - Value: substantial overlap with FPS; incremental improvements only; legal tender and mandatory acceptance give acceptance advantages.
  - Contestability: limited effect since public FPS and CBDC target similar intermediaries (typically banks); CBDC could attract nonbank intermediaries if central-bank liability is accessible to everyone; effect depends on FPS implementation (e.g., UPI attracts many nonbank intermediaries).
  - Financial access: CBDC can reach those without bank accounts required by FPS and facilitate merchants’ formalization; interoperability could create virtuous adoption cycles.
  - Overall: CBDC can complement public FPS and enhance public alternatives to private platforms, but impact is likely incremental and contingent on avoiding fragmentation.

---

### Scenario III — CBDC in cash-reliant countries
- Context: countries where cash remains dominant with low digital infrastructure penetration.
- Findings by channel:
  - Pricing:
    - CBDC’s pricing impact may be limited; it can reduce cash-handling costs (transport, security) but CBDC operating costs matter.
  - Value:
    - CBDC can substantially improve payment value vs cash: enable online payments, contactless payments, faster checkouts, improved recordkeeping and transparency.
  - Contestability:
    - CBDC can absorb initial infrastructure costs, enabling a broader set of intermediaries (including nonbank entities) to innovate; success depends on central bank promotion and incentives.
  - Financial access:
    - Carefully designed CBDC can spur digitalization and inclusion when paired with public awareness and promotion (example: UPI).
    - Adoption depends on reasons for cash use: distrust or informality may mute adoption; habitual cash use is more easily shifted with privacy-preserving features, balanced against AML/CFT objectives.
  - Overall:
    - CBDC can provide foundational infrastructure to digitalize payments and support e-commerce; risks if CBDC fails to attract private-sector participation for a sustainable ecosystem.

---

### Comparative assessment — qualitative ranking by channel and scenario
- I.a — Private dominated — Unregulated
  - Pricing: High
  - Value: Low
  - Contestability: High
  - User Access: High
- I.b — Private dominated — Regulated
  - Pricing: Medium
  - Value: Medium
  - Contestability: Medium
  - User Access: Medium
- II — Public FPS dominated
  - Pricing: Low
  - Value: Low
  - Contestability: Low
  - User Access: Medium
- III — Cash dominated
  - Pricing: Low
  - Value: High
  - Contestability: High
  - User Access: High

### Key policy takeaways
- Policymakers should identify which scenario fits their country’s payment market (pricing problems, entry barriers, inclusion gaps).
- Define the specific issues CBDC should address and whether other interventions (fee caps, interoperability mandates, infrastructure investments) are underway.
- In unregulated private-dominated markets (I.a), CBDC could deliver broad welfare gains across pricing, contestability, and user access (value improvements likely marginal).
- In regulated private markets (I.b), CBDC’s impact is moderate and can address remaining gaps; careful implementation needed to avoid duplication.
- In markets with established public FPS (II), CBDC’s benefits are likely incremental; extending access to underserved populations is the primary additional impact.
- In cash-reliant economies (III), CBDC’s strengths are improving service value, lowering entry barriers, and widening access; immediate pricing effects may be limited.
- Interoperability and design choices (fee structures, access models, usage restrictions) are central to CBDC’s competitive impact.
- Regulatory safeguards and incentives (to ensure intermediary participation and distribution to underserved users) are often necessary to realize CBDC’s potential.

---

### Box 2 — Stablecoins: preliminary view of competitive impact (high-level points)
- Stablecoins have increased market capitalization but limited use in domestic retail payments; mainly used for international flows or crypto-asset purchases.
- Adoption prerequisites: legal certainty, consumer protection, regulatory frameworks, and trust in peg maintenance.
- Issuers often profit from spread between zero remuneration on stablecoin and interest on reserves; payment fees are not currently primary profit source.
- Stablecoins may forgo fees to promote adoption; if they charge fees they would resemble profit-maximizing platforms (Scenario I).
- Stablecoins are typically issued on decentralized networks; issuers have limited control over network fees.
- Multiple stablecoins sharing networks promote interoperability and shift network effects to the network rather than to a single stablecoin.
- Footnote: Most stablecoins today are linked to the U.S. dollar; thus not directly competing with domestic payment systems or CBDCs in many jurisdictions, though they could in the United States and dollarized economies.

---

### Box 2 / Section IV — Design levers that affect CBDC’s competitive impact (key levers and policy implications)
- Policy constraints on CBDC pricing:
  - Cost-recovery mandates or zero-fee obligations can hinder but not eliminate CBDC’s competitive impact.
  - Zero-fee mandates risk excessive competitive pressure and possible crowding out of private alternatives; temporary zero-fee phases funded by seigniorage risk eroding margins and prompting exits.
  - Flexible pricing frameworks give central banks greater freedom to balance competition and market sustainability.
- Incentives in two-tier implementation:
  - Two-tier distribution risks softening competitive impact; CBDC’s effect depends on intermediaries’ pricing and distribution incentives (examples: Nigeria’s eNaira initial 90-day free period then standard bank charges; DCash pilot charged no consumer fees and left merchant charges to intermediaries).
  - Policy implication: ensure a competitive market for intermediaries.
- Fostering intermediary competition and interoperability:
  - Open CBDC ecosystems to diverse intermediaries; promote clear interoperability standards; high switching costs/limited interoperability undermine competition.
- Transaction or holding limits:
  - Limits reduce CBDC’s competitive impact but serve financial-stability objectives; calibration should reflect local payment behavior and accommodate majority of retail purchases.
- Remuneration:
  - Remuneration increases CBDC attractiveness and competitive pressure but raises disintermediation and financial-stability trade-offs.
- Legal tender with mandatory merchant acceptance:
  - Mandatory acceptance can eliminate merchant-side entry barriers and facilitate coordinated adoption across consumers and merchants.
- Interoperability with existing platforms:
  - Mandated interoperability can harness existing network effects; where infeasible, CBDC can target underserved users or public-sector use cases.
- Bundled products and services:
  - Bundling CBDC with financial services increases user value and intermediary incentives but may reduce pricing transparency; central banks should also require a stand-alone CBDC option.
- Platform for innovation:
  - Programmability, tokenization, and CBDC as a settlement asset could raise demand and competitive pressure; open APIs and public utilities (examples: fraud registries) can support complementary services.

---

### Box 3 — Examples of competition-enabling design features (selected cases)
- Integration with public FPS:
  - India’s retail digital-rupee pilot requires participating CBDC wallets to accept the national UPI QR code standard; over 50 million UPI-enabled merchant points broaden acceptance.
- Interoperability with private platforms:
  - e-CNY pilot: proprietary wallet interoperates with Alipay, WeChat Pay, and major banking apps; wallets link to bank accounts and interoperate across operators.
- Zero- or low-fee policies:
  - Central Bank of Nigeria waives person-to-person eNaira charges and keeps wallet-funding costs “minimal”.
  - Sand Dollar advertises zero transaction fees for individuals and lower merchant fees than card networks.
  - People’s Bank of China forbids fees on individual e-CNY conversions.
  - Digital euro legislative proposal: individuals incur no charges for basic services; merchants may be charged.
- Allowing fees between intermediaries:
  - Digital euro envisages inter-intermediary fees, with caps and regular monitoring to ensure fairness, enabling intermediaries to recover costs while capping distortions.

*Source: ftnea2025007a - Introduction (IMF Fintech Notes).*

### Introduction ...........................................................................................................

### Introduction

### Scope and Structure
- The content unit is the Introduction to "The Impact of Central Bank Digital Currency on Payments Competition" (Fintech Notes).
- The Introduction outlines the report's structure and main sections with page references:
  - "Introduction ................................................................................................................................................. 4"
  - "I. The Market for Domestic Retail Payments ............................................................................................ 6"
  - "II. The Role and Competitive Impact of CBDC ....................................................................................... 10"
  - "III. Scenario Analysis ................................................................................................................................ 15"
  - "IV. Design Levers ...................................................................................................................................... 27"
  - "V. Conclusion ............................................................................................................................................ 32"
  - "References ................................................................................................................................................. 36"

### Major Themes and Topics Covered (as listed)
- Market participants and the market for domestic retail payments (Section I).
- The role of CBDC in payment markets, a conceptual framework, and channels of competitive impact (Section II).
- Scenario analysis including:
  - Baseline CBDC design assumptions.
  - Scenario I: CBDC in payment markets dominated by profit-maximizing platforms, with subcases 1.a: Unregulated Markets and 1.b: Regulated Markets.
  - Scenario II: CBDC in markets with a public Fast Payment System (FPS).
  - Scenario III: CBDC in cash-reliant countries.
  - A summary assessing CBDC’s competitive impact across scenarios.
- Design levers relevant to CBDC competitive effects, including:
  - Policy constraints on CBDC pricing.
  - Incentives in two-tier implementation.
  - Transaction or holding limits.
  - Remuneration.
  - Legal tender with mandatory merchant acceptance.
  - Interoperability with existing payment platforms.
  - Bundled products and services.
  - Platform for innovation.
- Concluding material and references.

### Boxes, Figures, and Table Included (as listed)
- Boxes:
  - "1. Regulatory Interventions in Payment Markets"
  - "2. Stablecoins: A Preliminary View of Their Potential Competitive Impact"
  - "3. Examples of Competition-Enabling Design Features"
- Figures:
  - "1. Main Participants in the Payment Market"
  - "2. The Dual Role of CBDC in the Payment Market"
  - "3. Price-Value Framework"
  - "4. Main Channels of Competitive Impact"
- Table:
  - "1. Ranking of CBDC’s Competitive Impact for Each Channel"

### Acronyms / Glossary (as provided)
- Acquirer: Bank processing merchant card payments
- AML: Anti Money Laundering
- API: Application programming interface
- BIS: Bank for International Settlements
- CBDC: Central bank digital currency
- CFT: Combatting the Financing of Terrorism
- DCash: Eastern Caribbean Central Bank Digital Currency
- e-CNY: China’s Central Bank Digital Currency (pilot)
- eNaira: Nigeria’s Central Bank Digital Currency
- FedNow: Federal Reserve’s fast payment system
- FPS: Fast payment system
- Issuer: Bank issuing payment cards and authorizing transactions
- KYC: Know Your Customer
- MDR: Merchant Discount Rate
- NAPAS FastFund 247: Vietnam’s fast payment system
- Pix: Brazil’s fast payment system
- QR: Quick Response
- U.K.: United Kingdom
- U.S.: United States
- UPI: Unified Payment Interface (India’s fast payment system)

*Source: ftnea2025007a - Introduction (IMF Fintech Notes).*

### Introduction

### ftnea2025007a - Introduction

### Overview and objectives
- Central banks are actively exploring or piloting retail central bank digital currencies (CBDCs) and asking whether they could help improve competition in concentrated payment markets.
- Several jurisdictions have launched or piloted retail CBDCs.
- This Note provides an analytical framework and practical guidance to examine the potential impact of CBDC on competition; it does not opine on whether countries should issue CBDC.
- The Note focuses on helping policymakers take stock of the existing payment landscape and analyze how CBDC could affect competition in the market for payments.

### Policy objectives behind CBDC interest
- Growing interest reflects a range of policy objectives: improving payment system efficiency, promoting financial inclusion, supporting monetary sovereignty, and adapting to declining cash use.
- Some central banks have explicitly indicated a desire to increase competition in payments by issuing a CBDC (for instance, the European Central Bank, the Sveriges Riksbank, Bank of Canada, Bank of England, and Bank of Israel).
- CBDC may impact competition even where increased competition is not the primary motivation.

### Market dynamics and sources of concentration
- Payment markets are two-sided markets with strong network effects and platform dynamics that tend to favor a few large platforms.
- Network externalities, economies of scale, and accumulation of proprietary user data make payment systems prone to concentration.
- Example regulatory concern: the U.K. Payment System Regulator warned of an emerging long-term risk to competition in retail payments because of high market concentration and significant barriers for new entrants (U.K. Payment Systems Regulator 2022).
- Antitrust enforcement has reflected two-sided market insights; the largest settlements and fines in major platform cases exceeded U.S.$ 5 billion.

### Market structure and participants
- Market participants can be divided into three groups: payment platforms, intermediaries, and end users.
- Intermediaries include consumer-facing institutions (issuing banks, credit unions, fintech firms) and merchant-facing institutions (acquirers).
- Payment platforms include established private platforms (Visa, Mastercard, Big Tech) and public alternatives such as FPS and other public platforms (ACH, RTGS, depending on design).
- Some e-money networks combine platform and intermediary functions, creating a less layered relationship with end users.

### Competitive frictions along the payment chain
- Platforms set rules that influence access, pricing, and competitive behavior across the payment chain (for example, interchange fees, restrictions on surcharging, "honor all cards" rules, and payment method steering bans).
- Merchant-facing intermediaries often are more concentrated than consumer-facing intermediaries.
- Example: four acquirers process about 85 percent of card transactions in Canada.
- Findings in the U.K. show small merchants often face opaque, bundled pricing and did not see benefits from interchange fee caps because acquirers did not pass savings on to merchants.
- Pricing structure in two-sided platforms: merchants typically face high fees while consumers are subsidized; merchants may pass costs to consumers indirectly.

### Existing policy tools and limits
- Competition authorities and regulators have used measures such as capping fees and introducing public fast payment systems (FPS) to mitigate anticompetitive behavior.
- Fast payment systems that operate in the public interest are referred to here as public FPS; they do not necessarily have to be operated by the central bank.
- Regulation can mitigate issues but leaves room for incumbents to engage in regulatory arbitrage (for example, interchange fee caps can prompt platforms to raise scheme fees or introduce new consumer charges).
- Interchange fee caps cannot guarantee intermediaries will pass cost reductions through to merchants.

### How CBDC could affect competition (channels)
- CBDC can serve as both a new platform infrastructure and a payment method and may influence competition across the retail payment chain through four key channels:
  - pricing discipline
  - quality improvements
  - increased contestability
  - broader financial access
- CBDC has the potential to offer the greatest competitive benefits in markets where dominant private platforms have emerged and regulatory oversight is limited or ineffective.
- In countries with well-functioning public FPS, CBDC is unlikely to deliver significant improvements in competition and should focus on residual gaps such as broadening inclusion.

### Adoption, interoperability, and incentives
- The competitive impact of CBDC depends on the extent of its adoption by users and intermediaries.
- Adoption is driven by user trust, relevance of features, and incentives for intermediaries to participate.
- For CBDC to exert competitive pressure, it must be perceived as a viable alternative to existing payment options; mirroring valued features (for example, credit and fraud protection for card users; anonymity for cash users) increases adoption likelihood.
- Full-scale adoption is not required; the possibility of switching between payment methods can increase market competitiveness.
- Interoperability can reduce barriers to switching and coordination challenges and extend CBDC’s effective reach, facilitating user choice and pressuring incumbents to compete on price and service quality.
- Interoperability between CBDC and existing payment platforms may be challenging due to technical, legal, or investment-cost constraints; public sector use cases (for example, paying salaries or government transfers using CBDC or enabling citizens to pay taxes with CBDC) can help create a critical mass of users.

### Design choices and trade-offs
- CBDC design and ecosystem rules directly shape competitive impact and associated trade-offs.
- Central banks should carefully define:
  - intermediary participation rules
  - fee structures
  - interoperability standards
- Poor design choices can enable incumbents to preserve dominance (for example, if only incumbent intermediaries are permitted to operate or if incumbents retain full control over CBDC user pricing).
- CBDC could crowd out private alternatives if priced too aggressively (for example, if CBDC is made available for free to all users, private platforms may struggle to compete and exit the market).
- Policymakers must balance benefits of competitive pressure with risks to resilience and diversity of the payment market.

### Structure of the Note
- Section I: overview of the structure of domestic retail payment markets, key participants, and market dynamics.
- Section II: role of CBDC in payment markets, conceptual framework comparing CBDC against existing systems, and identification of main channels through which CBDC may affect competition.
- Section III: scenario-based analysis of how the impact of CBDC could vary across different payment infrastructures and regulatory settings.
- Section IV: key CBDC design choices and assessment of their competitive impact.
- Section V: conclusion.

*Source: https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025007a.pdf*

### Box 1. Regulatory Interventions in Payment Markets

### Box 1. Regulatory Interventions in Payment Markets

### Overview
- Regulatory approaches to improve competition in payments include:
  - Direct pricing regulation (caps, benchmark ranges).
  - Regulations/rules mandating participation in specific systems.
  - Rules mandating interoperability with other systems and fee transparency.
- The World Bank Global Payments Systems Survey (World Bank Group 2023) indicated that pricing regulation was an increasing consideration across central banks surveyed.
- The box considers examples of pricing regulation for different systems.

### Types of regulatory measures and scope
- Card schemes:
  - Most pricing regulation worldwide targets interchange fees or merchant discount rates (MDR) through caps or benchmark ranges.
  - Caps/ranges may vary by type of goods (e.g., grocery versus gas), mode (e.g., in person or e-commerce), and location (e.g., domestic or cross-border).
  - Enforcement can be by competition/antitrust regulators, specific payments competition regulators, or the central bank.
- Fast Payment Systems (FPS) and public platforms:
  - Public FPS often limit fees charged to users or MDR; scheme rules and regulations can directly affect end user pricing.
- E-money:
  - Historically faced looser pricing regulation but has come under increased scrutiny recently.

### Examples and country cases (pricing and caps)
- Kansas City Federal Reserve August 2024 update:
  - Covers interventions in 43 countries and jurisdictions.
  - Of these, 10 have imposed explicit caps on interchange fees: Andorra, Argentina, Australia, Brazil, China, Costa Rica, Denmark, the European Union, the United States, and the United Kingdom.
  - The remaining 33 employed measures such as cost-based benchmarks, voluntary fee-reduction commitments, antitrust rulings, or enhanced transparency requirements (Hayashi and others 2024).
- United Kingdom:
  - Example of a highly regulated debit and card market with caps present on domestic interchange fees.
  - Local regulators had been considering a further cap on the MDR—still under discussion.
- Pakistan:
  - Central bank capped interchange fee for domestic point of sale transactions at 0.2 percent for debit/prepaid cards and 0.7 percent for credit cards (State Bank of Pakistan 2023).
- Brazil and India (public FPS examples often cited for low consumer fees):
  - India: merchants accepting a prepaid instrument (for example, a digital wallet) face a 1.1 percent interface fee for transaction processing.
  - Brazil: merchants faced an average cost of 0.22 percent to use Pix (relative to 2.2 percent for credit cards, see Duarte and others 2022).
  - Reserve Bank of India and National Payments Corporation of India have reportedly considered a wider application of merchant fees to bigger merchants to ensure long-term sustainability of UPI.
- Central Bank of Sri Lanka:
  - Implemented new caps on transaction fees for users of the Common Exchange Funds Transfer System in March 2025, capping online digital transfer fees at 25 Sri Lankan Rupees per transaction (Central Bank of Sri Lanka, 2025).
- United States:
  - No regulation of fees for FPS; the Federal Reserve is unable to directly influence the costs incurred by end users engaging with FedNow.
- Africa and e-money:
  - During COVID-19, many African central banks such as the Central Bank of Kenya sought to temporarily waive consumer charges for low-value mobile money transfers (Njoroge 2022), which boosted e-money use that sustained beyond reintroduction of fees.
  - Central Bank of Nigeria implements some fee regulation on merchant payments at 0.5 percent of the transaction value up to a maximum of 1,000 Nigerian Naira [U.S.$ 0.65] (Central Bank of Nigeria 2019).

### Effects, trade-offs, and considerations
- Regulatory interventions vary in form and can produce heterogeneous outcomes:
  - Footnote: The interchange fee cap regulation in the European Union led to an increase in scheme fees and in acquirer margins. See European Commission (2020).
- Public FPS can set consumer fees at zero in many scenarios, but scheme rules may still impose merchant fees in certain cases (examples: India, Brazil).
- Fee caps and pricing regulations can be applied differentially by transaction type, channel, and cross-border dimension, affecting market incentives.
- Interoperability, participation rules, and platform fee structures are mechanisms through which public interventions (including central banks) directly influence end user pricing.
- Enabling interoperability between platforms may strengthen competition but poses challenges for harmonizing AML, CFT, and KYC standards; harmonized KYC procedures may be necessary to ensure a common KYC perimeter between different interoperable platforms.

### Observations relevant to competition policy and market design
- Pricing regulation is an increasingly considered tool by central banks to address perceived market failures in payments (high fees, limited contestability).
- Regulatory design choices (caps, benchmark ranges, mandated interoperability, transparency requirements) affect incentives across the payment value chain and can influence incumbents’ pricing and business models.
- Public platform rules that establish transparent and nondiscriminatory access can foster competitive dynamics, potentially reducing prices charged by dominant players and promoting a more balanced distribution of value across the system.
- Policymakers should be aware of unintended distortions: price interventions that lower consumer costs could lead private platforms to raise fees elsewhere (for example, higher merchant fees) to offset lost revenue.

*Source: Box 1. Regulatory Interventions in Payment Markets, from ftnea2025007a*

### introduction of CBDC may offer limited additional benefits.

### introduction of CBDC may offer limited additional benefits.

### Baseline CBDC Design Assumptions
- CBDC is designed to promote a well-functioning market for payments rather than operate as a profit-generating platform. Central bank primary objective: promote a well-functioning payment market for end users, payment service providers, and private payment platforms.
- CBDC is distributed to end users through intermediaries in a two-tier distribution model (intermediaries such as banks and payment service providers onboard users and facilitate transactions).
- Central banks do not face constraints in setting fees for CBDC (central bank can set CBDC fees without budgetary policy constraints). Practical constraints potentially include cost-recovery mandates, political limitations on subsidization, or regulatory requirements (e.g., fees must be zero, or disallowing subsidization of one side).
- CBDC has no holding or transaction limits (no restrictions on CBDC holdings or transaction volumes).
- Section IV of the source examines deviations from these baseline assumptions and how design levers affect competitive impact.

### Scenario I: CBDC in Payment Markets Dominated by Profit-Maximizing Platforms
- Context:
  - Markets often dominated by private, profit-maximizing payment platforms (card networks or e-money providers).
  - Scenario subdivided into:
    - (1.a) An unregulated market environment
    - (1.b) A regulated market environment

- Scenario 1.a: Unregulated Markets — Key competitive channels and findings
  - Pricing Channel:
    - CBDC can enhance price competition by offering a low-cost public option, directly challenging dominant private platform fee structures (dominant platforms typically charge excessive fees, often on the merchant side).
    - Retail CBDC offered at minimal or zero cost can discipline the payment market.
    - Liu, Reshidi, and Rivadeneyra (2025) find CBDC improves payment market functioning via strategic pricing shifts and increased financial access.
    - CBDC entry can lower consumer-facing fees but may lead private platforms to raise merchant fees to offset revenue (two-sided market dynamics).
    - Results in the literature assume a perfectly competitive intermediary market; deviations and public-policy constraints (cost recovery, subsidies limits) can affect outcomes.
  - Value Channel:
    - Private providers already compete on service features for high-margin users; CBDC likely delivers modest, incremental improvements (e.g., transparency, faster settlement).
    - A widely adopted public platform more likely to affect pricing than value in these markets.
  - Contestability Channel:
    - Well-designed CBDC can lower entry barriers (transparent, low-cost infrastructure; central bank wallet as foundational infrastructure with APIs lowers fixed costs).
    - Legacy platforms may resist by restricting integration, access, or imposing contractual/technical barriers—regulatory intervention may be required.
    - Example: European Commission antitrust case against Apple restricting NFC access; Apple later committed to opening NFC on fair, nondiscriminatory terms (European Commission 2024).
  - Financial Access Channel:
    - Retail CBDC as universally accessible, no-fee or low-fee option can attract unbanked, underbanked, and low-margin customers.
    - Liu, Reshidi, and Rivadeneyra (2025) show public option attracts more end users than market with only private profit-driven platforms.
    - Without regulatory mandates or incentives, intermediaries may lack commercial incentives to distribute CBDC to excluded users; CBDC impact on inclusion could be muted without aligned policies (e.g., requiring wallet providers to offer basic CBDC services for free).

- Scenario 1.b: Regulated Markets — Key competitive channels and findings
  - Context: jurisdictions with fee caps or other regulatory measures (examples cited: EU Interchange Fee Regulation, Australia fee caps and merchant choice routing, U.S. Durbin Amendment for debit routing).
  - Pricing Channel:
    - CBDC can strengthen price competition by addressing gaps not covered by regulation (scheme fees, acquirer markups, consumer-facing charges).
    - CBDC may discourage new or opaque charges by providing a transparent, low-cost alternative.
  - Value Channel:
    - CBDC can offer a public benchmark for features (instant settlement, price transparency, interoperability) and pressure private platforms to improve service quality.
  - Contestability Channel:
    - CBDC can support wider intermediary access if regulators permit diverse licensed providers (fintechs, telecoms, public institutions) and prohibit restrictive practices (exclusive acceptance agreements, technical lock-ins).
    - Reference: EU Payment Services Directive 2 compels banks to open infrastructure to third-party providers.
  - Financial Access Channel:
    - CBDC can target structural barriers (offline functionality, simplified onboarding) to reach those excluded by public FPS or bank-account requirements.
  - Overall:
    - CBDC’s impact is more moderate in regulated markets but can strengthen remaining competition gaps; careful implementation needed to avoid duplicating existing interventions.

### Scenario II: CBDC in Markets with a Public Fast Payment System (FPS)
- Context:
  - Many countries already have public FPS (prominent examples: Brazil’s Pix and India’s UPI; others: Singapore’s FAST, NAPAS FastFund 247 in Vietnam).
  - When public FPS are widely used and low cost, space for CBDC to exert additional competitive pressure may be limited.
  - Interoperability between CBDC and existing public FPS is critical to avoid fragmentation and preserve network effects.

- Conditions and findings:
  - CBDC unlikely to automatically drive uptake in under-used public FPS unless design directly tackles adoption hurdles (targeted incentives for intermediaries, reduced costs, access to user data, time-limited exclusivity, open SDKs and APIs).
  - Pricing Channel:
    - CBDC likely exerts less competitive pressure on private platforms when a public FPS exists; price decreases after CBDC introduction are unlikely to be significant.
  - Value Channel:
    - CBDC largely overlaps with public FPS; incremental improvements only. Acceptance advantages if CBDC is legal tender and required to be accepted.
  - Contestability Channel:
    - Limited effect since public FPS and CBDC target similar intermediaries (typically banks). CBDC could attract nonbank intermediaries if it is a central bank liability accessible to everyone; impact depends on public FPS implementation (e.g., India’s UPI already attracts many nonbank intermediaries).
    - Frost and others (2024) show inclusion of nonbank financial institutions into FPS is associated with more FPS usage.
  - Financial Access Channel:
    - CBDC could enhance inclusion by serving those without bank accounts required by public FPS; could facilitate transition of merchants from informal to formal sector.
    - If interoperable, CBDC could create a virtuous adoption cycle for public FPS by attracting consumers and merchants.
  - Overall:
    - CBDC can complement existing public FPS and enhance public alternatives to private platforms, but competitive impact would likely be incremental and contingent on avoiding fragmentation and addressing FPS shortcomings.

- Notable numeric comparisons preserved from source:
  - Pix estimated used by 76 percent of the adult population in Brazil (Banco Central do Brasil 2025).
  - UPI estimated actively used by 25 percent of India’s population (based on 350 million active users; Shukla 2024).

### Scenario III: CBDC in Cash-Reliant Countries
- Context:
  - Focus on countries where cash remains dominant and where relatively low levels of digital infrastructure exist.
  - Degree of CBDC competitive impact depends on existing digital infrastructure and user habits (informality, privacy preferences, distrust).

- Channels and findings:
  - Pricing Channel:
    - Potential for CBDC to enhance competition through pricing may be relatively limited; CBDC may reduce costs relative to cash and preempt future emergence of dominant platforms.
    - Cash-related costs (handling, transport, security) can be higher than digital solutions; CBDC could reduce these inefficiencies though CBDC operating costs matter.
  - Value Channel:
    - CBDC can substantially improve payment value compared to cash: enabling online payments, eliminating inconvenience/security risks of physical currency, facilitating contactless payments and faster checkouts, improving recordkeeping and transaction transparency.
  - Contestability Channel:
    - CBDC can enhance contestability by absorbing initial infrastructure costs and enabling a broader range of intermediaries (including nonbank entities) to develop innovative services.
    - Success depends on central bank engagement, promotion, and incentives to encourage private sector participation.
  - Financial Access Channel:
    - Carefully designed CBDC could spur digitalization and inclusion when accompanied by public awareness and promotion (example: UPI in India).
    - Impact hinges on motivations for cash usage: if cash use stems from distrust or informality, CBDC adoption may remain subdued; if cash use is habitual, CBDC adoption potential is higher, especially with privacy-preserving features.
    - Privacy features must be balanced against AML/CFT objectives (see Schwarz and others, forthcoming).
  - Overall:
    - CBDC can provide foundational infrastructure to digitalize payments and support e-commerce, but risks arise if CBDC fails to encourage private-sector participation for a sustainable ecosystem.

### Summary: Comparative Assessment and Policy Implications
- Policymakers should first identify which scenario best fits their country’s payment market (structural issues: pricing, entry barriers, inclusion).
- Then define what issues CBDC needs to address and whether other measures (fee caps, interoperability mandates, infrastructure investments) are underway.
- Comparative qualitative ranking of CBDC’s expected competitive impact by channel and scenario (relative assessment: "High", "Medium", "Low"):
  - I.a—Private dominated—Unregulated
    - Pricing: High
    - Value: Low
    - Contestability: High
    - User Access: High
  - I.b—Private dominated—Regulated
    - Pricing: Medium
    - Value: Medium
    - Contestability: Medium
    - User Access: Medium
  - II—Public FPS dominated
    - Pricing: Low
    - Value: Low
    - Contestability: Low
    - User Access: Medium
  - III—Cash dominated
    - Pricing: Low
    - Value: High
    - Contestability: High
    - User Access: High

- Key policy takeaways:
  - CBDC’s competitive potential hinges on market structure and degree of existing public intervention.
  - In unregulated private-dominated markets (Scenario I.a), CBDC could deliver broad welfare gains across pricing, contestability, and financial access (value improvements likely marginal).
  - In regulated private markets (Scenario I.b), CBDC’s impact is moderate but can strengthen remaining gaps; careful implementation needed to avoid duplication.
  - In markets with well-established public FPS (Scenario II), CBDC’s benefits are likely incremental—extending access to underserved populations is the primary avenue for additional impact.
  - In cash-reliant economies (Scenario III), CBDC’s strengths are boosting service value, lowering entry barriers, and widening access; immediate pricing effects may be limited.
  - Interoperability and appropriate design choices (fee structures, access models, usage restrictions) are central to CBDC’s competitive impact.
  - Regulatory safeguards and incentives (to ensure intermediary participation and distribution to underserved users) are often necessary to realize CBDC’s potential.

*Source: FINTECH NOTES — The Impact of Central Bank Digital Currency on Payments Competition (ftnea2025007a).*

### Box 2. Stablecoins: A Preliminary View of Their Potential Competitive Impact

### Box 2. Stablecoins: A Preliminary View of Their Potential Competitive Impact

### Stablecoins: current use and competitive dynamics
- Stablecoins have increased their market capitalization significantly over the past years but have not seen significant use in domestic retail payments; they currently seem largely used to facilitate international flows or to purchase other crypto assets on digital exchanges.
- Stablecoin payments are unlikely to gain significant market share until regulatory certainty has been achieved, as legal clarity, consumer protection, and user trust are critical.
- Key adoption conditions for stablecoins in payments:
  - Legal certainty that transactions are permitted.
  - Consumer protection and user trust that the stablecoin will maintain its peg to the underlying currency.
  - Availability of regulatory frameworks; some jurisdictions have passed stablecoin legislation (for example, the Markets in Crypto Assets regulation in the EU), while others are still discussing regulation or outright ban crypto assets for payments.
- Profit and network dynamics distinguishing stablecoins from other private payment platforms:
  - Issuers often earn from the spread between zero remuneration on the stablecoin and interest on reserves (usually invested in Treasury bills); payment fees are not currently the primary profit source.
  - Stablecoin issuers might forgo charging fees to promote adoption; if they do charge fees, they would likely exhibit competitive dynamics similar to profit-maximizing payment platforms (Scenario I).
  - Stablecoins are typically issued on decentralized blockchain networks over which issuers have limited control; issuers cannot set the network fees to process transfers.
  - Multiple stablecoins commonly share underlying networks, promoting interoperability and shifting network effects toward the network rather than a specific stablecoin (see Huberman, Leshno, and Moallemi 2021).
- Footnote note: Most stablecoins in circulation today are linked to the U.S. dollar; thus, they are not directly in competition with domestic payment systems or CBDCs in many jurisdictions. However, in the United States and in dollarized economies, U.S. dollar–linked stablecoins could still compete in the future with domestic payment systems or a potential CBDC.30

### Design levers that affect CBDC’s competitive impact
- Overview: Several design choices by decision makers will affect the competitive impact of CBDC in retail payments; these are described and evaluated relative to the baseline assumptions of the scenario analysis.

#### Policy constraints on CBDC pricing
- Central banks often face constraints on CBDC pricing—such as mandates to recover costs or to provide CBDC free of charge to consumers—that could hinder but not eliminate CBDC’s competitive impact.
- Implementing CBDC can entail substantial costs for public and private sectors; fiscal constraints (particularly in developing economies) may limit feasibility and competitive impact.
- Many central banks operate under policy frameworks that impose cost-recovery mandates that might offset some costs.31
- Central banks may face obligations to provide CBDC free of charge, or limitations on market intervention, constraining pricing.32
- Findings from Liu, Reshidi, and Rivadeneyra (2025): even under cost-recovery or zero-fee constraints, offering a CBDC can still improve welfare, but the outcome may be suboptimal.33
- Risks of strict zero-fee mandates:
  - Providing CBDC free of charge to end users might cause excessive competitive pressure, possibly crowding out private alternatives and reducing market resilience and consumer choice.
  - The risk is highest if CBDC is free for both consumers and merchants, as incumbents rely heavily on merchant transaction fees and may lack alternative revenue streams.
  - A temporary zero-fee CBDC phase, funded by seigniorage, could swiftly erode margins and prompt market exits.
- Policy implication: A more flexible pricing framework giving central banks greater freedom in setting fees can improve CBDC’s competitive impact and promote a balanced payment market.

#### Incentives in two-tier implementation
- Two-tier CBDC distribution risks softening competitive impact; central banks should ensure a competitive market for CBDC intermediaries.
- In two-tier models, central banks typically do not directly fix end-user fees; examples:
  - Nigeria’s eNaira was free to use initially, but after a 90-day grace period transactions would incur standard bank charges under existing fee guides.34
  - Eastern Caribbean Central Bank’s DCash pilot charged no fees to consumers, leaving charges to intermediaries at the merchant side.
- If central banks cannot or choose not to regulate end-user prices directly, CBDC’s competitive impact will depend heavily on intermediaries’ pricing choices.
- Policy implication: Central banks must ensure an efficient and competitive market for intermediaries.

#### Fostering intermediary competition and interoperability
- Encouraging diverse intermediary participation and ensuring interoperability between intermediaries is crucial to enhance CBDC competitiveness.
- Central banks can:
  - Open the CBDC ecosystem to a wider range of intermediaries to increase consumer choice and incentivize competition on price and quality (see Koonprasert and others 2024).
  - Promote clear regulatory standards for interoperability to allow seamless transfers and transactions across providers.
- High switching costs or limited interoperability can trap consumers and undermine competitive dynamics (see Copestake, Kirti, and Martinez Peria 2025).

#### Transaction or holding limits
- Transaction or holding limits hinder CBDC’s competitive impact but can be important to achieve policy objectives such as financial stability.
- Limits are widely considered a tool to limit bank disintermediation and align CBDC with financial stability goals (see Bidder, Jackson, and Rottner 2024; Verrier and others 2025).
- Calibration advice:
  - Limits should be informed by local payment behavior data.
  - Transaction limits could be set to accommodate the vast majority of retail purchases to avoid unduly constraining CBDC’s competitive impact.

#### Remuneration
- Remunerating CBDC holdings could increase its competitive impact on payments but entails trade-offs with disintermediation and financial stability risks (see Andolfatto 2021; Chang and others 2023).35
- Trade-off: Increased attractiveness and competitive pressure versus potential challenges for bank intermediation and financial stability.
- Policy implication: Any remuneration decision should weigh competitive benefits against downside risks.

#### Legal tender with mandatory merchant acceptance
- Designating CBDC as legal tender with mandatory merchant acceptance can significantly enhance competition by addressing coordination challenges in two-sided markets:
  - Legal requirement for merchants to accept CBDC eliminates merchant-side entry barriers.
  - Simultaneous consumer and merchant participation becomes feasible, enabling confident consumer adoption and universal acceptance.

#### Interoperability with existing payment platforms
- Enforcing interoperability between CBDC and existing payment platforms can enhance competitive impact but requires regulatory intervention.
- Mandated interoperability can leverage network effects of existing platforms (examples: QR code standards as in India’s UPI or Singapore’s Fast and Secure Transfers).
- Regulators must ensure seamless settlement between CBDC and commercial bank money on the backend.
- Where interoperability is not technically or legally feasible, CBDC can still:
  - Gain adoption by targeting underserved users.
  - Enable public sector use cases.
  - Foster open participation to build new network effects over time.

#### Bundled products and services
- Allowing CBDC to be offered as part of bundled financial services could enhance value to users and increase intermediary participation, but may introduce policy trade-offs (reduced pricing transparency).
- Bundling benefits:
  - Users value integrated offerings (credit, fraud protection, insurance).
  - Intermediaries gain additional revenue streams (interest, fees, cross-selling) making CBDC distribution viable when payments are low margin or free.
- Caution: Central banks should ensure CBDC is also offered as a stand-alone product to preserve price transparency.

#### Platform for innovation
- If CBDC can create a platform driving financial innovation (tokenization, programmability), its competitive pressure in payments will increase.
- Mechanisms:
  - CBDC serving as the settlement asset in tokenized financial markets would lead users to hold CBDC and use it for payments.
  - Programmability as a valued attribute could create demand for CBDC and network effects between innovation and payments.
- An open CBDC platform with APIs or programmable interfaces could allow intermediaries to offer differentiated, value-added services.
- Public infrastructure and shared utilities (example: India’s Central Payments Fraud Information Registry providing real-time fraud detection) can support complementary services and raise service quality standards, increasing competitive pressure on incumbents.
- Whether such services emerge depends on key design and ecosystem choices.

*Box 2. Stablecoins: A Preliminary View of Their Potential Competitive Impact — FINTECH NOTES The Impact of Central Bank Digital Currency on Payments Competition*

### Box 3. Examples of Competition-Enabling Design Features

### Box 3. Examples of Competition-Enabling Design Features

### Integration with existing public FPS
- India’s retail digital-rupee pilot requires every participating CBDC wallet to accept the national UPI QR code standard.
- Users that hold the digital rupee in digital wallets issued by the Reserve Bank of India can pay merchants by scanning existing UPI QR codes, meaning the CBDC plugs directly into India’s instant payment infrastructure.
- With over 50 million UPI-enabled merchant points covering both urban and rural areas, this integration instantly broadens CBDC acceptance without extra development effort and reduces end user lock-in.

### Interoperability with private platforms and intermediaries
- The People’s Bank of China’s CBDC (e-CNY) pilot design features a proprietary wallet that integrates seamlessly into existing payment ecosystems.
- End users can transact in e-CNY within Alipay, WeChat Pay, and major commercial banking apps.
- At the infrastructure level, e-CNY wallets interoperate with different operators’ digital wallets and link directly to bank accounts.
- By minimizing technical, contractual and behavioral frictions, this interoperable approach lowers end users’ switching costs and holds potential to aid with competitive effects.

### Charging zero or low end user fees
- Across live, pilot, and planned CBDC projects, central banks are adopting zero- or low-fee policies for their end users to position their CBDC as the low-cost alternative to incumbent payment networks.
- The Central Bank of Nigeria waives person-to-person eNaira charges and keeps wallet-funding costs “minimal” to nudge uptake.
- The Sand Dollar platform advertises zero transaction fees for individuals while explicitly offering merchants lower acceptance fees than card networks.
- The People’s Bank of China forbids fees on individual e-CNY conversions, passing its own zero-fee policy on to commercial operators.
- The legislative proposal of the digital euro states that individuals will incur no charges for basic services, while merchants may be charged.

### Allowing fees between intermediaries
- Within the Digital euro ecosystem, inter-intermediary fees, similar to interchange fees in existing card schemes, are envisaged to enable intermediaries (for example, those serving consumers) to recover their costs.
- To mitigate potential distortions, both inter-intermediary and merchant-service fees plan to be capped.
- To ensure these fees remain fair and uniform across the euro area, the European Central Bank plans to regularly monitor, adjust, and publish fee caps, and collaborate closely with competition authorities (see European Commission 2023).
- This pricing and regulatory approach could support end user uptake and encourage intermediary participation and contestability.

*Source: FINTECH NOTES — The Impact of Central Bank Digital Currency on Payments Competition (Box 3).*

### References

### ftnea2025007a - References

### Academic articles and theory on platforms, payments, and CBDC
- Andolfatto, David. 2021. “Assessing the Impact of Central Bank Digital Currency on Private Banks.” The Economic Journal 131 (634): 525–540.
- Armstrong, Mark. 2006. “Competition in Two-Sided Markets.” Rand Journal of Economics 37: 668.
- Armstrong, Mark and Julian Wright. 2007. “Two-sided markets, competitive bottlenecks and exclusive contracts.” Journal of Economic Theory 32 (2).
- Chiu, Jonathan, Seyed Mohammadreza Davoodalhosseini, Janet Jiang, and Yu Zhu. 2023. “Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment.” Journal of Political Economy 131 (5): 1213-1248.
- Edelman, Benjamin and Juliean Wright. "Price Coherence and Excessive Intermediation.” The Quarterly Journal of Economics 130(3): 1283-1328.
- Huberman, Gur, Jacob D. Leshno, and Ciamac Moallemi. 2021. “Monopoly without a Monopolist: An Economic Analysis of the Bitcoin Payment System.” The Review of Economic Studies 88 (6): 3011–40.
- Milgrom, Paul, and John Roberts. 1986. “Price and Advertising Signals of Product Quality.” Journal of Political Economy 94 (4): 796–821.
- Niesten, Hannelore, Isaac Kobina Amoako, and Bala Dahiru Abdullahi. 2024. “Comparative Analysis of the Implementation of Electronic Money Transfer Levies in Ghana and Nigeria: Policies, Legal Frameworks, and Outcomes.” The Institute of Development Studies and Partner Organizations.
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- Shapiro, Carl. 1983. “Premiums for High Quality Products as Returns to Reputations.” The Quarterly Journal of Economics 98 (4): 659–79.
- Weyl, E. Glen. 2010. “A Price Theory of Multi-sided Platforms.” American Economic Review. 100(4): 1642-1672.

### IMF, BIS, central bank, and policy institution notes, working papers, and reports
- Agur, Itai, Germán Villegas-Bauer, Tommaso Mancini-Griffoli, Maria Soledad Martinez Peria, and Brandon Tan. 2025. “Tokenization and Financial Market Inefficiencies.” IMF Fintech Note 2025/001, International Monetary Fund, Washington, DC.
- Auer, Raphael, Ulf Lewrick, and Jan Paulick. 2025. “DeFiying Gravity? An Empirical Analysis of Cross-Border Bitcoin, Ether and Stablecoin Flows.” BIS Working Paper No. 1265, Basel, Switzerland.
- Bidder, Rhys M., Timothy P. Jackson, and Matthias Rottner. 2024. “CBDC and Banks: Disintermediating Fast and Slow.” Deutsche Bundesbank Discussion Paper No.15/2024, Deutsche Bundesbank, Berlin, Germany.
- Bidder, Rhys and Lerong Lu. 2025. “Riding the digital tides: Analyzing the digital yuan’s present and possible future.” Journal of Financial Transformation.
- Cardozo, Pamela, Andrés Fernández, Jerzy Jiang, and Felipe D. Rojas. 2024. “On Cross-Border Crypto Flows: Measurement Drivers and Policy Implications.” No. 2024/261, International Monetary Fund, Washington, DC.
- Chang, Huifeng, Federico Grinberg, Lucyna Gornicka, Marcello Miccoli, and Brandon Tan. 2023. Central Bank Digital Currency and Bank Disintermediation in a Portfolio Choice Model. International Monetary Fund, Washington, DC.
- Copestake, Alexander, Divya Kirti, and Maria Soledad Martinez Peria. 2025. “Growing Retail Digital Payments: The Value of Interoperability.” IMF Fintech Note 2025/004. International Monetary Fund, Washington, DC.
- Duarte, Angelo, Jon Frost, Leonardo Gambacorta, Priscilla Koo Wilkens, and Hyun Song Shin. 2022. “Central Banks, the Monetary System and Public Payment Infrastructures: Lessons from Brazil’s Pix.” BIS Bulletin no. 52, Bank for International Settlements, Basel, Switzerland.
- Felt, Marie-Hélène, Fumiko Hayashi, Joanna Stavins, and Angelika Welte. 2023. “Regressive effects of payment card pricing and merchant cost pass-through in the United States and Canada.” Journal of Banking and Finance Vol. 154.
- Frost, Jon, Priscilla Koo Wilkens, Anneke Kosse, Vatsala Shreeti, and Carolina Velásquez. 2024. “Fast Payments: Design and Adoption.” BIS Quarterly Review. Bank for International Settlements Basel, Switzerland.
- Illes, Anamaria, Anneke Kosse and Peter Wierts. 2025. “Advancing in tandem – results of the 2024 BIS survey on central bank digital currencies and crypto.” BIS Papers No 159. Bank for International Settlements, Basel.
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- Liu, Youming, Francisco Rivadeneyra, Edona Reshidi, Oleksandr Shcherbakov, and André Stenzel. “Ecosystem Models for a Central Bank Digital Currency: Analysis Framework and Potential Models.” Staff Discussion Papers No. 2024-13. Bank of Canada, Ottawa.
- Liu, Youming, Edona Reshidi, and Francisco Rivadeneyra. 2025. “Public vs. Private Payment Platforms: Market Impacts and Optimal Policy.” SSRN, Working Paper No. 5327481.
- Patel, Manisha, Safari Kasiyanto, and André Reslow. 2024. “Positioning Central Bank Digital Currency in the Payments Landscape.” IMF Fintech Note 2024/006, International Monetary Fund, Washington, DC.
- Reuter, Marco. 2025. “Decrypting Crypto: How to Estimate International Stablecoin Flows.” IMF Working Paper 2025/141, International Monetary Fund, Washington, DC.
- Ricci, Luca Antonio, Calixte Ahokpossi, Saad Noor Quayyum, Rima Turk Ariss, Anna Belianska, Mehmet Cangul, Fuje Habtamu, Sunwoo Lee, Grace Bin Li, Yibin Mu, Nkunde Mwase, Jack Joo Ree, Haiyan Shi, and Vitaliy Kramarenko. 2025. “Digital Payment Innovations in Sub-Saharan Africa.” IMF Departmental Paper, International Monetary Fund, Washington, DC.
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- Verrier, Jeanne, Marcello Miccoli, Marco Gross, and Germán Villegas Bauer. 2025. “Evaluating the Implications of CBDC for Financial Stability.” IMF Fintech Note, International Monetary Fund, Washington, DC.
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- World Bank Group. 2023. “A Snapshot of Payment Systems Worldwide - Summary Outcomes of the Sixth Global Payment Systems Survey: Data Tables.” World Bank Group, DC.

### Central bank circulars, press releases, and domestic payment system guidance
- Bank of England. 2025. “Progress update: The digital pound and the payments landscape.” Web Report published January 14, 2025. Bank of England. https://www.bankofengland.co.uk/report/2025/digital-pound-progress-update
- Banco Central Do Brasil. 2025. “Pix is now the most used payment method in Brazil.” Press Release. March 1, 2025. Banco Central Do Brasil. https://www.bcb.gov.br/en/pressdetail/2588/nota
- Central Bank of Nigeria. 2019. “Review of Process for Merchants Collections on Electronic Transactions.” Letter to All Banks, Processors and Switches from the Payments System Management Department of the Central Bank of Nigeria. September 17, 2019. https://www.cbn.gov.ng/out/2019/psmd/review%20of%20process%20for%20merchants%20collection%20on%20electronic%20transactions.pdf
- Central Bank of Nigeria. 2021. “Regulatory Guidelines on the eNaira.” Circular and Guidelines 0001/023. 25 October 2021. Central Bank of Nigeria https://www.cbn.gov.ng/Out/2021/FPRD/eNairaCircularAndGuidelines%20FINAL.pdf#:~:text=9,and%20then%20revert%20to%20applicable
- Central Bank of Sri Lanka. 2025. “Maximum Limits on Transaction Values and Fees of Common Electronic Fund Transfer Switch.” Payment and Settlement Systems Circular No. 02. Of 2025: February, 7 2025. Central Bank of Sri Lanka. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/laws/cdg/psd_circular_no_02_of_2025_e.pdf
- People’s Bank of China. 2022. “E-CNY: main objectives, guiding principles and inclusion considerations.” BIS Papers 123: CBDCs in emerging market economies. April 2022. Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap123.pdf
- Reserve Bank of Australia. 2021. “Review of Retail Payments Regulation – Conclusions Paper.” Reserve Bank of Australia Sydney, Australia. https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/conclusions-paper-202110/
- Reserve Bank of India. 2022. “Central Payments Fraud Information Registry Notification.” RBI/2022-23/158. Reserve Bank of India Webpage. https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12431&Mode=0
- State Bank of Pakistan. 2023. “Improving Payment Card Acceptance Infrastructure in Pakistan.” Circular Letter No 01 of 2023. March 17, 2023. State Bank of Pakistan Webpage. https://www.sbp.org.pk/psd/2023/CL1.htm

### Competition, antitrust, and regulatory documents
- European Commission. 2001. “Case No COMP/29.373 — Visa International.” European Commission Decision Document 32001D0782. EUR-Lex. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001D0782
- European Commission. 2002. “Case No COMP/29.373 — Visa International — Multilateral Interchange Fee.” European Commission Decision Document 32002D0914. EUR-Lex. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32002D0914
- European Commission. 2007. “Case no COMP/34.579 — Europay (Eurocard-MasterCard).” https://ec.europa.eu/competition/antitrust/cases/dec_docs/34579/34579_1889_2.pdf
- European Commission. 2015. “Regulation (EU) 2015/751 on Interchange Fees for Card-Based Payment Transactions.” EUR-Lex. European Parliament Regulation Document 32015R0751. https://eur-lex.europa.eu/eli/reg/2015/751/oj/eng
- European Commission. 2020. “Study on the Application of the Interchange Fee Regulation.” Final Report. Prepared by Ernst & Young and Copenhagen Economics. Copenhagen Economics. https://copenhageneconomics.com/wp-content/uploads/2021/12/copenhagen-economics_march_ifr-report.pdf
- European Commission. 2023. “Proposal for a Regulation of the European Parliaments and of the Council on the establishment of the digital euro.” COM(2023) 369 . 2023/0212. June 28, 2023. EUR-Lex. https://eur-lex.europa.eu/resource.html?uri=cellar:6f2f669f-1686-11ee-806b-01aa75ed71a1.0001.02/DOC_1&format=PDF
- European Commission. 2024. “Antitrust: Commission Consults on Commitments Offered by Apple Regarding Access to NFC Input on iOS Devices.” Press Release, May 2, 2024. European Commission. https://ec.europa.eu/commission/presscorner/detail/en/ip_24_3706
- Federal Reserve. 2021. “Regulation II: Debit Card Interchange Fees and Routing.” Webpage. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/paymentsystems/regii-about.htm
- U.K. Financial Conduct Authority. 2022. “The potential competition impacts of Big Tech entry and expansion in retail financial services.” Discussion Paper DP22/5. U.K. Financial Conduct Authority, London. https://www.fca.org.uk/publication/discussion/dp22-5.pdf
- U.K. Payment Systems Regulator. 2021. “Market Review into Card-Acquiring Services.” Final Report. U.K. Payments Systems Regulator, London. https://www.psr.org.uk/media/p1tlg0iw/psr-card-acquiring-market-review-final-report-november-2021.pdf
- U.K. Payment Systems Regulator. 2022. “The PSR Strategy.” U.K. Payments Systems Regulator, London. https://www.psr.org.uk/media/m2kfxfkg/psr-strategy-jan-2022.pdf
- U.S. Supreme Court. 2018. “Ohio ET AL. v. American Express Co. ET AL.” Washington, DC.

### Empirical and applied studies on payment markets, card acquiring, interoperability, and merchant costs
- Garcés, Eliana, and Brent Lutes. 2018. “Regulatory Intervention in Card Payment Systems: An Analysis of Regulatory Goals and Impact.” https://www.brattle.com/wp-content/uploads/2021/05/15608_regulatory_intervention_in_card_payment_systems_-an_analysis_of_regulatory_goals_and_impact.pdf#:~:text=21%20asymmetries%20exist%20between%20the,the%20issuer%20side%20compared%20to
- Hayashi, Fumiko. 2021. “Cash or Debit Card? Payment Acceptance Costs for Merchants.” Kansas City Federal Reserve. https://www.kansascityfed.org/research/economic-review/cash-or-debit-cards-payment-acceptance-costs-for-merchants/
- Hayashi, Fumiko, Aditi Routh, Sam Baird, and Kennady A. Schertzer. 2024. “Public Authority Involvement in Payment Card Markets: Various Countries August 2024 Update.” Kansas City Federal Reserve. https://www.kansascityfed.org/Interchange%20Fees/documents/10431/PublicAuthorityInvolvementPaymentCardMarkets_VariousCountries_August2024Update.pdf
- Welte, Angelika, and Jozsef Molnar. 2021. “The Market for Acquiring Card Payments from Small and Medium-Sized Canadian Merchants.” Business Economics 56 (2): 87.
- Ekmekci, Mehmet, Alexander White, and Lingxuan Wu. 2025. “Platform Competition and Interoperability: The Net Fee Model.” Management Science. https://pubsonline.informs.org/doi/10.1287/mnsc.2023.02810
- Chiu, Jonathan, Seyed Mohammadreza Davoodalhosseini, Janet Jiang, and Yu Zhu. 2023. “Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment.” Journal of Political Economy 131 (5): 1213-1248.

*References list for FINTECH NOTES — The Impact of Central Bank Digital Currency on Payments Competition (NOTE/2025/007).*

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_Source: https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025007a.pdf_