Standardization in electronic money

Abstract

Electronic money services are provided by the combination of Integrated Circuit (IC) cards and terminals. The compatibility of different brands of electronic money can be enabled by firms' joint adoption of standard terminals. In this paper, we analyse the effect of achieving compatibility among different brands of electronic money. We show that, if the unit production cost of a standard terminal is not so much different from that of a non-standard one, firms' joint adoption of standard terminals will increase the total sales of IC cards and the network size of terminals, thus raising consumers' surplus and firms' profits. On the other hand, if the unit cost of a standard terminal is so high that firms are discouraged from voluntarily adopting standard ones, the government may employ subsides to enhance efficiency. However, if the duty of implementing standardization is placed solely on the firms without subsidies, all the agents, including consumers and retailers, will be left worse off.