Digital finance may empower oppressive states and bring stability risks of its own. But ultimately the new world of digital payments should unleash great potential
systems come with trade-offs. In a sense, all that is needed is a spreadsheet recording how much of a given currency any would-be payer has. But to prevent fraud, manage disputes, ensure privacy and offer credit, the costs can add up. One estimate suggests they can amount to over 2% of globalThis special report has laid out three broad payment models. In the rich world card networks on top of bank accounts have retained their dominance. Yet even here there are different approaches.
No payments system is perfect, and each could learn from others. America should consider the European model of capping credit-card fees or letting debit cards compete on an even footing. Either would make the system more inclusive. India ought to be ready to introduce small fees for digital payments, as Brazil has done. That would improve customer protection and help the system grow. Neither cryptocurrencies nor central-bank digital currencies will revolutionise payments systems.
A more novel risk from digital finance may be financial instability. A recent paper by Luigi Zingales of the University of Chicago and co-authors finds that deposit outflows from digital banks were greater than those from traditional banks in the second quarter of 2022. The number of brokerage accounts, which give consumers another place to park assets, also correlates with greater outflows. As the authors conclude: “Regulation that takes as given deposit stickiness may be obsolete.
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