Competition in the Financial Sector: Overview of Competition Policies by Stijn Claessens

Author:Stijn Claessens
Language: eng
Format: epub
ISBN: 9781452765211
Publisher: International Monetary Fund
Published: 2009-08-15T00:00:00+00:00

E. Current Status

The upshot of these complications and changes in financial services industries is that, for a same degree of liberalization, competition may be less assured today than in the past. The increasing presence of high fixed costs and large sunk costs in the production of whole-sale financial services, can mean significant first mover and scale advantages, possibly leading to natural monopoly and market power. Externalities, say in e-finance in the adoption of payments using mobile phones, can make the adoption of new technologies exhibit critical mass properties. In consumer finance, switching costs may have increased—for example, because automatic payments are increasingly linked to one’s specific bank account number. This means in turn that customers can not and do not easily change provider, leading to more complex competition. There is indeed some evidence from studies on banking systems that the progress in increasing competition may have slowed down from the early 2000s on, with even some indications of a decline in competition in some markets (Bikker and Spierdijk, 2007). The robustness of this finding is yet to be confirmed, and the exact causes are unclear, and in any case, are likely to be multiple.

The difficulty to document (changes in) competition with current tools shows that the tools to measure the (lack of) competition policy in financial services` industries need to be enhanced or even be newly designed to address new issues and changes. This will often require developing and applying new, economically fully justified models, which will take time and can be complex. Short of doing so, however, much can be done. Much information on the competitive structure can still be discerned by focusing on price setting for specific products or financial functions, e.g., what are the fees charged for consumer retail products or for processing individual pension premiums or payments. In addition, more focus can be given to the pricing and availability of inputs necessary to produce financial services, e.g., do all types of financial institutions have access on the same basis to the retail payments system? This type of information can also be better disclosed such that users can act on it.

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