Payment Innovation and Net Neutrality

One of the key arguments for net neutrality is that it fosters independent and rapid innovation at both the transport and application layers.  It is instructive to look at a different type of network to see what happens to innovation in the absence of net neutrality.  Visa and Mastercard have built dominant positions in payment networks by tightly controlling all aspects of the network, such as what devices can be connected to it and who can issue and process cards.  The result has been dramatic.  Both have amazing profit margins, but payment innovation in the US has been minimal.  The only way a new entrant could get going is by building an entire new network.  That is not just a (nearly) prohibitive cost to the new entrant, but also socially wasteful – something akin to having two Internets (imagine the amount of duplication in routers and cabling).  Now contrast that with the government mandating that if you operate a payment network, you need to accept transactions from anyone meeting some set of defined standards, such as say having a bank charter (using that as an example to show that this doesn’t necessarily require an additional government bureaucracy).  Now someone could innovate regionally with much lower capital requirements, for instance by establishing a payment solution based on Bluetooth and mobile apps.

Posted: 22nd June 2010Comments
Tags:  innovation net neutrality

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