Innovation and Regulation of Digital Payment Platforms

Dr. Alberto Asquer
Dr. Inna Krachkovskaya

The rise of digital payment platforms – such as from Apple Pay to Amazon Pay, from Google Pay to WeChat Pay, from PayPal to Alipay – is radically changing the structure and dynamics of payment systems in the world. Incumbents of the financial industry are exposed to formidable threats to part of their business model. Consumers are offered innovative convenient ways to settle transactions, albeit under conditions of possible threats to privacy, consumer protection, and net neutrality. Governments are increasingly concerned that the new systems of payment could jeopardize anti-money laundering measures, taxation of domestic and international trade, and monetary sovereignty. Within such context, what is the regulatory response to the rise of digital payment platforms?

As other emergent technologies, digital payment platforms pose a number of issues concerning what precisely the new technology entails, how better unwelcome effects of the new technology can be tackled, and which sorts of applications of the new technologies regulators should be specifically concerned with. Digital payment platforms present such features – like fast pace of development and commercialization, reduced barriers to entry, and diffusion at the global scale – that may result in an increasing gap between technological applications and laws, in unforeseen disruptions to the economy and the society, and in dramatic shifts of systems of financial governance. Explaining regulatory responses to digital payment platforms, therefore, are important to theorize the joint evolution of technology, business models, business ecosystems and regulation that occurs in digital platforms.

This paper aims to analyse how the rise of digital payment platforms resulted in various regulatory responses in the major world economies so far. The question is tackled through the comparison between narratives about regulatory responses in the EU, the US, China and Japan. In the discussion part, evidence from the four cases is used to develop a theorization – in the form of explanatory hypotheses by abduction – of regulatory responses that aims to improve existing accounts of the regulation of digital platforms.