Will payment innovations disrupt banking? Lessons from prepaid cards
OeNB Freitagsseminar with Brigitte Hochmuth, University of Copenhagen
Abstract
We study the potential for payment innovations—including digital wallets, stablecoins, and central bank digital currencies (CBDCs)—to displace bank-intermediated payments and retail deposits. We develop a model of payment adoption and portfolio choice in which payment instruments differ in their liquidity-provision and spending-control features. Using survey data on Italian households' adoption of debit, credit, and prepaid cards, we structurally estimate substitution elasticities across payment instruments. We find moderate substitution from cash to digital payments but substantially stronger substitution within the digital payment ecosystem. Our estimates imply that new payment instruments can significantly reduce the use of traditional bank-based payment services. However, their effect on banks' retail deposit funding remains limited as long as these instruments do not offer interest-bearing balances. The main competitive threat to traditional banks therefore does not arise from non-remunerated CBDCs, but from interest-bearing digital money issued by fintech firms, stablecoin providers, or neobanks, which competes directly with bank deposits as a store of value.
Date
Friday, 26 June 2026 | Start: 11:00 AM | End: 12:30 PM
Venue
The event is planned both, online via Webex and onsite at the Oesterreichische Nationalbank, Otto-Wagner-Platz 3, 1090 Vienna
