Modelling the Four-Party Billing Payment Scheme: The Case of BPAY

Abstract

My thesis involves developing a detailed understanding of the dynamics of a two-sided four-party Bill Payment market utilising proprietary data obtained from BPAY. The first chapter of my thesis analyses the market from a macroeconomic perspective, whilst the second and third chapter takes a microeconomic approach. The first chapter models the demand for merchant acceptance and consumer usage of a four - party payment scheme in the Bill Payment market. Within a cointegrating framework, demand equations are estimated using vector error correction models using proprietary data between March 2003 and December 2010. Results illustrate the importance of network effects in determining consumer usage and merchant demand. Additionally, price elasticities suggest the market for payments in Australia is competitive. The second chapter exploits a unique data set that details the demographics and transactions of individuals over a 30 month observational window. Survival analysis techniques are employed to quantify the risks of individuals leaving the platform. Results suggest support for the Hayashi and Klee (2003) finding in the Bill Payment market with individuals having a credit card less likely to leave the BPAY platform at any point in time. The motivation of the third chapter was to establish whether a link existed between the usage of the BPAY platform by consumers with the adoption of prior payment method technologies, given by credit card holding. Unlike Hayashi and Klee (2003), there is an added layer of complexity as credit cards are another payment instrument individuals can use for bill payments. An ordered generalised ordered logit model is estimated to determine the influence of credit card holding on frequency of usage. The results lend support to the Hayashi and Klee (2003) hypothesis that the adoption of a technology based payment instrument is influenced by the usage of prior technologies.