Competition for retail deposits between commercial banks and non-bank operators: a two-sided platform analysis

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 25 May 2018

Staff Working Paper No. 728
By Paolo Siciliani

Commercial banks’ mainstream business model, which is reliant on a stable supply of retail deposits, continues to be challenged by new and innovative sources of non-bank competition. This paper examines the implications of one such source: a substitute for commercial banks’ personal and saving accounts that provides a safer money storage option thanks to access to a central bank’s balance sheet. I model competition for retail deposits between a bank and a non-bank payment service operator by adopting the two-sided platform framework to capture the payment functionality between consumers and merchants under various configurations. I show that banks’ mainstream business model is most vulnerable when consumers perceive the two service providers as close substitutes; they have the option to sign up with both service providers; their distribution of deposit is skewed; and they are not allowed to make payments across platforms.

PDF Competition for retail deposits between commercial banks and non-bank operators: a two-sided platform analysis 

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