2  Even though systemic risks are not an issue in the card market, other risks may be highly relevant. Operational risks in particular are important since operational disturbances may give rise to substantial costs for society as a whole. The market for card payments is characterised by the presence of strong network effects in combination with economies of scale. To exploit these effects players that otherwise compete with each other have to cooperate. This cooperation is manifested in common standards and a common infrastructure. It is an important cooperation, which has the potential of providing inexpensive and convenient payments services to the public in a way that would otherwise be impossible. There is, however, another side of the coin. High market concentration may reduce the competitive pressure and thus the functioning of the market. Market power may be abused. The effect from concentration on incentives to invest in research and development is ambiguous. High concentration may also make it difficult to establish new payment instruments and systems. It is not obvious that the market by itself can strike the right balance between cooperation and competition. Turning to the pricing of card products, the Riksbank, in dialogue with the banks, has launched a research project related to retail payments. The aim is to investigate how well the price structure for retail payment services reflects the underlying production costs for these services.
It is expensive to use, however, and in one way or another we all as bank customers pay for the use of it. For reasons of security and efficiency in retail payments, a more widespread use of cards would be desirable. Forces driving the development of the card payment market The forces of supply and demand shape the evolution of the card payment market in much the same manner as they influence the evolution of any other market. Demand is influenced by factors such as acceptance, convenience and relative prices. It has sometimes been argued that demand for payment instruments is not price elastic - that relative prices 1 do not greatly influence users' preferences for different payment instruments. The Nordic experience does not support this view. The rapid expansion of card payments and other electronically initiated instruments in Norway clearly point in a different direction. Norwegian consumers' shift of preferences followed immediately after banks' change of pricing strategy, where (among other changes) a price was put on the use of cash (as a small fee on ATM withdrawals). In Sweden, as previously noted, the use of checks fell sharply when banks started to charge for their use, although the charge was fairly small. Of course, good substitutes must be readily available. But if alternative ways of payment are present, fees seem to matter and matter a lot.