The second challenge is market fragmentation. Across domestic markets, incumbent banks, technology companies and telco firms – among others – are all vying for a share of the pie, leading to a proliferation of payment service providers. Although a more diversified market can reduce some of the concentration risks that I highlighted earlier, there are trade-offs that need to be managed. In 2018 alone, the UK saw its number of e-money players increased from roughly 400 to 600 companies. A country that has a high number of proprietary networks is likely to face challenges for interoperability across payment providers. This in turn could weaken network effects and economies of scale for domestic payments. Meanwhile, on the ground, merchants may cope by putting up a dizzying array of signs and stickers to indicate the range of accepted payment options. The sheer amount of choice – each with differing benefits and limitations – could be confusing for consumers, and frustrating for merchants especially when it comes to reconciliation. For countries striving to encourage the adoption of e-payments, these issues could be a major stumbling block. Similarly, market fragmentation is a growing challenge at the international level, especially as individual countries and firms embark on their respective initiatives in the payments landscape. This could lead to substantive cross-border differences, such as in the technical standards, business rules and regulatory requirements. While these differences are not insurmountable, overcoming them can entail significant costs – such as when a web of intermediaries is needed to facilitate a cross-border transaction.
The tests include cyclical convergence and structural flexibility, the impact on investment, the impact on the financial services industry and the impact more generally on growth, stability and jobs. So the UK will not join EMU at the outset. But financial firms in London, whatever their nationality, see the euro as a key part of their business. With our support at the Bank of England, they have been actively preparing for the introduction of the euro. London thrives on liquid markets, regardless of currency. So the introduction of the euro is a major opportunity for London. BIS Review 11/1998  -2-  From the start, London will act as a link between New York and the euro area by providing a full range of euro services in wholesale financial markets. That includes euro payments and settlement, so that anyone who wishes to do so will be able to trade and settle in euro in London from the first day of EMU. But it also extends to euro banking, foreign exchange and derivatives trading, bond and equity issuance and trading, fund management, financial advice and professional support services as well. The City of London is Europe’s leading financial centre and one of the top three global centres, alongside New York and Tokyo. Here in New York, the financial centre is influenced by the size of the domestic economy. That is true of Tokyo as well. But London’s success has historically been due to its international financial business.