When friends become enemies: co-opetition relationships between banks and third-party payment providers

Abstract

Purpose

The purpose of this paper is to investigate the conditions under which working with an incumbent downstream competitor could be a beneficial strategy for upstream firms as the case of the relationship between banks and third-party payment providers.

Design/methodology/approach

Using a game model, this study considers a market with two upstream firms (banks) and two downstream firms (third-party payment providers). One downstream firm is an incumbent that poses a competitive threat to the upstream market, and the other downstream firm does not.

Findings

The results show that the optimal decision for banks depends on the number of loyal users the incumbent third-party payment providers and banks have. When the bank has more loyal users than the competitive third-party provider to a certain level, it would terminate cooperation with the provider; otherwise, the bank would maintain cooperation. This is true whether the duopoly banks are symmetrical or asymmetrical.

Originality/value

This study makes contribution to the theory of co-opetition lies in the fact that it examines a special case of competition and cooperation between vertical enterprises in the bank context. This study investigates how the upstream firms do when threatened by a downstream firm while the upstream firms have other options. This study also contributes to bank marketing theory through providing explanations for some of the incomprehensible cooperation in China's payment market, which is characterized by consumer loyalty. This study extends previous new-entry competition for banks by differentiating between incumbent and new-entry downstream firms.

Peer review

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJBM-11-2019-0414

Citation

Zhang, X. and Yang, D. (2020), "When friends become enemies: co-opetition relationships between banks and third-party payment providers", International Journal of Bank Marketing, Vol. 38 No. 5, pp. 1133-1157. https://doi.org/10.1108/IJBM-11-2019-0414