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Payment Network Scale Economies, SEPA, and Cash Replacement

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  • Bolt Wilko

    (Research Department, De Nederlandsche Bank, The Netherlands)

  • Humphrey David

    ()
    (Department of Finance, Florida State University, Tallahassee, FL, U.S.A.)

Abstract

The goal of SEPA (Single Euro Payments Area) is to facilitate the emergence of a competitive, intra-European market by making cross-border payments as easy as domestic transactions. With cross-border inter-operability for electronic payments, card transactions will increasingly replace cash and checks for all types of payments. Using different methods, we estimate card and other payment network scale economies for Europe. These indicate substantial cost efficiency gains if processing is consolidated across borders rather than "piggy-backed" onto existing national operations. Cost reductions likely to induce greater replacement of small value cash transactions are also illustrated.

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Bibliographic Info

Article provided by De Gruyter in its journal Review of Network Economics.

Volume (Year): 6 (2007)
Issue (Month): 4 (December)
Pages: 1-21

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Handle: RePEc:bpj:rneart:v:6:y:2007:i:4:n:2

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  1. Humphrey, David & Willesson, Magnus & Bergendahl, Goran & Lindblom, Ted, 2006. "Benefits from a changing payment technology in European banking," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1631-1652, June.
  2. Roller, Lars-Hendrik, 1990. "Proper Quadratic Cost Functions with an Application to the Bell System," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 202-10, May.
  3. Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-30, May.
  4. Julia S. Cheney, 2006. "Supply- and demand-side developments influencing growth in the debit market," Payment Cards Center Discussion Paper 06-11, Federal Reserve Bank of Philadelphia.
  5. Pulley, Lawrence B & Humphrey, David B, 1993. "The Role of Fixed Costs and Cost Complementarities in Determining Scope Economies and the Cost of Narrow Banking Proposals," The Journal of Business, University of Chicago Press, vol. 66(3), pages 437-62, July.
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Cited by:
  1. Bolt, Wilko & Humphrey, David, 2010. "Bank competition efficiency in Europe: A frontier approach," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1808-1817, August.
  2. Beijnen, Christine & Bolt, Wilko, 2009. "Size matters: Economies of scale in European payments processing," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 203-210, February.
  3. Bolt, Wilko & Schmiedel, Heiko, 2009. "SEPA, efficiency, and payment card competition," Working Paper Series 1140, European Central Bank.
  4. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
  5. Docherty, Peter & Wang, Gehong, 2010. "Using synthetic data to evaluate the impact of RTGS on systemic risk in the Australian payments system," Journal of Financial Stability, Elsevier, vol. 6(2), pages 103-117, June.
  6. Kemppainen, Kari, 2008. "Integrating European retail payment systems: some economics of SEPA," Research Discussion Papers 22/2008, Bank of Finland.
  7. Wilko Bolt, 2012. "Retail Payment Systems: Competition, Innovation, and Implications," DNB Working Papers 362, Netherlands Central Bank, Research Department.
  8. Avadanei, Anamaria & Ghiba, Nicolae, 2010. "Implication of Single Euro Payments Area for financial services market. The case of Romania," MPRA Paper 28614, University Library of Munich, Germany.
  9. Hasan, Iftekhar & Schmiedel, Heiko & Song, Liang, 2009. "Return to retail banking and payments," Working Paper Series 1135, European Central Bank.
  10. Takala, Kari & Viren, Matti, 2008. "Efficiency and costs of payments: some new evidence from Finland," Research Discussion Papers 11/2008, Bank of Finland.
  11. David B. Humphrey & Robert Hunt, 2012. "Getting rid of paper: savings from Check 21," Working Papers 12-12, Federal Reserve Bank of Philadelphia.
  12. Wilko Bolt & David Humphrey, 2012. "A Frontier Measure of U.S. Banking Competition," DNB Working Papers 359, Netherlands Central Bank, Research Department.
  13. Nicole Jonker, 2013. "Social costs of POS payments in the Netherlands 2002-2012: Efficiency gains from increased debit card usage," DNB Occasional Studies 1102, Netherlands Central Bank, Research Department.
  14. Humphrey, David, 2009. "Payment scale economies, competition, and pricing," Working Paper Series 1136, European Central Bank.
  15. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  16. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.

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