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What is in it for us? Network effects and bank payment innovation

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  • Milne, Alistair

Abstract

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Swe-den, and Finland, and discusses the impact of network effects on incentives to adopt new payments tech-nology. A model is presented, in which private benefits for investment in shared inter-bank payments in-frastructure are weak. In contrast, due to ‘account externalities’, there are strong incentives for investment in intra-bank payment systems. These two features, distinguishing bank payments from other network in-dustries, can help explain some of the observed cross country differences in payments arrangements.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 30 (2006)
Issue (Month): 6 (June)
Pages: 1613-1630

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Handle: RePEc:eee:jbfina:v:30:y:2006:i:6:p:1613-1630

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  1. Gautam Gowrisankaran & Joanna Stavins, 2002. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," NBER Working Papers 8943, National Bureau of Economic Research, Inc.
  2. Knittel, Christopher R., 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Santa Cruz Department of Economics, Working Paper Series qt4z54r2s3, Department of Economics, UC Santa Cruz.
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Cited by:
  1. Guerino Ardizzi & Eleonora Iachini, 2013. "Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions," Questioni di Economia e Finanza (Occasional Papers) 144, Bank of Italy, Economic Research and International Relations Area.
  2. Jason Allen & Walter Engert & Ying Liu, 2006. "Are Canadian Banks Efficient? A Canada--U.S. Comparison," Working Papers 06-33, Bank of Canada.
  3. Kemppainen, Kari, 2008. "Integrating European retail payment systems: some economics of SEPA," Research Discussion Papers 22/2008, Bank of Finland.
  4. Milne , Alistair, 2005. "Standard setting and competition in securities settlement," Research Discussion Papers 23/2005, Bank of Finland.

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