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Returns to Retail Banking and Payments

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  • Iftekhar Hasan

    ()

  • Heiko Schmiedel
  • Liang Song

    ()

Abstract

The European banking industry joined forces to achieve a fully integrated market for retail payment services in the euro area: the Single Euro Payments Area (SEPA). Against this background, the present paper examines the fundamental relationship between retail payment business and overall bank performance. Using data from across 27 European markets over the period 2000-07, we analyse whether the provisions of retail payment services are reflected in improved bank performance, using accounting ratios and efficiency measures. The results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, a higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance although they have a positive influence on the performance of commercial banks. Additionally, findings reveal that impact of retail services on bank performance is dominated by fee income. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications. The results may also be informative for the industry when reconsidering its business models in the light of current financial market developments. JEL Classification: G21, G28

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 41 (2012)
Issue (Month): 3 (June)
Pages: 163-195

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Handle: RePEc:kap:jfsres:v:41:y:2012:i:3:p:163-195

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Web page: http://www.springerlink.com/link.asp?id=102934

Related research

Keywords: Retail payment; Bank performance; Cost and profit efficiency; G21; G28;

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References

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Citations

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Cited by:
  1. Wilko Bolt & David Humphrey, 2013. "Competition in bank-provided payment services," DNB Working Papers 401, Netherlands Central Bank, Research Department.
  2. O'Toole, Ronnie, 2013. "The Usage, Cost and Pricing of Retail Payments in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 74-84, April.
  3. Martikainen, Emmi & Schmiedel, Heiko & Takalo, Tuomas, 2013. "Convergence in European retail payments," Occasional Paper Series 147, European Central Bank.
  4. Bolt, Wilko & Schmiedel, Heiko, 2009. "SEPA, efficiency, and payment card competition," Working Paper Series 1140, European Central Bank.
  5. Tsai, Jeng-Yan, 2013. "Optimal bank interest margins under capital regulation in a call-option utility framework," Economic Modelling, Elsevier, vol. 31(C), pages 557-565.

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