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Scale Economies, Cost Efficiencies, and Technological Change in Federal Reserve Payments Processing

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Author Info
Bauer, Paul W
Ferrier, Gary D

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Abstract

This paper uses a stochastic cost frontier to examine the scale economies, cost efficiencies, and technological change of three payment instruments (check, ACH, and Fedwire processing) provided by the Federal Reserve over the period 1990-94. The authors find evidence of substantial scale economies and cost inefficiencies in the ACH and Fedwire services. Check processing also exhibits substantial cost inefficiency but constant returns to scale. Technological progress is found to be sizable for ACH and Fedwire; check processing is found to have experienced technological 'regress,' a finding that is likely due to a decrease in processing volume over the sample period. Copyright 1996 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 28 (1996)
Issue (Month): 4 (November)
Pages: 1004-39
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Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:4:p:1004-39

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  1. Christine Beijnen & Wilko Bolt, . "Size Matters: Economies of Scale in European Payment Processing," FIW Working Paper series 013, FIW. [Downloadable!]
    Other versions:
  2. Joanna Stavins & Paul W. Bauer, 1997. "The effect of pricing on demand and revenue in Federal Reserve ACH payment processing," Working Papers 97-6, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  3. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," Working Paper 2009-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  4. Joanna Stavins, 2002. "Effect of consumer characteristics on the use of payment instruments," New England Economic Review, Federal Reserve Bank of Boston, issue Q 3, pages 19-31. [Downloadable!]
  5. Guerino Ardizzi, 2003. "Cost efficiency in the retail payment networks: first evidence from the Italian credit card system," Temi di discussione (Economic working papers) 480, Bank of Italy, Economic Research Department. [Downloadable!]
  6. William R. Emmons, 1996. "Price stability and the efficiency of the retail payments system," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 49-61. [Downloadable!]
  7. Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Research Discussion Papers 1/2003, Bank of Finland. [Downloadable!]
  8. Tanai Khiaonarong, 2004. "Payment systems efficiency, policy approaches, and the role of the central bank," Finance 0405004, EconWPA. [Downloadable!]
  9. Joanna Stavins & Paul W. Bauer, 1997. "The effect of pricing on demand and revenue in Federal Reserve ACH payment processing," Financial Services working paper 97-01, Federal Reserve Bank of Cleveland. [Downloadable!]
  10. David C. Wheelock & Paul Wilson, 2004. "Trends in the efficiency of Federal Reserve check processing operations," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 7-20. [Downloadable!]
  11. Tara Rice, 2003. "The importance of payments-driven revenues to franchise value and in estimating bank performance," Emerging Issues, Federal Reserve Bank of Chicago. [Downloadable!]
  12. R. Alton Gilbert & David C. Wheelock & Paul W. Wilson, 2002. "New evidence on the Fed's productivity in providing payments services," Working Papers 2002-020, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  13. William P. Osterberg & James B. Thomson, 1999. "Banking consolidation and correspondent banking," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 9-20. [Downloadable!]
  14. Guido K. Schaefer, . "An Economic Analysis of the Single Euro Payments Area (SEPA)," FIW Working Paper series 011, FIW. [Downloadable!]
  15. Robert M. Adams & Paul W. Bauer & Robin C. Sickles, 2002. "Scale economies, scope economies, and technical change in Federal Reserve payment processing," Finance and Economics Discussion Series 2002-57, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  16. Loretta J. Mester, 2003. "Applying efficiency measurement techniques to central banks," Working Papers 03-13, Federal Reserve Bank of Philadelphia. [Downloadable!]
  17. Robert M. Adams & Paul W. Bauer & Robin C. Sickles, 2002. "Scope and scale economies in Federal Reserve payment processing," Working Paper 0213, Federal Reserve Bank of Cleveland. [Downloadable!]
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