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Payment Network Scale Economies, SEPA, and Cash Replacement

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Author Info
Wilko Bolt (Research Department, De Nederlandsche Bank, The Netherlands)
David Humphrey (Department of Finance, Florida State University, Tallahassee, FL, U.S.A. E-mail: dhumphrey@cob.fsu.edu)

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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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Publisher Info
Article provided by Concept Economics in its journal Review of Network Economics.

Volume (Year): 6 (2007)
Issue (Month): 4 (December)
Pages: 453-473
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Handle: RePEc:rne:rneart:v:6:y:2007:i:4:p:453-473

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Related research
Keywords: payments; European; cross-border;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Daniel D. Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, Concept Economics, vol. 5(2), pages 175-198, June. [Downloadable!]
  2. 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," Journal of Business, University of Chicago Press, vol. 66(3), pages 437-62, July. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Takala , Kari & Viren, Matti, 2008. "Efficiency and costs of payments: some new evidence from Finland," Research Discussion Papers 11/2008, Bank of Finland. [Downloadable!]
  2. Christine Beijnen & Wilko Bolt, . "Size Matters: Economies of Scale in European Payment Processing," FIW Working Paper series 013, FIW. [Downloadable!]
    Other versions:
  3. Kemppainen, Kari, 2008. "Integrating European retail payment systems: some economics of SEPA," Research Discussion Papers 22/2008, Bank of Finland. [Downloadable!]
  4. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of Payment Cards: A Status Report," DNB Working Papers 193, Netherlands Central Bank, Research Department. [Downloadable!]
  5. 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. [Downloadable!]
  6. Wilko Bolt & David Humphrey, 2009. "Bank Competition Efficiency in Europe: A Frontier Approach," DNB Working Papers 194, Netherlands Central Bank, Research Department. [Downloadable!]
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