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The Effect of New Technology in Payment Services on Banks' Intermediation

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  • Kjersti-Gro Lindquist

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    (Central Bank of Norway)

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    Abstract

    In many countries, payment services in banking have shifted from paper-based giro and check payments to electronic giro and debit card payments. This paper analyses the effect of this change in payment technology within a multiple-output framework using Norwegian bank level panel data. The dual approach with four variable inputs is applied, and the general model includes random coefficients to capture heterogeneity in the production technology across banks. The results show that the move towards electronic payment services has (i) decreased average costs, (ii) increased the economies of scale in the production of deposits more than in the production of loans, and (iii) affected input demand asymmetric. The input ratio between labour and both physical capital and materials have decreased.

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    File URL: http://econpapers.repec.org/cpd/2002/100_Lindquist.pdf
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    Bibliographic Info

    Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number B3-2.

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    Date of creation: Mar 2002
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    Handle: RePEc:cpd:pd2002:b3-2

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    Keywords: Banking industry; Electronic payments; Technical change; Panel data;

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    1. Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-12.
    2. Erik Biørn & Kjersti-Gro Lindquist & Terje Skjerpen, 2000. "Heterogeneity in Returns to Scale: A Random Coefficient Analysis with Unbalanced Panel Data," Discussion Papers 292, Research Department of Statistics Norway.
    3. Allen N. Berger & Gerald A. Hanweck & David B. Humphrey, 1986. "Competitive viability in banking: scale, scope, and product mix economies," Research Papers in Banking and Financial Economics 82, Board of Governors of the Federal Reserve System (U.S.).
    4. repec:fth:bfsefi:e20 is not listed on IDEAS
    5. Erik BIORN & Kjerti-Gro LINDQUIST & Terje SKJERPEN, 2003. "Random Coefficients in Unbalanced Panels: An Application on Data from Chemical Plants," Annales d'Economie et de Statistique, ENSAE, issue 69, pages 55-83.
    6. Erik Biørn & Kjersti-Gro Lindquist, 1998. "Random Coefficients and Unbalanced Panels: An Application on Data from Norwegian Chemical Plants," Discussion Papers 235, Research Department of Statistics Norway.
    7. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-81, August.
    8. Humphrey, David B & Kim, Moshe & Vale, Bent, 2001. "Realizing the Gains from Electronic Payments: Costs, Pricing, and Payment Choice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 216-34, May.
    9. Sherrill Shaffer, 1998. "Functional Forms and Declining Average Costs," Journal of Financial Services Research, Springer, vol. 14(2), pages 91-115, October.
    10. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    11. Vesala, Jukka, 2000. "Technological Transformation and Retail Banking Competition: Implications and Measurement," Scientific Monographs E:20/2000, Bank of Finland.
    12. Hancock, Diana, 1985. "The Financial Firm: Production with Monetary and Nonmonetary Goods," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 859-80, October.
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    Cited by:
    1. Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Research Discussion Papers 1/2003, Bank of Finland.
    2. Humphrey, David B. & Vale, Bent, 2004. "Scale economies, bank mergers, and electronic payments: A spline function approach," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1671-1696, July.
    3. Tanai Khiaonarong, 2004. "Payment systems efficiency, policy approaches, and the role of the central bank," Finance 0405004, EconWPA.

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