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Payment Scale Economies and the Replacement of Cash and Stored Value Cards

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Author Info
Wilko Bolt

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Abstract

Debit cards in Europe replace many medium value cash payments while stored value cards were designed to replace small value cash transac-tions. Unit cost considerations dictated a two-card (or single card) dual technology approach to cash replacement since unit costs were too high to use debit cards alone for low value transactions. We estimate payment scale economies and illustrate the change in processing volume likely needed to permit debit cards to cost-e¤ectively replace a greater portion of smaller value cash transactions, allowing consumers and merchants to use increasingly a single cash replacement technology. Key Words : Debit cards, scale economies, cash replacement

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 122.

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Date of creation: Dec 2006
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Handle: RePEc:dnb:dnbwpp:122

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Related research
Keywords: Debit cards; scale economies; cash replacement;

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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. 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)
  2. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  3. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2005. "The effect of transaction pricing on the adoption of electronic payments: a cross-country comparison," Working Papers 05-28, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. 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)
  5. 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)
  6. Mitchell, Karlyn & Onvural, Nur M, 1996. "Economies of Scale and Scope at Large Commercial Banks: Evidence from the Fourier Flexible Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 178-99, May. [Downloadable!] (restricted)
  7. William A. Barnett & Kenneth J. Kopecky & Ryuzo Sato, 1979. "Estimation of implicit utility models," Special Studies Papers 127, Board of Governors of the Federal Reserve System (U.S.).
  8. Snellman , Heli & Virén , Matti, 2006. "ATM networks and cash usage," Research Discussion Papers 21/2006, Bank of Finland. [Downloadable!]
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