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Size matters: economies of scale in European payments processing

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  • Christine Beijnen
  • Wilko Bolt

Abstract

This paper investigates the existence and extent of economies of scale in the European payment processing industry. It is expected that the creation of a Single European Payments Area (SEPA) will spur consolidations and mergers among European payment processors to more fully realize payment economies of scale. We find evidence for the existence of significant economies of scale using data of eight European payment processors during the year 1990-2005. The analysis also reveals that ownership structure is an important factor to explain cost differences across European ACHs.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 155.

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Date of creation: Nov 2007
Date of revision:
Handle: RePEc:dnb:dnbwpp:155

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Related research

Keywords: SEPA; payment scale economies; ACHs; ownership;

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References

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  1. Paul W. Bauer & Gary D. Ferrier, 1996. "Scale economies, cost efficiencies, and technological change in Federal Reserve payments processing," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 1004-1044.
  2. repec:rne:rneart:v:6:y:2007:i:4:p:453-473 is not listed on IDEAS
  3. Bolt, Wilko & Humphrey, David, 2005. "Public good issues in TARGET: natural monopoly, scale economies, network effects and cost allocation," Working Paper Series 0505, European Central Bank.
  4. Patrick Van Cayseele & Christophe Wuyts, 2006. "Measuring Scale Economies in a Heterogeneous Industry: The Case of European Settlement Institutions," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  5. Hancock, Diana & Humphrey, David B. & Wilcox, James A., 1999. "Cost reductions in electronic payments: The roles of consolidation, economies of scale, and technical change," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 391-421, February.
  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.
  7. Guibourg, Gabriela & Segendorff, Bjorn, 2007. "A note on the price- and cost structure of retail payment services in the Swedish banking sector 2002," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2817-2827, September.
  8. Bolt Wilko & Humphrey David, 2007. "Payment Network Scale Economies, SEPA, and Cash Replacement," Review of Network Economics, De Gruyter, vol. 6(4), pages 1-21, December.
  9. 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.
  10. Schmiedel, Heiko & Malkamaki, Markku & Tarkka, Juha, 2006. "Economies of scale and technological development in securities depository and settlement systems," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1783-1806, June.
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Citations

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Cited by:
  1. 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.
  2. Hasan, Iftekhar & Schmiedel, Heiko & Song, Liang, 2009. "Return to retail banking and payments," Working Paper Series 1135, European Central Bank.
  3. Pokutta, Sebastian & Schmaltz, Christian, 2011. "Managing liquidity: Optimal degree of centralization," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 627-638, March.
  4. Docherty, Peter & Wang, Gehong, 2010. "Using synthetic data to evaluate the impact of RTGS on systemic risk in the Australian payments system," Journal of Financial Stability, Elsevier, vol. 6(2), pages 103-117, June.
  5. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.
  6. Bolt, Wilko & Jonker, Nicole & van Renselaar, Corry, 2010. "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1738-1744, August.
  7. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
  8. Humphrey, David, 2009. "Payment scale economies, competition, and pricing," Working Paper Series 1136, European Central Bank.
  9. Bolt, Wilko & Schmiedel, Heiko, 2009. "SEPA, efficiency, and payment card competition," Working Paper Series 1140, European Central Bank.
  10. Bourreau, Marc & Verdier, Marianne, 2010. "Private cards and the bypass of payment systems by merchants," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1798-1807, August.
  11. Bolt, Wilko & Humphrey, David, 2010. "Bank competition efficiency in Europe: A frontier approach," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1808-1817, August.

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