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Competition in bank-provided payment services

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  • Bolt, Wilko
  • Humphrey, David

Abstract

Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system, it is important to maintain competition among payment service providers but data available to gauge the degree of competition are quite limited. We propose and implement a frontierbased method to assess relative competition in bank-provided payment services. Billion dollar banks account for around ninety percent of assets in the US and those with around to billion in assets turn out to be both the most and the least competitive in payment services, not the very largest banks. JEL Classification: G21 L80 L00

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Paper provided by European Central Bank in its series Working Paper Series with number 1539.

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Date of creation: Apr 2013
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Handle: RePEc:ecb:ecbwps:20131539

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Keywords: banks; competition; frontier analysis; payments;

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  1. Altunbas, Yener & Marqués-Ibáñez, David & Manganelli, Simone, 2011. "Bank risk during the financial crisis: do business models matter?," Working Paper Series 1394, European Central Bank.
  2. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, 08.
  3. Santiago Carbó Valverde & David Humphrey & Rafael López del Paso, 2007. "Opening the black box: Finding the source of cost inefficiency," Journal of Productivity Analysis, Springer, vol. 27(3), pages 209-220, June.
  4. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  5. Wilko Bolt & Heiko Schmiedel, 2013. "Pricing of payment cards, competition, and efficiency: a possible guide for SEPA," Annals of Finance, Springer, vol. 9(1), pages 5-25, February.
  6. Wilko Bolt & David Humphrey, 2008. "Bank Competition Efficiency in Europe: A Frontier Approach," DNB Working Papers 194, Netherlands Central Bank, Research Department.
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  8. DeYoung, Robert, 1997. "A diagnostic test for the distribution-free efficiency estimator: An example using U.S. commercial bank data," European Journal of Operational Research, Elsevier, vol. 98(2), pages 243-249, April.
  9. Jan Boone, 2008. "Competition: Theoretical Parameterizations and Empirical Measures," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 587-611, December.
  10. Lawrence J. Radecki & John Wenninger & Daniel K. Orlow, 1996. "Bank branches in supermarkets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Dec).
  11. Bauer, Paul W., 1990. "Recent developments in the econometric estimation of frontiers," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 39-56.
  12. Ho, Katherine & Ishii, Joy, 2011. "Location and competition in retail banking," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 537-546, September.
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