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Payment network scale economies, SEPA, and cash replacement

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  • Wilko Bolt
  • David Humphrey

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 crossborder inter-operability for electronic payments, card transactions will increasingly replace cash and checks for all types of payments. Using different methods, the authors estimate card and other payment network scale economies for Europe. These indicate substantial cost efficiency gains if processing is consolidated across borders rather than "piggybacked" onto existing national operations. Cost reductions likely to induce greater replacement of small value cash transactions are also illustrated.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-32.

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Date of creation: 2007
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Handle: RePEc:fip:fedpwp:07-32

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  1. Julia S. Cheney, 2006. "Supply- and demand-side developments influencing growth in the debit market," Payment Cards Center Discussion Paper, Federal Reserve Bank of Philadelphia 06-11, Federal Reserve Bank of Philadelphia.
  2. 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, MIT Press, vol. 74(2), pages 221-30, May.
  3. 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," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 66(3), pages 437-62, July.
  4. Roller, Lars-Hendrik, 1990. "Proper Quadratic Cost Functions with an Application to the Bell System," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 72(2), pages 202-10, May.
  5. Humphrey, David & Willesson, Magnus & Bergendahl, Goran & Lindblom, Ted, 2006. "Benefits from a changing payment technology in European banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(6), pages 1631-1652, June.
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Cited by:
  1. Hasan, Iftekhar & Schmiedel, Heiko & Song, Liang, 2009. "Return to retail banking and payments," Working Paper Series, European Central Bank 1135, European Central Bank.
  2. Wilko Bolt & Heiko Schmiedel, 2010. "SEPA, Efficiency, and Payment Card Competition," DNB Working Papers, Netherlands Central Bank, Research Department 239, Netherlands Central Bank, Research Department.
  3. Nicole Jonker, 2013. "Social costs of POS payments in the Netherlands 2002-2012: Efficiency gains from increased debit card usage," DNB Occasional Studies, Netherlands Central Bank, Research Department 1102, Netherlands Central Bank, Research Department.
  4. Wilko Bolt & David Humphrey, 2008. "Bank Competition Efficiency in Europe: A Frontier Approach," DNB Working Papers, Netherlands Central Bank, Research Department 194, Netherlands Central Bank, Research Department.
  5. Wilko Bolt, 2012. "Retail Payment Systems: Competition, Innovation, and Implications," DNB Working Papers, Netherlands Central Bank, Research Department 362, Netherlands Central Bank, Research Department.
  6. Christine Beijnen & Wilko Bolt, 2008. "Size Matters: Economies of Scale in European Payment Processing," FIW Working Paper series, FIW 013, FIW.
  7. 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, Elsevier, vol. 6(2), pages 103-117, June.
  8. Wilko Bolt & David Humphrey, 2012. "A Frontier Measure of U.S. Banking Competition," DNB Working Papers, Netherlands Central Bank, Research Department 359, Netherlands Central Bank, Research Department.
  9. David B. Humphrey & Robert Hunt, 2012. "Getting rid of paper: savings from Check 21," Working Papers, Federal Reserve Bank of Philadelphia 12-12, Federal Reserve Bank of Philadelphia.
  10. Takala, Kari & Viren, Matti, 2008. "Efficiency and costs of payments: some new evidence from Finland," Research Discussion Papers, Bank of Finland 11/2008, Bank of Finland.
  11. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
  12. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers, Netherlands Central Bank, Research Department 270, Netherlands Central Bank, Research Department.
  13. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1729-1737, August.
  14. Kemppainen, Kari, 2008. "Integrating European retail payment systems: some economics of SEPA," Research Discussion Papers, Bank of Finland 22/2008, Bank of Finland.
  15. Humphrey, David, 2009. "Payment scale economies, competition, and pricing," Working Paper Series, European Central Bank 1136, European Central Bank.
  16. Avadanei, Anamaria & Ghiba, Nicolae, 2010. "Implication of Single Euro Payments Area for financial services market. The case of Romania," MPRA Paper 28614, University Library of Munich, Germany.

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