Efficiency and costs of payments: some new evidence from Finland
AbstractThis paper deals with optimal payment systems. The issue boils down to how large are the costs of different payment media, which can be interpreted as a question of the efficiency of the means of payment. However, there are other qualifications related to the choice of payment media. Here, at least three issues can be distinguished. First is the question of optimal payment medium for each individual payment (size, location, EFTPOS etc.). This choice is not independent of the individual characteristics of the payer and payee. Secondly, there is the question of cost effectiveness of payments for different institutions and sectors. The final issue concerns the social optimum for each payment medium. These issues have been particularly controversial in the case of cash, which is still the dominant payment medium in most euro countries. Part of the controversy arises from the fact that the costs and benefits of different payment media affect different market participants in quite different ways, so that a possible social optimum might not correspond eg to the optima for different firms. The paper contains a short review of calculation methods and empirical results for a sample of countries. It also provides new evidence from Finland, which is to an extent one of the front-runners in payment technology and institutional design in payment systems. This shows up in relatively low overall costs of payments. Our estimate of total costs of payment media is 0.3 per cent of GDP, which is very low by international standards.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 11/2008.
Length: 50 pages
Date of creation: 07 May 2008
Date of revision:
payment media; cash; payment systems; costs of payments;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-17 (All new papers)
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.:
- Daniel D. Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2006.
"The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics,"
Review of Network Economics,
De Gruyter, vol. 5(2), pages 1.
- Hahn, Robert W. & Layne-Farrar, Anne & Swartz, Daniel D. Garcia, 2004. "The Move toward a Cashless Society: A Closer Look at Payment Instrument Economics," Working paper 247, Regulation2point0.
- Nicole Jonker, 2005. "Payment Instruments as Perceived by Consumers - a Public Survey," DNB Working Papers 053, Netherlands Central Bank, Research Department.
- Daniel Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2007. "Further Thoughts on the Cashless Society: A Reply to Dr. Shampine," Review of Network Economics, De Gruyter, vol. 6(4), pages 5.
- James Bohn & Diana Hancock & Paul Bauer, 2001. "Estimates of scale and cost efficiency for Federal Reserve currency operations," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-26.
- Wilko Bolt & David Humphrey, 2007.
"Payment Network Scale Economies, SEPA, and Cash Replacement,"
Review of Network Economics,
De Gruyter, vol. 6(4), pages 2.
- Wilko Bolt & David Humphrey, 2007. "Payment network scale economies, SEPA, and cash replacement," Working Papers 07-32, Federal Reserve Bank of Philadelphia.
- 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.
- 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.
- Segendorf, Björn & Jansson, Thomas, 2012. "The Cost of Consumer Payments in Sweden," Working Paper Series 262, Sveriges Riksbank (Central Bank of Sweden).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman).
If references are entirely missing, you can add them using this form.