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What is in it for us? Network effects and bank payment innovation

  • Milne, Alistair

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Swe-den, and Finland, and discusses the impact of network effects on incentives to adopt new payments tech-nology. A model is presented, in which private benefits for investment in shared inter-bank payments in-frastructure are weak. In contrast, due to ‘account externalities’, there are strong incentives for investment in intra-bank payment systems. These two features, distinguishing bank payments from other network in-dustries, can help explain some of the observed cross country differences in payments arrangements.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 30 (2006)
Issue (Month): 6 (June)
Pages: 1613-1630

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Handle: RePEc:eee:jbfina:v:30:y:2006:i:6:p:1613-1630
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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