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Estimating the Costs of Electronic Retail Payment Networks: A Cross-Country Meta Analysis

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  • Cam Donohoe
  • Youming Liu

Abstract

As economies across the world continue to digitize, debates around the design and efficiency of national infrastructures for electronic payments have gained added relevance. Central to these debates is the question of how many electronic funds transfer (EFT) systems can viably coexist within a jurisdiction while achieving scale economies to ensure that average cost is minimized, a threshold that largely depends on the shape of the cost function. In this paper, we conduct a cross-country meta-analysis using data from 13 social cost studies across 9 jurisdictions between 2001 and 2016. We quantitatively estimate a cost function relating the total transaction volume to the per-transaction cost and interpret its parameters in terms of fixed and variable costs. We find a rapidly decreasing, convex cost curve that plateaus quickly at around one billion annual transactions. Additionally, we estimate the marginal cost of an EFT to be approximately $0.55 per transaction, expressed in 2025 Canadian dollars, and the total fixed cost to be approximately $83 million per year.

Suggested Citation

  • Cam Donohoe & Youming Liu, 2025. "Estimating the Costs of Electronic Retail Payment Networks: A Cross-Country Meta Analysis," Discussion Papers 2025-17, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-17
    DOI: 10.34989/sdp-2025-17
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    References listed on IDEAS

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    1. Anikó Turján & Éva Divéki & Éva Keszy-Harmath & Gergely Kóczán & Kristóf Takács, 2011. "Nothing is free: a survey of the social cost of the main payment instruments in Hungary," MNB Occasional Papers 2011/93, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Nicole Jonker, 2013. "Social costs of POS payments in the Netherlands 2002-2012: Efficiency gains from increased debit card usage," DNB Occasional Studies 1102, Netherlands Central Bank, Research Department.
    3. Chris Stewart & Iris Chan & Crystal Ossolinski & David Halperin & Paul Ryan, 2014. "The Evolution of Payment Costs in Australia," RBA Research Discussion Papers rdp2014-14, Reserve Bank of Australia.
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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