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The Impact of Electronic Payments on Bank Cost Efficiency: Nonparametric Evidence

Author

Listed:
  • G. Ardizzi
  • F. Crudu
  • C. Petraglia

Abstract

This paper presents new evidence on the assessment of banks' cost efficiency gains stemming from ICT adoption. With respect to the existing literature we introduce two novelties. First, a measure of banking operating costs is explained in terms of a commonly used measure of IT innovation (the relative diffusion of ATMs) and a new variable defined as automated payment transactions. Second, the results obtained via standard parametric estimation methods are compared with those obtained via nonparametric estimation techniques. Using an original dataset of Italian banks or banks operating in Italy observed in the period 2006-2010, we do not find clear cost efficiency enhancing effects due to ATMs diffusion. On the other hand, the diffusion of electronic payments shows a significant effect in terms of cost inefficiency reduction.

Suggested Citation

  • G. Ardizzi & F. Crudu & C. Petraglia, 2015. "The Impact of Electronic Payments on Bank Cost Efficiency: Nonparametric Evidence," Working Paper CRENoS 201517, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201517
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    References listed on IDEAS

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    1. Farkhanda Shamim & Nobuyoshi Yamori & Shahid Anjum, 2017. "Clicks business of deposit-taking institutions: an efficiency analysis," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(6), pages 911-930, November.

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    More about this item

    Keywords

    electronic payments; ATM; transaction technology; bank cost efficiency; nonparametric regression; cross-validation;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G2 - Financial Economics - - Financial Institutions and Services
    • L8 - Industrial Organization - - Industry Studies: Services
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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