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The Effect of New Technology in Payment Services on Banks' Intermediation

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  • Kjersti-Gro Lindquist

    () (Central Bank of Norway)

Abstract

In many countries, payment services in banking have shifted from paper-based giro and check payments to electronic giro and debit card payments. This paper analyses the effect of this change in payment technology within a multiple-output framework using Norwegian bank level panel data. The dual approach with four variable inputs is applied, and the general model includes random coefficients to capture heterogeneity in the production technology across banks. The results show that the move towards electronic payment services has (i) decreased average costs, (ii) increased the economies of scale in the production of deposits more than in the production of loans, and (iii) affected input demand asymmetric. The input ratio between labour and both physical capital and materials have decreased.

Suggested Citation

  • Kjersti-Gro Lindquist, 2002. "The Effect of New Technology in Payment Services on Banks' Intermediation," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B3-2, International Conferences on Panel Data.
  • Handle: RePEc:cpd:pd2002:b3-2
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    File URL: http://econpapers.repec.org/cpd/2002/100_Lindquist.pdf
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    References listed on IDEAS

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    1. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    2. Erik Biørn & Kjersti-Gro Lindquist & Terje Skjerpen, 2002. "Heterogeneity in Returns to Scale: A Random Coefficient Analysis with Unbalanced Panel Data," Journal of Productivity Analysis, Springer, vol. 18(1), pages 39-57, July.
    3. Grant, James H., 1993. "The translog approximate function : Substitution among inputs in manufacturing evaluated at sample means," Economics Letters, Elsevier, vol. 41(3), pages 235-240.
    4. repec:adr:anecst:y:2003:i:69:p:03 is not listed on IDEAS
    5. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
    6. Humphrey, David B & Kim, Moshe & Vale, Bent, 2001. "Realizing the Gains from Electronic Payments: Costs, Pricing, and Payment Choice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 216-234, May.
    7. Erik Biorn & Kjerti-Gro Lindquist & Terje Skjerpen, 2003. "Random Coefficients in Unbalanced Panels: An Application on Data from Chemical Plants," Annals of Economics and Statistics, GENES, issue 69, pages 55-83.
    8. Erik Biørn & Kjersti-Gro Lindquist, 1998. "Random Coefficients and Unbalanced Panels: An Application on Data from Norwegian Chemical Plants," Discussion Papers 235, Statistics Norway, Research Department.
    9. Vesala, Jukka, 2000. "Technological transformation and retail banking competition : Implications and measurement," Scientific Monographs, Bank of Finland, number 20/2000, November.
    10. Sherrill Shaffer, 1998. "Functional Forms and Declining Average Costs," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(2), pages 91-115, October.
    11. Caves, Douglas W & Christensen, Laurits R & Tretheway, Michael W, 1980. "Flexible Cost Functions for Multiproduct Firms," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 477-481, August.
    12. Hancock, Diana, 1985. "The Financial Firm: Production with Monetary and Nonmonetary Goods," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 859-880, October.
    13. Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-12.
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    Citations

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    Cited by:

    1. Tanai Khiaonarong, 2004. "Payment systems efficiency, policy approaches, and the role of the central bank," Finance 0405004, EconWPA.
    2. Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Research Discussion Papers 1/2003, Bank of Finland.
    3. Humphrey, David B. & Vale, Bent, 2004. "Scale economies, bank mergers, and electronic payments: A spline function approach," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1671-1696, July.

    More about this item

    Keywords

    Banking industry; Electronic payments; Technical change; Panel data;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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