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Payment Scale Economies and the Replacement of Cash and Stored Value Cards

Author

Listed:
  • Wilko Bolt
  • David Humphrey

Abstract

Debit cards in Europe replace many medium value cash payments while stored value cards were designed to replace small value cash transac-tions. Unit cost considerations dictated a two-card (or single card) dual technology approach to cash replacement since unit costs were too high to use debit cards alone for low value transactions. We estimate payment scale economies and illustrate the change in processing volume likely needed to permit debit cards to cost-e¤ectively replace a greater portion of smaller value cash transactions, allowing consumers and merchants to use increasingly a single cash replacement technology. Key Words : Debit cards, scale economies, cash replacement

Suggested Citation

  • Wilko Bolt & David Humphrey, 2006. "Payment Scale Economies and the Replacement of Cash and Stored Value Cards," DNB Working Papers 122, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:122
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20122-2006_tcm46-146779.pdf
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    References listed on IDEAS

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    5. Snellman, Heli & Virén, Matti, 2006. "ATM networks and cash usage," Research Discussion Papers 21/2006, Bank of Finland.
    6. Mitchell, Karlyn & Onvural, Nur M, 1996. "Economies of Scale and Scope at Large Commercial Banks: Evidence from the Fourier Flexible Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 178-199, May.
    7. William A. Barnett & Kenneth J. Kopecky & Ryuzo Sato, 1979. "Estimation of implicit utility models," Special Studies Papers 127, Board of Governors of the Federal Reserve System (U.S.).
    8. 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.
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    Cited by:

    1. Thorsten V. Koeppl & James MacGee, 2007. "Branching Out: The Urgent Need to Transform Canada’s Financial Landscape and How to Do It," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 251, June.

    More about this item

    Keywords

    Debit cards; scale economies; cash replacement;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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