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Payment scale economies, competition, and pricing

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  • Humphrey, David

Abstract

Payment scale economies affect banking costs, competition in payment services, and pricing. Our scale measure relates operating cost to physical measures of European banking "output", finding large economies. This differs from relating total cost to the value of balance sheet assets (the conventional approach). Interest expenses are excluded since differences here are primarily due to mix, not scale. Also, since standard indicators of competition can give inconsistent results, a revenue-based frontier measure is developed and applied to European banks, with little difference evident across countries. Existing differences in bank prices (EC report) are associated with small differences in competition. JEL Classification: E41, C53

Suggested Citation

  • Humphrey, David, 2009. "Payment scale economies, competition, and pricing," Working Paper Series 1136, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20091136
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1136.pdf
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    References listed on IDEAS

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    1. Beijnen, Christine & Bolt, Wilko, 2009. "Size matters: Economies of scale in European payments processing," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 203-210, February.
    2. J.A. Bikker & L. Spierdijk & P. Finnie, 2007. "The Impact of Market Structure, Contestability and Institutional Environment on Banking Competition," Working Papers 07-29, Utrecht School of Economics.
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    4. 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.
    5. Carbó, Santiago & Humphrey, David & Maudos, Joaquín & Molyneux, Philip, 2009. "Cross-country comparisons of competition and pricing power in European banking," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 115-134, February.
    6. Santiago Carbó Valverde & David Humphrey & Rafael López del Paso, 2007. "Opening the black box: Finding the source of cost inefficiency," Journal of Productivity Analysis, Springer, vol. 27(3), pages 209-220, June.
    7. Bolt Wilko & Humphrey David, 2007. "Payment Network Scale Economies, SEPA, and Cash Replacement," Review of Network Economics, De Gruyter, vol. 6(4), pages 1-21, December.
    8. Bolt, Wilko & Humphrey, David, 2010. "Bank competition efficiency in Europe: A frontier approach," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1808-1817, August.
    9. Tara N. Rice & Kristin D. Stanton, 2003. "Estimating the volume of payments-driven revenues," Emerging Issues, Federal Reserve Bank of Chicago.
    10. Jan Boone, 2008. "Competition: Theoretical Parameterizations and Empirical Measures," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 587-611, December.
    11. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March.
    12. McAllister, Patrick H. & McManus, Douglas, 1993. "Resolving the scale efficiency puzzle in banking," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 389-405, April.
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    Cited by:

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    3. Labye, Agnès, 2013. "Quel avenir pour la banque universelle? Une analyse empirique appliquée à la zone euro," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(1), pages 57-86, Mars.
    4. Biagio Bossone, 2021. "Bank Seigniorage in a Monetary Production Economy," Working Papers PKWP2111, Post Keynesian Economics Society (PKES).
    5. Biagio Bossone, 2021. "Bank Money Creation and the Payments System," Working Papers PKWP2117, Post Keynesian Economics Society (PKES).
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    More about this item

    Keywords

    bank competition; European banks; frontier analysis; payment scale economies;
    All these keywords.

    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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