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Banks' payments-driven revenues

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  • Lawrence J. Radecki

Abstract

The amount of fee income earned by the banking sector suggests that the significance of payment services has been understated or overlooked. This paper attempts to develop a clearer picture of the importance of payment services to the industry by delineating the payments area broadly and by analyzing data disclosed in bank holding company annual reports on sources of noninterest income. ; We find that payment services bring in from one-third to two-fifths of the combined operating revenue of the twenty-five largest bank holding companies. This contribution to revenue is considerably larger than commonly appreciated and indicates that the production and distribution of payment services is one of the core activities of commercial banks. The greater-than-expected importance of payment services has several implications for the identification and measurement of the banking sector's output and for theories of the fundamental nature of commercial banking.

Suggested Citation

  • Lawrence J. Radecki, 1999. "Banks' payments-driven revenues," Staff Reports 62, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:62
    Note: For a published version of this report, see Lawrence J. Radecki, "Banks' Payments-Driven Revenues," Economic Policy Review 5, no. 2 (July 1999): 53-70.
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sujit Chakravorti & Emery Kobor, 2003. "Why invest in payment innovations?," Emerging Issues, Federal Reserve Bank of Chicago, issue Jun.
    2. Robert DeYoung & Tara N. Rice, 2004. "How do banks make money? the fallacies of fee income," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q IV), pages 34-51.
    3. Loretta J. Mester, 2000. "The changing nature of the payments system: should new players mean new rules?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-26.
    4. Brian Mantel, 2000. "Why don't consumers use electronic banking products? towards a theory of obstacles, incentives, and opportunities," Occasional Paper; Emerging Payments EPS-2000-1, Federal Reserve Bank of Chicago.
    5. Li, Li & Zhang, Yu, 2013. "Are there diversification benefits of increasing noninterest income in the Chinese banking industry?," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 151-165.
    6. Susanto Basu & Robert Inklaar & J. Christina Wang, 2011. "The Value Of Risk: Measuring The Service Output Of U.S. Commercial Banks," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 226-245, January.
    7. Beverly Hirtle & Christopher Metli, 2004. "The evolution of U.S. bank branch networks: growth, consolidation, and strategy," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Jul).
    8. Kevin J. Stiroh, 2000. "Compositional dynamics and the performance of the U.S. banking industry," Staff Reports 98, Federal Reserve Bank of New York.
    9. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2025. "Detecting skimping in bank production process with non-performing loans: A distance minimization approach," Economic Modelling, Elsevier, vol. 152(C).
    10. Brian Mantel, 2000. "Why do consumers pay bills electronically? an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q IV), pages 32-48.
    11. Susanto Basu & J. Christina Wang, 2005. "Risk bearing, implicit financial services, and specialization in the financial industry," Public Policy Discussion Paper 06-3, Federal Reserve Bank of Boston.
    12. Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-882, October.
    13. Tara N. Rice, 2003. "The importance of payments-driven revenues to franchise value and in estimating bank performance," Emerging Issues, Federal Reserve Bank of Chicago.
    14. Lacker, Jeffrey M., 2001. "The CLS bank: a solution to the risks of international payments settlement? A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 227-233, June.
    15. Rosie Smith & Christos Staikouras & Geoffrey Wood, 2003. "Non-interest income and total income stability," Bank of England working papers 198, Bank of England.

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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