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What's in it for us? Network effects and bank payment innovation

  • Milne , Alistair


    (Faculty of Finance, Cass Business School and Bank of Finland)

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Swe-den, and Finland, and discusses the impact of network effects on incentives to adopt new payments tech-nology. A model is presented, in which private benefits for investment in shared inter-bank payments in-frastructure are weak. In contrast, due to ‘account externalities’, there are strong incentives for investment in intra-bank payment systems. These two features, distinguishing bank payments from other network in-dustries, can help explain some of the observed cross country differences in payments arrangements.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 16/2005.

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Length: 32 pages
Date of creation: 11 Jul 2005
Date of revision:
Handle: RePEc:hhs:bofrdp:2005_016
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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