IDEAS home Printed from https://ideas.repec.org/p/lev/wrkpap/wp_1091.html
   My bibliography  Save this paper

Banking on Payments?

Author

Listed:
  • Joerg Bibow

Abstract

For the past hundred years or more, payments have been primarily associated with banking, and banking as we know it today--being the result of many centuries of evolution--features a bundling of (at least) three main lines of business: lending, deposit-taking, and payment services. In the past 15 years or so, banks have come under severe competition as providers of payment services. Will "banking on payments" become outmoded and payments untethered from banking, or will payments still have a place in the future of banking? This paper sets out to explore this question and to address the following two related issues. First, what are the likely consequences (especially for the financing of growth and the provision of liquidity in the form of bank deposits) of the apparent "unbundling" of the traditional connections in banking between lending, deposit-taking, and payment services? Second, what are the implications of the evolution (or revolution) of money, payments, and banking for public policy, monetary theory, and the theory of monetary policy?

Suggested Citation

  • Joerg Bibow, 2025. "Banking on Payments?," Economics Working Paper Archive wp_1091, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1091
    as

    Download full text from publisher

    File URL: https://www.levyinstitute.org/wp-content/uploads/2025/09/wp_1091-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rudy Bouguelli, 2018. "A note on “Rethinking liquidity creation: Banks, shadow banks and the elasticity of finance”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(4), pages 648-653, October.
    2. Rudy Bouguelli, 2018. "A note on “Rethinking liquidity creation: Banks, shadow banks and the elasticity of finance”," Post-Print hal-02547184, HAL.
    3. Berlin, Mitchell & Mester, Loretta J, 1999. "Deposits and Relationship Lending," The Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 579-607.
    4. Raphael Auer & Ulf Lewrick & Jan Paulick, 2025. "DeFiying gravity? An empirical analysis of cross-border Bitcoin, Ether and stablecoin flows," BIS Working Papers 1265, Bank for International Settlements.
    5. Hyun Song Shin, 2010. "Financial intermediation and the post-crisis financial system," BIS Working Papers 304, Bank for International Settlements.
    6. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    7. Marco Cipriani & Thomas M. Eisenbach & Anna Kovner, 2024. "Anatomy of the Bank Runs in March 2023," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 24(39), December.
    8. Jordan Barone & Alain P. Chaboud & Adam Copeland & Cullen Kavoussi & Frank M. Keane & Seth Searls, 2022. "The Global Dash for Cash in March 2020," Liberty Street Economics 20220712, Federal Reserve Bank of New York.
    9. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    10. Carolyn Sissoko, 2025. "Banks are different: why bank-based versus market-based lending is a false dichotomy," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 22(1), pages 32-53, April.
    11. Hancock, Diana & Humphrey, David B. & Wilcox, James A., 1999. "Cost reductions in electronic payments: The roles of consolidation, economies of scale, and technical change," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 391-421, February.
    12. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2021. "Banking on Deposits: Maturity Transformation without Interest Rate Risk," Journal of Finance, American Finance Association, vol. 76(3), pages 1091-1143, June.
    13. Kenechukwu E. Anadu & Pablo D. Azar & Catherine Huang & Marco Cipriani & Thomas M. Eisenbach & Gabriele La Spada & Mattia Landoni & Marco Macchiavelli & Antoine Malfroy-Camine & J. Christina Wang, 2025. "Stablecoins and Crypto Shocks: An Update," Liberty Street Economics 20250423, Federal Reserve Bank of New York.
    14. Bai, HaiChen & Cong, Lin William & Luo, Mei & Xie, Ping, 2025. "Adoption of central bank digital currencies: Initial evidence from China," Journal of Corporate Finance, Elsevier, vol. 91(C).
    15. Buchak, Greg & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2018. "Fintech, regulatory arbitrage, and the rise of shadow banks," Journal of Financial Economics, Elsevier, vol. 130(3), pages 453-483.
    16. Gorton, Gary & Pennacchi, George, 1990. "Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
    17. Richard Davies & Belinda Tracey, 2014. "Too Big to Be Efficient? The Impact of Implicit Subsidies on Estimates of Scale Economies for Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 219-253, February.
    18. Dow, Sheila C, 1996. "Horizontalism: A Critique," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(4), pages 497-508, July.
    19. Ulrich Bindseil & George Pantelopoulos, 2023. "Introduction to Payments and Financial Market Infrastructures," Springer Texts in Business and Economics, Springer, number 978-3-031-39520-8, January.
    20. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
    21. Sheila Dow, 2019. "Monetary Reform, Central Banks, and Digital Currencies," International Journal of Political Economy, Taylor & Francis Journals, vol. 48(2), pages 153-173, April.
    22. Mr. Biaggio Bossone, 2001. "Should Banks Be Narrowed?," IMF Working Papers 2001/159, International Monetary Fund.
    23. 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.
    24. Samuel G. Hanson & Anil K. Kashyap & Jeremy C. Stein, 2011. "A Macroprudential Approach to Financial Regulation," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 3-28, Winter.
    25. Kevin Dowd, 2024. "So far, Central Bank Digital Currencies have failed," Economic Affairs, Wiley Blackwell, vol. 44(1), pages 71-94, February.
    26. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
    27. Bindseil, Ulrich & Senner, Richard, 2024. "Destabilisation of bank deposits across destinations: assessment and policy implications," Working Paper Series 2887, European Central Bank.
    28. Sirio Aramonte & Fernando Avalos, 2021. "The rise of private markets," BIS Quarterly Review, Bank for International Settlements, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    2. Berger, Allen N. & Boot, Arnoud W.A., 2024. "Financial intermediation services and competition analyses: Review and paths forward for improvement," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    3. Ebrahimi Kahou, Mahdi & Lehar, Alfred, 2017. "Macroprudential policy: A review," Journal of Financial Stability, Elsevier, vol. 29(C), pages 92-105.
    4. Markus K. Brunnermeier & Thomas M. Eisenbach & Yuliy Sannikov, 2012. "Macroeconomics with Financial Frictions: A Survey," Levine's Working Paper Archive 786969000000000384, David K. Levine.
    5. Nobel Prize Committee, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    6. Xavier Freixas & Anthony M. Santomero, 2002. "An overall perspective on banking regulation," Working Papers 02-1, Federal Reserve Bank of Philadelphia.
    7. Bordo, Michael D., 1986. "Explorations in monetary history: A survey of the literature," Explorations in Economic History, Elsevier, vol. 23(4), pages 339-415, October.
    8. Georges Dionne, 2003. "The Foundationsof Banks' Risk Regulation: A Review of Literature," THEMA Working Papers 2003-46, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Jiang, Erica Xuewei & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2024. "Monetary tightening and U.S. bank fragility in 2023: Mark-to-market losses and uninsured depositor runs?," Journal of Financial Economics, Elsevier, vol. 159(C).
    10. Frederick T. Furlong & Michael C. Keeley, 1986. "Bank regulation and the public interest," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 55-71.
    11. Gary Gorton & Andrew Winton, "undated". "Bank Capital Regulation in General Equilibrium," Rodney L. White Center for Financial Research Working Papers 17-95, Wharton School Rodney L. White Center for Financial Research.
    12. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
    13. Freixas, Xavier & Gabillon, Emmanuelle, 1999. "Optimal Regulation of a Fully Insured Deposit Banking System," Journal of Regulatory Economics, Springer, vol. 16(2), pages 111-134, September.
    14. Bossone, Biagio, 2001. "Do banks have a future?: A study on banking and finance as we move into the third millennium," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2239-2276, December.
    15. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    16. Sun, Junjie & Wu, Deming & Zhao, Xinlei, 2018. "Systematic risk factors and bank failures," Journal of Economics and Business, Elsevier, vol. 98(C), pages 1-18.
    17. repec:ags:aaea22:335439 is not listed on IDEAS
    18. Douglas W. Diamond & Raghuram G. Rajan, 2005. "Liquidity Shortages and Banking Crises," Journal of Finance, American Finance Association, vol. 60(2), pages 615-647, April.
    19. Sergey Chernenko & Isil Erel & Robert Prilmeier, 2019. "Why Do Firms Borrow Directly from Nonbanks?," NBER Working Papers 26458, National Bureau of Economic Research, Inc.
    20. Hanson, Samuel G. & Shleifer, Andrei & Stein, Jeremy C. & Vishny, Robert W., 2015. "Banks as patient fixed-income investors," Journal of Financial Economics, Elsevier, vol. 117(3), pages 449-469.
    21. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_1091. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lindsey Carter (email available below). General contact details of provider: https://www.levyinstitute.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.