Payment Intermediation in Transition Countries: the Case of Baltic Countries

The banking sector occupies a pivotal position in the global economy. The sector has been subject to many external and internal forces in many countries, particularly in the Estonia, since the 1991s. Of the external forces, technological change is likely to have the most far-reaching impact on the sector. Internal change has been greatly amplified by increased customer influence. The slogan "the customer is king" has never been truer for the banking sector than it is today. Legislation has increased customers' rights; technology and competition have increased their choice of products and providers. The synergies of these forces will bring about a major transformation of the banking sector. One of the service actors which seem to be most affected by new technology is retail banking. New electronic payment instruments have been introduced; and the means for making electronic payments have become increasingly available for use in everyday life. In recent decades, in all Baltic countries retail payments are shifting from paper-based to electronic systems. One of the reasons is the practicality and cost-effectiveness of new payment instruments. Estonian banks usually charge lower fees for executing payments based on self-service than for those requiring staff assistance. The rapid development of mobile communications (e.g. WAP) and mobile banking setting into the Estonian banking sector will bring a lot of new electronic banking customers. Based on above, the main objective of this paper is to learn about the latest trends in development of retail payment instruments across the Baltic countries and analyze the structure of retail customersí operation, including payment innovations. This paper falls into three parts. The first section outlines and compares retail payment instruments in the Baltic countries. The second part makes a cross-country comparison of the use of the different payment instruments in the Baltic countries. The third section analyzes effect of consumer characteristics on the use of payment instruments in Estonia.