Efficiency and costs of payments:Some new evidence

Takala and Viren (2007)

Discussant Heiko Schmiedel

European Central Bank

Economics of Payment Systems Conference,

Paris 25-26 October 2007

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Agenda

1. Scope of paper

2. Conceptual framework

3. Results and conclusions

4. Some remarks

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1. Scope of paper

• Research issues: – Costs of different payment instruments– Choice of payment instrument→ Case of cash! Evidence from Finland

• Place in literature:– Review of available literature:

•Social cost of payment system•Cost of cash alone

– Innovation: Inclusion of retail sector

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2. Conceptual framework

• Choice between different payment instruments:– Cash ↓ , Cards ↑ , not cashless– 10 EUR Break-off point: cash vs. Cards

• Calculation cost of cash:

CashCost = ∑ CB, Banks, Retail

Productioncost

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• Retail business costs:– EPC: Retail costs 1/3 of total cost of cash

• Cash vs. card payment costs

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3. Results and conclusion

• Cost of cash: 0.12-0.18% of GDP

• Cost of cash = cost of cards

• Total costs of payments less than always thought!

• New pricing:

– First-mover disadvantage

– Cooperation may not be feasible

• Potential efficiency gains, e.g. economies of scale and

scope

• Social cost unevenly distributed

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4. Some remarks

• Conclusion and policy considerations– Convergence cash supply services– Cost of cash – a non-issue !– Finland → “cash” countries ?

• ECB (2007) SEPA economic impact study– Cash is the “bleeder” in all markets– Cross-subsidization– Repositioning of cash

• Additional literature– Bergman/Guibourg/Segendorf (2007)– Bolt & Humphrey (2006)