The Analysis of Payment Systems Efficiency

Part of the Contributions to Economics book series (CE)


There are various policy approaches to payment systems efficiency. Here we consider some common analytical frameworks, namely the risk-cost frontier, settlement delay-liquidity usage, economies of scale, and product life-cycle approaches. We do this to examine the use of payment instruments and their implications for payment systems efficiency, to compare pricing policies of central bank payment services, and to focus on pricing methods, payment transactions, fees, costs and revenue, and measures to enhance efficiency.


Gross Domestic Product Central Bank Payment System Internet Banking Payment Service 


  1. Angelini P (1998) An analysis of competitive externalities in gross settlement systems. J Bank Finance 22(1):1–18CrossRefGoogle Scholar
  2. Bauer PW, Ferrier GD (1996) Scale economies, cost efficiencies, and technological change in federal reserve payments processing. J Money Credit Bank 28(4):1004–1039CrossRefGoogle Scholar
  3. Bauer PW, Hancock D (1993) The efficiency of the federal reserve in providing check processing services. J Bank Finance 17:287–311CrossRefGoogle Scholar
  4. Bauer PW, Hancock D (1995) Scale economies and technological change in federal reserve ach payment processing. Federal Reserve Bank of Cleveland. Econ Rev 31(3):14–29Google Scholar
  5. Berger AN, Hancock D, Marquardt JC (1996) A framework for analyzing efficiency, risks, costs, and innovations in the payments system. J Money Credit Bank 28(4):696–732CrossRefGoogle Scholar
  6. Bergman MA (2003) Payment system efficiency and pro-competitive regulation. Sveriges Riksbank. Econ Rev 4:25–52Google Scholar
  7. Blix M, Daltung S, Heikensten L (2003) On central bank efficiency. Sveriges Riksbank. Economic Rev 3:81–93Google Scholar
  8. Boeschoten W (1991) National trends in payment systems and the demand for currency and banknotes, De Nederlandsche Bank Res Memorandum No. 9108, MarchGoogle Scholar
  9. Christensen LR, Jorgensen DW, Lau LJ (1973) Transcendental logarithmic production frontiers. Rev Econ Stat 55:28–45CrossRefGoogle Scholar
  10. Flatraaker D, Robinson PE (1995) Income, costs and pricing in the payment system. Econ Bull Norges Bank 3:321–332Google Scholar
  11. Frankel A, Marquardt J (1983) Payment systems: theory and policy. Board of Governors of the Federal Reserve System, International finance discussion papersGoogle Scholar
  12. Fry M, Kilato I, Roger S, Senderowicz K, Shepard D, Solis F, Trundle J (1999) Payment systems in global perspective. Routledge-Bank of England, LondonCrossRefGoogle Scholar
  13. Gilbert RA (1998) Did the Fed’s founding improve the efficiency of the U.S. payments system? Fed Reserve Bank St. Louis Rev May/June:121–142Google Scholar
  14. Gilbert RA (1999) Effects of Federal Reserve services on the efficiency of the system for collecting checks in the United States: 1915-1930. The Federal Reserve Bank of St. Louis Working Paper Series 1999–014AGoogle Scholar
  15. Gilbert RA, Wheelcock DC, Wilson PW (2004) New evidence on the fed’s productivity in providing payment services. J Bank Finance 28:2175–2190CrossRefGoogle Scholar
  16. Goodhart CAE (2000) Can central banking survive the IT revolution? Int Finance (3)2:189–209Google Scholar
  17. Green EJ, Todd RM (2001) Thoughts on the Fed’s role in the payments system. Fed Reserve Bank Minneapolis Q Rev 25(1):12–27Google Scholar
  18. Griliches Z, Ringstad V (1971) Economies of scale and the form of the production function. North-Holland, AmsterdamGoogle Scholar
  19. Hancock D, Humphrey DB, Wilcox JA (1999) Cost reductions in electronic payments: the roles of consolidation. Economies of scale, and technical change. J Bank Finance 23:391–421CrossRefGoogle Scholar
  20. Heller D, Lengwiler Y (2003) Payment obligations. Reserve requirements, and the demand for central bank balances. J Monetary Econ 50(2):419–432CrossRefGoogle Scholar
  21. HM Treasury (2001) Competition in payment systems: a response to consultation. The Stationary OfficeGoogle Scholar
  22. Humphrey D (1984) The U.S. payments system: costs, pricing, competition and risk. Salomon Brothers Center for the Study of Financial Institutions, Graduate School of Business Administration, New York University, New YorkGoogle Scholar
  23. Humphrey D, Vale B (2004) Scale economies, bank mergers, and electronic payments: a spline function approach. J Bank Finance 28:1671–1696CrossRefGoogle Scholar
  24. Humphrey D, Pulley L, Vessala J (1996) Cash, paper and electronic payments: a cross-country analysis. J Money Credit Bank 28(4):912–939Google Scholar
  25. Humphrey D, Keppler R, Montes-Negret F (1997) Cost recovery and pricing of payment services: theory, methods, and experience. Washington, D.C., World Bank, Policy Research, Working Paper, No. 1883, OctoberGoogle Scholar
  26. Humphrey D, Willesson M, Lindblom T, Bergendahl G (2003) What does it cost to make a payment? Rev Netw Econ 2(2):159–174Google Scholar
  27. Intrilligator MD (1978) Econometric models, techniques, and applications. North-Holland, AmsterdamGoogle Scholar
  28. Jitsuchon S, Khiaonarong T (2000) Payment income, cost and usage in Thailand. Q Bull Bank Thailand 40(4):37–54Google Scholar
  29. Kahn CM, Roberds W (2001) Real-time gross settlement and the costs of immediacy. J Monetary Econ 47(2):299–319CrossRefGoogle Scholar
  30. Khiaonarong T (2003) Payment systems efficiency, policy approaches, and the role of the central bank. Bank of Finland Discussion Paper 1/2003, HelsinkiGoogle Scholar
  31. Khiaonarong T (2004a) Policy approaches to payment systems efficiency in the SEACEN countries, The South East Asian Central Banks Research and Training Centre, Kuala LumpurGoogle Scholar
  32. Khiaonarong T (2004b) Recovering cost in payment processing and settlement services. Unpublished Working Paper, Payment Systems Group, Bank of ThailandGoogle Scholar
  33. Lacker JM (1997) Clearing, settlement and monetary policy. J Monetary Econ (40)2:347–381CrossRefGoogle Scholar
  34. Lacker JM, Weinberg JA (2003) Payment economics: studying the mechanics of exchange. J Monetary Econ (50)2:381–387CrossRefGoogle Scholar
  35. Lacker JM, Walker JD, Weinberg JA (1999) The Fed’s entry into check clearing reconsidered. Federal Reserve Bank of Richmond. Econ Q 85(2):1–32Google Scholar
  36. Laidler D (1985) The demand for money: theory and evidence, 3rd edn. Harper & Row, New YorkGoogle Scholar
  37. Leinonen H, Soramäki K (1999) Optimizing liquidity usage and settlement speed in payment systems. Bank of Finland Discussion Papers 16/1999, HelsinkiGoogle Scholar
  38. Porter M (1980) Competitive strategy - techniques for analyzing industries and competitors. Free, New YorkGoogle Scholar
  39. Raa T, Shestalova V (2004) Empirical evidence on payment costs and switch points, J Bank Finance 28:203–213CrossRefGoogle Scholar
  40. Reserve Bank of Australia and Australian Competition and Consumer Commission (2000) Debit and credit card schemes in Australia: a study of interchange fees and access, OctoberGoogle Scholar
  41. Robinson PE, Flatraaker D (1995) Costs in the payment system. Econ Bull Norges Bank 2:207–216Google Scholar
  42. Swartz DDG, Hahn RW, Layne-Farrar A (2004) The economics of a cashless society: an analysis of the costs and benefits of payment instruments. Related Publication 04–24, September. AEI-Brookings Joint Center for Regulatory StudiesGoogle Scholar
  43. Tarkka J (1995) Approaches to deposit pricing - a study into the determination of deposit service and bank service charges. Bank of FinlandGoogle Scholar
  44. Torreja ML (2001a) The payment and settlement systems in the SEACEN countries: volume I. The South East Asian Central Banks Research and Training Centre, Kuala LumpurGoogle Scholar
  45. Weinberg JA (1994) Selling Federal Reserve payment services: one price fits all. Federal Reserve Bank of Richmond Econ Q 80:1–23Google Scholar
  46. Williamson SD (2003) Payment systems and monetary policy. J Monet Econ (50)2:475–495CrossRefGoogle Scholar
  47. HM Treasury (2000a) Competition in UK banking. The Stationary OfficeGoogle Scholar
  48. HM Treasury (2000b) Competition in payment systems: a consultation document. The Stationary OfficeGoogle Scholar
  49. Koponen R, Soramaki K (1998) Intraday liquidity needs in a modern interbank payment system. Bank of Finland Stud E:14Google Scholar
  50. Gresvik O, Øwre G (2001) Costs and income in the Norwegian payment system - an application of the activity based costing framework, Working Paper, ANO 2003/8, Financial Infrastructure and Payment Systems Department, Norges BankGoogle Scholar
  51. Gresvik O, Øwre G (2001) Costs and income in the Norwegian payment system - an application of the activity based costing framework, Working Paper, ANO 2003/8, Financial Infrastructure and Payment Systems Department, Norges BankGoogle Scholar
  52. Humphrey D, Kaloudis A, Øwre G (2000) Forecasting cash use in legal and illegal activities, Working Paper, 2000/14, Research Department and Financial Infrastructure and Payment Systems Department, Norges BankGoogle Scholar
  53. Boeschoten W. (1992) Currency use and payment patterns, financial and monetary policy studies, vol 23. Kluwer, Norwell, MACrossRefGoogle Scholar
  54. Association for Payment Clearing Services (1996) The costs of money transmission. March, APCS, LondonGoogle Scholar

Copyright information

© Physica-Verlag Heidelberg 2009

Authors and Affiliations

  1. 1.University of Westminster and Bank of ThailandPranakhonThailand
  2. 2.Department of Management Information Systems and Innovation GroupLondon School of Economics and Political ScienceLondonUK

Personalised recommendations