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Reducing payment processing costs: Scale economies and SEPA
Journal of Payments Strategy & Systems,
2
(3),
250-258
(2008)
Abstract
The drive towards a single euro payments area (SEPA) is to make cross-border payments just as easy as domestic payments. While this can be achieved by processing the (currently small) volume of cross-border transactions at existing processing centres, costs would be largely unchanged. Alternatively, owing to strong scale economies in processing electronic payments, costs can be markedly reduced if national level processing centres in Europe are consolidated across borders. Estimates of payment scale economies from different sources are presented and potential cost reductions in unit cost are illustrated. The average cost of a payment transaction could fall by upwards of 30 per cent if consolidation doubled processing volume.
Keywords: payment scale economies; European payments; SEPA
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Author's Biography
Wilko Bolt is a Senior Economist in the Economics and Research division of the Dutch Central Bank and Professor of Payment Systems at the Vrije Universiteit Amsterdam. He has also worked as a researcher at the European Central Bank in Frankfurt and Federal Reserve Bank of New York. His main research areas are payment systems, money and banking and platform economics.
David Humphrey worked at the Federal Reserve Board and Federal Reserve Bank of Richmond for 16 years, dealing with banking, systemic risk, and payment system issues. His current research remains focused on these topics. Currently he is F. W. Smith Eminent Scholar in Banking at Florida State University and Visiting Fellow at the Payment Cards Center at the Federal Reserve Bank of Philadelphia. He received his Ph.D. in economics from the University of California (Berkeley).
