The Social and Private Costs of Retail Payment Instruments: A European Perspective

51 Pages Posted: 2 Nov 2012

See all articles by Heiko Schmiedel

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division

Gergana L Kostova

Rensselar Polytechnic Institute

Wiebe Ruttenberg

European Central Bank (ECB)

Date Written: September 12, 2012

Abstract

The European Central Bank (ECB) carried out a study of the social and private costs of different payment instruments with the participation of 13 national central banks in the European System of Central Banks (ESCB). It shows that the costs to society of providing retail payment services are substantial. On average, they amount to almost 1% of GDP for the sample of participating EU countries. Half of the social costs are incurred by banks and infrastructures, while the other half of all costs are incurred by retailers. The social costs of cash payments represent nearly half of the total social costs, while cash payments have on average the lowest costs per transaction, followed closely by debit card payments. However, in some countries, cash does not always yield the lowest unit costs. Despite countries’ own market characteristics, the European market for retail payments can be grouped into fi ve distinct payment clusters with respect to the social costs of payment instruments, market development, and payment behaviour. The results from the present study may trigger a constructive debate about which policy measures and payment instruments are suitable for improving social welfare and realising potential cost savings along the transaction value chain.

Keywords: Social costs, private costs, efficiency, payment instruments

JEL Classification: D12, D23, D24, O52

Suggested Citation

Schmiedel, Heiko and Kostova, Gergana L and Ruttenberg, Wiebe, The Social and Private Costs of Retail Payment Instruments: A European Perspective (September 12, 2012). ECB Occasional Paper No. 137. Available at SSRN: https://ssrn.com/abstract=2145439

Heiko Schmiedel (Contact Author)

European Central Bank - Securities Settlement Systems Policy Division ( email )

Directorate General Payment Systems
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49-69 13 44 70 59 (Phone)
+49-69 13 44 60 00 (Fax)

Gergana L Kostova

Rensselar Polytechnic Institute ( email )

110 8th Street
Troy, NY 12180
United States

Wiebe Ruttenberg

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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