The Effect of Pricing on Demand and Revenue in Federal Reserve Ach Payment Processing

Working Paper No. 97-6

40 Pages Posted: 3 May 1998

See all articles by Joanna Stavins

Joanna Stavins

Federal Reserve Bank of Boston

Paul W. Bauer

Federal Reserve Bank of Cleveland

Date Written: October 1997


Because the automated clearinghouse (ACH) has been found to have lower social costs than paper checks, the Federal Reserve has been promoting more widespread use of ACH by lowering ACH processing fees. In this paper we have obtained the first numerical estimates of ACH demand elasticities, a measure of the responsiveness of ACH demand to price changes. In order to determine how robust the estimates are, various methods were employed to estimate the demand elasticities. Our results show that the volume of ACH items processed by the Federal Reserve does respond to changes in per-item fees. We find that demand for ACH credit is elastic, while demand for ACH debit is inelastic. The difference most likely arises from high customer resistance to automatic payment deduction and from low market penetration of that service among companies. Demand for origination was found to be somewhat more elastic than demand for receipt. We then examined how volume growth initiated by a price cut affected unit costs. Given the relatively large scale economies found for ACH, volume growth leads to lower unit costs. However, to outweigh revenue lost as a result of a price decline, ACH volume would have to increase by an amount greater than our estimates indicate is likely. Consequently, a decline in per-item ACH fees would likely lead to lower net revenues.

JEL Classification: E58, E64

Suggested Citation

Stavins, Joanna and Bauer, Paul W., The Effect of Pricing on Demand and Revenue in Federal Reserve Ach Payment Processing (October 1997). Working Paper No. 97-6, Available at SSRN: or

Joanna Stavins (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-4217 (Phone)
617-973-4218 (Fax)

Paul W. Bauer

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-3021 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics