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What does it Cost to Make a Payment?

The Review of Network Economics

Vol. 2, Issue 2 - June 2003, pp 159-174.

  David Humphrey
Florida State University

E-mail: [email protected]

Magnus Willesson
University of Gothenburg

Ted Lindblomand
University of Gothenburg

Goran Bergendahl
University of Gothenburg

  We survey the limited data that exists concerning the cost of making/receiving a payment by banks, retailers, and other parties to a transaction. Since an electronic payment costs between one-third and one-half that of a paper-based instrument, a country may save 1% of its GDP annually as it shifts from a fully paper-based to a fully electronic-based payment system. Some gains have already been realized. Additional analysis indicates that bank costs of making a payment may have fallen by 45% in Europe as the share of electronic transactions in 12 countries rose from .43 to .79 over 1987-1999.

Keywords: payment instruments, banks, costs, electronic payments, cash

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