Efficiency and costs of payments: Some new evidence Takala and Viren (2007) Discussant Heiko Schmiedel European Central Bank Economics of Payment Systems Conference, Paris October 2007

2 Agenda 1.Scope of paper 2.Conceptual framework 3.Results and conclusions 4.Some remarks

3 1. Scope of paper Research issues: –Costs of different payment instruments –Choice of payment instrument → Case of cash! Evidence from Finland Place in literature: –Review of available literature: Social cost of payment system Cost of cash alone –Innovation: Inclusion of retail sector

4 2. Conceptual framework Choice between different payment instruments: –Cash ↓, Cards ↑, not cashless –10 EUR Break-off point: cash vs. Cards Calculation cost of cash: CashCost = ∑ CB, Banks, Retail Production cost ??? Retail business costs: –EPC: Retail costs 1/3 of total cost of cash Cash vs. card payment costs

5 3. Results and conclusion Cost of cash: % of GDP Cost of cash = cost of cards Total costs of payments less than always thought! New pricing: –First-mover disadvantage –Cooperation may not be feasible Potential efficiency gains, e.g. economies of scale and scope Social cost unevenly distributed

6 4. Some remarks Conclusion and policy considerations –Convergence cash supply services –Cost of cash – a non-issue ! –Finland → “cash” countries ? ECB (2007) SEPA economic impact study –Cash is the “bleeder” in all markets –Cross-subsidization –Repositioning of cash Additional literature –Bergman/Guibourg/Segendorf (2007) –Bolt & Humphrey (2006)