Retail Payment Services Research Articles

Retail payment strategies: The approach in Portugal compared with the European Commission and the Eurosystem

In November 2020, the Portuguese Payment Systems Forum issued the Portuguese Retail Payments Strategy | Horizon 2022. The strategy has been formulated to support the implementation of secure, efficient and innovative payment solutions, while promoting broad accessibility to retail payment services. As this paper will discuss, the strategy envisions 42 initiatives for stakeholders in the payments market. These initiatives fall under four pillars: (1) ensuring consumers are better informed about the payment instruments available to them; (2) fostering the benefits of digital transformation; (3) contributing to a regulatory framework that promotes innovation and efficiency; and (4) driving the adoption of safer payment solutions. This paper describes key initiatives under these pillars, and reports on how the strategy is progressing towards its goals.

Development trends of the modern retail payment services market

Development trends of the modern retail payment services market

Analysis of Global Trends in the Development of Retail Payment Services in the Global Economy

Research background:The relevance of the study is confirmed by the fact that large banks of developed countries in the globalized economy receive commission income from settlement transactions at a level comparable to interest income from credit and deposit operations. This significantly increases the profitability of the banking business, reduces risks, makes banks more stable. Thus, payment services to the population in the context of globalization and competition between banks is one of the important business areas.Purpose of the article:Analysis and assessment of development trends of retail payment services in different countries in the context of globalization. To achieve this goal, the following tasks were solved: segments of national payment systems were studied; revealed the main world innovations in the development of retail payment services; The analysis of the main retail payment services in various countries, which characterize the degree of development of the banking business in the context of globalization.Methods:The methodological basis of the study was a systematic approach. In the process, such methods as analysis and synthesis, grouping and analogy methods, a comparative historical approach, economic and mathematical modeling were used.Findings & Value added:As a result of this study, various types of major world innovations in the development of retail payment services were reasonably identified, and based on an analysis of global trends in the development of retail payment services, promising directions for their development were proposed.

Are Instant Payments Becoming the New Normal? A Comparative Study

As a result of technological advancements, instant delivery of digital services has become the norm in today’s society. Yet, until recently, this trend did not extend to retail payment services, which normally took one or up to a few working days from the end user's perspective. Following Europe’s recent launch of its own SEPA-wide instant payment platform, now is the time to ask the question: will instant payment services become “the new normal” and what would this new normal look like? This paper assesses the overall prospects of instant payments in the euro area. It identifies structural drivers and blockers to the adoption of instant payments based on the analysis of country cases where instant payments became operational in the last few years. JEL Classification: E41, E42, E58

Features of business models in the market of payment services

Features of business models of participants of the market of retail payment services are considered. An approach based on the allocation of nine elements of the business model is used: consumer segments, value propositions, sales channels, customer relationships, revenue streams, key resources, key activities, key partners, cost structure

Banki komercyjne w Polsce wobec zmian na rynku usług płatniczych

Banki komercyjne stają obecnie przed jednym z największych wyzwań dotyczących prowadzenia działalności w obszarze detalicznych rozliczeń pieniężnych. Zmiany na rynku płatności spowodowały, że podmioty te muszą na nowo określić swoje miejsce w procesach realizacji usług płatniczych w skali krajowej i międzynarodowej. Nie ulega bowiem wątpliwości, że z jednej strony banki świadomie opierają świadczenie usług płatniczych na czynnościach realizowanych przez podmioty trzecie w ramach outsourcingu, z drugiej – stają w obliczu rosnącej konkurencji ze strony niebankowych instytucji płatniczych. Celem niniejszego artykułu jest ocena działań banków komercyjnych w Polsce w obliczu zmian zachodzących na rynku usług płatniczych. Podjęto w nim próbę weryfikacji hipotezy, iż skuteczność tych działań wymaga zaangażowania całego sektora bankowego. Artykuł został podzielony na kilka części. W pierwszej odniesiono się do roli banków komercyjnych w detalicznych rozliczeniach pieniężnych. Uwzględniono również znaczenie tego obszaru w działalności banków, między innymi w kontekście osiąganych przychodów. W drugiej części skoncentrowano uwagę na pozabankowym rynku usług płatniczych i zachodzących na nim zmianach świadczących o jego rozwoju. Część trzecia obejmuje krótką analizę realnych zagrożeń dla banków w realizacji funkcji rozliczeniowych. W części czwartej odniesiono się do przykładów działań banków komercyjnych w Polsce, które są odpowiedzią na zmiany w pośrednictwie w płatnościach i funkcjonowaniu rynku usług płatniczych. Rozważania zawarte w artykule prowadzą do wniosku, iż zachowanie przez banki funkcjonujące w Polsce kluczowej roli w płatnościach, w kontekście podejmowanych przez nie działań, będzie trudne w obszarze detalicznych usług płatniczych. W świetle procesów globalizacyjnych skuteczność działań wymaga zaangażowania i współpracy sektora bankowego nie tylko w skali krajowej, ale również ponadnarodowej.

The social and private costs of retail payment instruments: a European perspective

This study examines the social and private costs of different payment instruments in thirteen European Union countries. Our results show that the costs of providing retail payment services are substantial. On average, the social costs amount to almost 1% of GDP for the sample of participating European Union countries. Half of them are incurred by banks and infrastructures and half by retailers. Cash payments incur nearly half of the total social costs, but often they still have the lowest costs per transaction, followed closely by debit card payments. Additional cluster analysis suggests that the European market for retail payments can be grouped into five distinct clusters with respect to social costs of payment instruments, market development and payment behaviors. Our findings allow payments market participants to make inferences about the potential cost savings that can be realized through promoting or limiting the use of the different payment instruments.

Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards

The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. We focus on three types of market interventions for various countries. We argue that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.

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

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.

Returns to Retail Banking and Payments

The present paper examines the fundamental relationship between the country-level infrastructure of the retail payment market and overall bank performance. Using data from across 27 European markets over the period 2000–07, the results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance, although they have a positive influence on the performance of commercial banks as well. Additionally, the findings reveal that the impact of retail services on bank performance is more pronounced through fee income, although their impact through interest income is also positive. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications.

Full Harmonisation of Retail Financial Services Contract Law in Europe: A Success or a Failure?

During the last decade, the EU has adopted three major sector-specific directives in the area of retail financial services – the Payment Services Directive, the Consumer Credit Directive, and the Markets in Financial Instruments Directive. All three directives are based on the idea of 'full,' or 'maximum,' harmonisation of the contract-related rules for the provision of financial services. Seen in the context of the aims pursued thereby in the area of retail financial services – putting an end to legal fragmentation and thereby promoting a single market in financial services – the regulatory concept of 'full' harmonisation carries with it a high degree of uniformity. If 'full' harmonisation in this area is a success, legal fragmentation hindering the operation of the internal market in financial services should belong to the past. Does 'full' harmonisation, however, really lead to less fragmented contract law in the area of retail financial services and, if so, to what degree? In other words, how full is 'full' harmonisation of retail financial services contract law in the EU? In this contribution, attempt is made to address this legal issue within the context of each type of financial service currently regulated by the EU – retail payment services, consumer credit, and retail investment services – and to draw the lessons from these three stories of 'full' harmonisation for the future European harmonisation projects in the field of financial services and beyond.

Return from Retail Banking and Payments

The European banking industry joined forces to achieve a fully integrated market for retail payment services in the euro area: The Single Euro Payments Area (SEPA). Against this background, the present paper examines the fundamental relationship between retail payment business and overall bank performance. Using data from across 27 European markets over the period 2000-07, we analyse whether the provisions of retail payment services are reflected in improved bank performance, using accounting ratios and efficiency measures. The results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, a higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance although they have a positive influence on the performance of commercial banks. Additionally, findings reveal that impact of retail services on bank performance is dominated by fee income. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications. The results may also be informative for the industry when reconsidering its business models in the light of current financial market developments.

Return to Retail Banking and Payments

The European banking industry joined forces to achieve a fully integrated market for retail payment services in the euro area: the Single Euro Payments Area (SEPA). Against this background, the present paper examines the fundamental relationship between retail payment business and overall bank performance. Using data from across 27 European markets over the period 2000-07, we analyse whether the provisions of retail payment services are reflected in improved bank performance, using accounting ratios and efficiency measures. The results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, a higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance although they have a positive influence on the performance of commercial banks. Additionally, findings reveal that impact of retail services on bank performance is dominated by fee income. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications. The results may also be informative for the industry when reconsidering its business models in the light of current financial market developments. JEL Classification: G21, G28

Competition and Efficiency in Payment Cards: Which Options for SEPA?

Payment card networks face a challenge in convincing consumers, merchants and card issuers to use their networks. Overcoming this challenge requires networks to introduce complex rules and prices. However, certain rules and common practices reduce a merchant’s ability to communicate relative cost information of different networks to consumers, prevent steering towards low-cost payment mechanisms and reduce merchants’ bargaining options with card networks. Under these conditions, competition between networks can have the perverse effect of raising total cost to the users (jointly consumers and merchants) because consumers select high-cost systems over low-cost systems. The current initiative to create a Single Euro Payment Area (SEPA) by 2010 provides an excellent opportunity to eliminate unjustified restraints on merchant behaviour, promote alternative suppliers of retail payment services and enhance price transparency, potentially lowering payment costs to the users in many European countries. But there is a substantial risk that instead of improving efficiency, SEPA may promote payment systems with higher costs for users, notably if low-cost national systems are supplanted by high-cost international networks. Policymakers should not only ensure that payment systems comply with SEPA standards, but more importantly ensure the net effects of new regimes are beneficial.

A Note on the Price and Cost Structure of Retail Payment Services in the Swedish Banking Sector 2002

We estimate private costs in the Swedish banking sector for the production of payment services and investigate to what extent the price structure reflects the estimated cost structure. We find that (i) banks tend to use two-part tariffs, but (ii) variable costs are poorly reflected in transaction fees towards both consumers and corporate customers. (iii) There exist large cross subsidies between different payment services, foremost from acquiring card payments to cash distribution to the public, while payment services as a whole is not subsidized.

A note on the price- and cost structure of retail payment services in the Swedish banking sector 2002

We estimate private costs in the Swedish banking sector for the production of payment services and investigate to what extent the price structure reflects the estimated cost structure. We find that (i) banks tend to use two-part tariffs but (ii) variable costs are poorly reflected in transaction fees towards both consumers and corporate customers. (iii) There exist large cross subsidies between different payment services, foremost from acquiring card payments to cash distribution to the public, while payment services as a whole are not subsidized.

Universal Access, Cost Recovery, and Payment Services

We suggest a subtle, yet far- reaching, tension in the objectives specified by the Monetary Control Act of 1980 (MCA) for the Federal Reserve’s role in providing retail payment services, such as check processing. Specifically, we argue that the requirement of an overall cost-revenue match, coupled with the goal of ensuring equitable access on a universal basis, partially shifted the burden of cost recovery from high-cost to low-cost service points during the MCA’s early years, thereby allowing private-sector competitors to enter the low-cost segment of the market and undercut the relatively uniform prices charged by the Fed. To illustrate this conflict, we develop a voter model for what begins as a monopoly setting in which a regulatory regime that establishes a uniform price irrespective of cost differences, and restricts total profits to zero, initially dominates through majority rule both deregulation and regulation that sets price equal to cost on a bank-by-bank basis. Uniform pricing is dropped in this model once cream skimming has subsumed half the market. These results help illumine the Federal Reserve’s experience in retail payments under the MCA, particularly the movement over time to a less uniform fee structure for check processing.

Evolution of Retail Payments in Finland in the 1990s

During the 1990s the availability of location-specific retail payment services in Finland declined substantially, but at the same time there was a surge of development of self-service methods. These new methods, which make use eg of mobile phones and the Internet, dramatically increased the availability of payment services that are not tied to location. More traditional forms of payment still exist; for example, the use of cash remains significant. In Europe there are marked differences between countries with respect to the use of different payment methods. Generally, the use of cashless payment instruments has increased during the last ten years, but it seems that payment patterns are still not converging to similar structures. The development of the Finnish retail payment system has long roots, and several factors - eg the salary bank arrangement of the 1960s and the severe banking crisis of the early 1990s - have influenced the development of the current Finnish payment system. In the retail payments area, new technologies are developing rapidly. The success of new forms of payment (based eg on mobile phones) in gaining general acceptance may depend on changes in the nature of consumption. If customer demand increasingly shifts toward virtual goods and services, the demand for new types of payment methods such as electronic money may increase substantially.

Evolution of Retail Payments in Finland in the 1990s

During the 1990s the availability of location-specific retail payment services in Finland declined substantially, but at the same time there was a surge of development of self-service methods. These new methods, which make use eg of mobile phones and the Internet, dramatically increased the availability of payment services that are not tied to location.More traditional forms of payment still exist; for example, the use of cash remains significant.In Europe there are marked differences between countries with respect to the use of different payment methods. Generally, the use of cashless payment instruments has increased during the last ten years, but it seems that payment patterns are still not converging to similar structures. The development of the Finnish retail payment system has long roots, and several factors - eg the salary bank arrangement of the 1960s and the severe banking crisis of the early 1990s - have influenced the development of the current Finnish payment system. In the retail payments area, new technologies are developing rapidly.The success of new forms of payment (based eg on mobile phones) in gaining general acceptance may depend on changes in the nature of consumption.If customer demand increasingly shifts toward virtual goods and services, the demand for new types of payment methods such as electronic money may increase substantially. Keywords: retail payments, electronification, ATMs, Internet banking