Competition in Bank-Provided Payment Services

Posted by D. Daniel Sokol

Wilko Bolt, De Nederlandsche Bank (Dutch Central Bank) and David B. Humphrey, Florida State University – Department of Finance discuss Competition in Bank-Provided Payment Services

ABSTRACT: Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system, it is important to maintain competition among payment service providers, but data available to gauge the degree of competition are quite limited. We propose and implement a frontier- based method to assess relative competition in bank-provided payment services. Billion dollar banks account for around 90 percent of assets in the U.S., and those with around $4 to $7 billion in assets turn out to be both the most and the least competitive in payment services, not the very largest banks.