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The price of money

The price of money

Source: De Nederlandsche Bank, Florida State University

Wilko Bolt, David Humphrey, and Roland Uittenbogaarda of De Nederlandsche Bank and Florida State University undertake a cross-country comparison of the impact of transaction pricing on the shift to electronic payments.

Since electronic payments are typically cheaper than paper-based or cash payments, pricing these transactions should speed up the shift to electronics. But by how much?

Norway explicitly priced point-of-sale and bill-payment transactions and rapidly shifted to electronic payments, while the Netherlands experienced a similar shift without pricing. Controlling for terminal availability and differences between countries, direct pricing accelerated the shift to electronics by about 20 percent. The quid pro quo was the elimination of bank-float revenues.

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