The Evolution of Payment Costs in Australia

Chris Stewart, Iris Chan, Crystal Ossolinski, David Halperin and Paul Ryan
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Chris Stewart: Reserve Bank of Australia
Crystal Ossolinski: Reserve Bank of Australia
David Halperin: Reserve Bank of Australia
Paul Ryan: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper examines the costs borne by financial institutions, merchants, and consumers in making, facilitating and accepting consumer-to-business payments. It examines the resource costs incurred by these sectors, how these have changed since 2006, and how fees and other transfers determine which sectors ultimately bear these costs. It also examines how resource costs vary at different transaction sizes and, for merchants, how costs differ between small and large entities. The results suggest that the resource costs of the payments system have fallen as a per cent of GDP since 2006. On a per transaction basis, direct debit remains the lowest-cost payment instrument while cheques remain the most expensive. At the point of sale, payments using cash, eftpos and contactless MasterCard & Visa debit cards have broadly similar costs for transactions under about $20; above $20, eftpos is the lowest-cost payment method. The results indicate that the relationship between resource and private costs varies significantly across instruments. The greater share of the overall cost is borne by merchants. The consumer undertaking a transaction typically pays a small proportion of its cost; consumers face a similar cost for credit card payments as for debit card payments despite the higher cost of credit cards to the economy. Finally, the results suggest that small businesses incur higher costs than large merchants.

Keywords: banks; consumers; financial institutions; merchants; retail payments; surcharging (search for similar items in EconPapers)
JEL-codes: E4 G2 L2 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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