Journal of Financial Market Infrastructures

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

Heiko Schmiedel, Gergana L. Kostova and Wiebe Ruttenberg


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.

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