nr 009 - Payments are no free lunch

DNB Betalingsverkeer
Date 29 March 2006

Total costs of the payments system to society are considerable. These costs can be higher or lower depending on the use of payment instruments that are less or more cost efficient. Empirical evidence is provided by a survey on the costs of pos payment instruments in the Netherlands. The overall costs involved in pos payments amount to 0.65% of gdp or, equivalently, eur 0.35 per transaction. The e-purse is most costefficient, irrespective of the size of a transaction, while if the choice is between cash and the debit card, the former is most economical for purchases below eur 11.63 and the debit card is to be preferred for larger purchases. From a cost perspective, credit cards should not be used at all. The distorting effect caused by the use of public resources to finance the expenses made by central bank to maintain the cash circulation is found to be limited. It is argued that a less-cash society has better chances of success than a cashless one, at least in the medium term.