nr 122 - Payment Scale Economies and the Replacement of Cash and Stored Value Cards

DNB Working Papers
Date 29 December 2006
Debit cards in Europe replace many medium value cash payments while stored value cards were designed to replace small value cash transac-tions. Unit cost considerations dictated a two-card (or single card) dual technology approach to cash replacement since unit costs were too high to use debit cards alone for low value transactions. We estimate payment scale economies and illustrate the change in processing volume likely needed to permit debit cards to cost-e¤ectively replace a greater portion of smaller value cash transactions, allowing consumers and merchants to use increasingly a single cash replacement technology. Key Words : Debit cards, scale economies, cash replacement JEL Classi.cation Code : E41, C53