comment on ferrari / verboven / degryse malte krueger conference „economics of payment systems“
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Comment on Ferrari / Verboven / Degryse Malte Krueger Conference „Economics of Payment Systems“ Paris, October 25, 2007. Krueger: Comment on Ferrari / Verboven / Degryse. Topic and data. Looking at the shared no-fee Belgium ATM system. Focus on the cost saving motive - PowerPoint PPT PresentationTRANSCRIPT
Comment on Ferrari / Verboven / DegryseMalte Krueger
Conference „Economics of Payment Systems“
Paris, October 25, 2007
Topic and data
Krueger: Comment on Ferrari / Verboven / Degryse
Looking at the shared no-fee Belgium ATM system.
Focus on the cost saving motive
Data provided by Banksys (the central processor of the system)
- ATM withdrawals at shared ATMs
- Value value per cash withdrawal
- Number of shared ATMs
In addition
- Number of branches per bank per market
- Population, surface and a number of population characteristics
Per ‚market‘
Investment and demand
Krueger: Comment on Ferrari / Verboven / Degryse
Banks investment:
Invest until (CB – CA)dQA < F
‘Install ATMs until the costs savings of the next ATM would be less than the fixed costs of installing this ATM.’
From a social point of view, this is suboptimal because banks do not take consumer surplus into account.
Demand:
Demand is a function of the number of ATMs and fees.
Specified as :
Intrinsic utility of withdrawing cash at ATMs and branches
minus the typical shoe leather costs
Investment (1)
Krueger: Comment on Ferrari / Verboven / Degryse
Modeled as choice between branch and ‘open’ ATM (Banksys ATM).
But banks also deployed ‘limited’ ATMs.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Open access ATMs Limited access ATMs
Branches Open + Limited
Source: Blue Book, various issues
So, there were three alternatives:- Branch- Limited ATM- Open ATM
The increasing numberof limited ATMs shouldeffect usage of openATMs.
Investment (2)
Krueger: Comment on Ferrari / Verboven / Degryse
Transactions at open and limited ATMs
Source: Blue Book, various issues, Banksys, Annual Report, various issues, own calculations
0
20
40
60
80
100
120
140
160
180
200
1997
1998
1999
2000
2001
2002
2003
2004
2005
mill
ion
tx
Limited ATMs tx
Banksys-tx excl. B/F
Investment (3)
Krueger: Comment on Ferrari / Verboven / Degryse
Banks investment:
Invest until (CB – CA)dQA < F
ATM: Variable and fixed costs
Branch: variable costs – but no fixed costs
We saw: declining branch network.
So, banks managed to reduce fixed costs of branching.
If fixed costs are included, we get a comparison of total costs:
TCB – TCA <=> 0 ? In fact, given the high costs of branch withdrawals this
may lead to reduction of branch withdrawal points to zero.
Why don’t we observe this?
One possible explanation: Banks do take consumer surplus into account.
Investment (4)
Krueger: Comment on Ferrari / Verboven / Degryse
Banksys ATMs:
Each bank pays for its ATMs (fixed + variable costs)
Each bank receives a cost-based interchange.
Consequence:
For each bank, an open ATM installed in its branch costs little because it earns interchange.
For each bank, an ATM installed somewhere else costs interchange (variable cost).
Will joint decision making lead to a rule like:
Invest until (CB – CA)dQA < F
The total demand for cash withdrawals
Krueger: Comment on Ferrari / Verboven / Degryse
The data set only includes tx at open ATMs.Data on limited ATMs are not used.Branch withdrawals are unknown.So, the authors make the assumption that the total volume is constant.
Source: Blue Book, various issues
0
5
10
15
20
25
30
35
40
45
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Card tx (EUR bill.)
ATM tx (EUR bill.) Since POS volumes strongly increased inthe period analysed it wwould seem plausible to assume falling volumes.
The social optimum
Krueger: Comment on Ferrari / Verboven / Degryse
1. Why can a social optimum not be achieved via fees only?
2. ‘Social’ has to be interpreted in a very limited sense:
Looking only at cash – substitution cash-cards not included.
Looking only at payments – feedback in deposit markets not included.
A proposal for our profession
Krueger: Comment on Ferrari / Verboven / Degryse
Please include in any paper:
Warning: The Surgeon General Has Determined that Optimal Solutions May be Dangerous to the Health of the Economy.
PaySys Consultancy GmbHIm Uhrig 7D-60433 Frankfurt am MainTel.: +49 69 95 11 77 -12E-Mail: [email protected]: www.paysys.de
Thank you!
Universität Karlsruhe (TH)IWW, Sektion Geld und Währung Postfach 69 80 D-76128 KarlsruheTel.: +49 721 608-6329E-Mail: [email protected]: http://www.iww.uni-karlsruhe.de/
Malte Krueger
PaySys is German member of the Euro-pean Payments Consulting Association
Krueger: Comment on Ferrari / Verboven / Degryse
y
Krueger: Comment on Ferrari / Verboven / Degryse
Data set:ATM withdrawals at shared ATMs
Value value per cash withdrawal
Number of shared ATMs
Number of branches per bank per market
Population
Surface
Number of enterprises
Fraction of foreigners in the population
Fraction of population under 18
Fraction of population over 65
Unemployment rate
Flanders indicator
Limited ATMs not included?
Proxy for income or other?
What about POS transactions?
Effect on the total demand for cash withdrawals?
Foreign visitors would be more interesting
Changes in the Belgium Payment Landscape
Krueger: Comment on Ferrari / Verboven / Degryse
Changes in the Belgium Payment Landscape:
Source: Blue Book, various issues
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Open access ATMs Limited access ATMs
Branches Open + Limited
y
Krueger: Comment on Ferrari / Verboven / Degryse
Banks investment:
Invest until (CB – CA)dQA < F
‘Install ATMs until the costs savings of the next ATM would be less than the fixed costs of installing this ATM.’
Why no fixed costs of branch withdrawal included?
Assuming that the amount of tellers is constant?
Properly stated we should have (TCB – TCA)dQA < 0
This may well hold up to QA = Q
In this case the questions arises why do banks not shut tellers down?
The obvious answer is that they do take customer valuations into account.
y
Krueger: Comment on Ferrari / Verboven / Degryse
Data set:ATM withdrawals at shared ATMs
Value value per cash withdrawal
Number of shared ATMs
Number of branches per bank per market
Population
Surface
Number of enterprises
Fraction of foreigners in the population
Fraction of population under 18
Fraction of population over 65
Unemployment rate
Flanders indicator
Limited ATMs not included?
Proxy for income or other?
What about POS transactions?
Effect on the total demand for cash withdrawals?