Payment services have become more efficient
Banks' production of payment services has become more efficient. As a result, unit costs measured in constant prices have been halved since 1994. This was shown by Norges Bank's survey of banks' costs in connection with performing payment services for retail and corporate customers. The survey is based on accounting data and additional information from 2001 for a selected number of banks and covers banks' most important cash and payment services. Similar surveys were also carried out in 1988 and 1994.
Total costs have declined despite a doubling of the number of transactions
Norwegian banks spent approximately NOK 5.9 billion on the production of payment services in 2001. In 2001 NOK, this is a reduction of NOK 400 million since 1994. At the same time, the number of transactions has doubled.
Unit costs cut in half
The unit cost per payment transaction was NOK 5.80 in 2001. In 2001 NOK, the unit cost was NOK 13.00 in 1994. There are two primary reasons for this reduction: First, banks' production of payment services has become more automated, with better utilisation of economies of scale. Second, pricing has encouraged customers to choose inexpensive services where production costs are low.
Banks cover a larger portion of costs through direct pricing
In 2001, banks covered 70 per cent of costs for payment services by means of income from fees for using the services and from annual fees. At the same time, from 1 July 2000 the Act relating to Financial Agreements has ensured that banks no longer have income from float, i.e. banks no longer receive interest on funds during the time it takes to transfer them from one account to another. In 1994, income from fees covered 39 per cent of production costs, while in 1988 this income covered only 26 per cent.
No price increases
Measured by a fixed NOK value, the average price a customer pays for a payment transaction has fallen since 1994. The increase in cost coverage from fees has come without a rise in average prices to customers.
Norges Banks' assessment of developments
Developments since 1994 are positive. Banks' production of payment services has become more efficient so that unit costs measured in NOK at a fixed value have been halved. Banks cover an increasing share of costs through direct pricing and float has been removed from the Norwegian payment system. By international standards, Norway has a very efficient payment system. If banks continue to enhance efficiency and to use direct pricing, Norway will retain its position as a leader in this field.
An article presenting the survey results will be published in Economic Bulletin 4/2002 and will be available on Norges Bank's website in December 2002.
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