What's in it for Us? Network Effects and Bank Payment Innovation

32 Pages Posted: 2 Oct 2007

See all articles by Alistair Milne

Alistair Milne

Loughborough University - School of Business and Economics

Date Written: 2005

Abstract

The developed world exhibits substantial but poorly understood differences in the efficiency and quality of low-value payment services. This paper compares payments arrangements in the UK, Norway, Sweden, and Finland, and discusses the impact of network effects on incentives to adopt new payments technology. A model is presented, in which private benefits for investment in shared inter-bank payments infrastructure are weak. In contrast, due to 'account externalities', there are strong incentives for investment in intra-bank payment systems. These two features, distinguishing bank payments from other network industries, can help explain some of the observed cross country differences in payments arrangements.

Keywords: network effects, incentives, payment technology, externalities

JEL Classification: G21, L14

Suggested Citation

Milne, Alistair K. L., What's in it for Us? Network Effects and Bank Payment Innovation (2005). Bank of Finland Research Discussion Paper No. 16/2005, Available at SSRN: https://ssrn.com/abstract=1018590 or http://dx.doi.org/10.2139/ssrn.1018590

Alistair K. L. Milne (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Loughborough
Leicestershire, LE11 3TU
United Kingdom

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