Research Discussion Papers, Bank of Finland
What's in it for us? Network effects and bank payment innovation
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,
Swe-den, and Finland, and discusses the impact of network effects on
incentives to adopt new payments tech-nology. A model is presented, in
which private benefits for investment in shared inter-bank payments
in-frastructure 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
in-dustries, can help explain some of the observed cross country
differences in payments arrangements.
Keywords: network effects; incentives; payment technology; externalities; (follow links to similar papers)
JEL-Codes: G21; L14; (follow links to similar papers)
32 pages, July 11, 2005
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