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Payments are no free lunch

Hans Brits and Carlo Winder

DNB Occasional Studies from Netherlands Central Bank, Research Department

Abstract: Total costs of the payments system to society are considerable. These costs can be higher or lower depending on the use of payment instruments that are less or more cost efficient. Empirical evidence is provided by a survey on the costs of POS payment instruments in the Netherlands. The overall costs involved in POS payments amount to 0.65% of gdp or, equivalently EUR 0.35 per transaction. The e-purse is most cost-efficient, irrespective of the size of a transaction, while if the choice is between cash and the debit card, the former is most economical for purchases below EUR 11.63 and the debit card is to be preferred for larges purchases. From a cost perspective, credit cards should not be used at all. The distorting effects caused by the use of public resources to finance the expenses made by central bank to maintain the cash circulation is found to be limited. It is argued that a less-cash society has better chances of success than a cashless one, at least in the medium term.

Date: 2005-10
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