How much does it cost to pay?

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Image Retail payment systems are important to the smooth functioning of an economy. Inefficiencies in the retail payments market can have significant negative effects throughout the economy. Retail payments are defined as regular payments of relatively low value that are not time critical and where the payer and/or the payee is not a financial institution.

Cost efficiency has been at the forefront of arguments for moving from paper-based to electronic payment instruments. Studies have shown that significant savings can be achieved in the transition from cash and paper-based to electronic payment instruments.

However, inefficiencies persist, with cash still being “king” in many countries. Among the non-cash payment instruments, the check is still dominant in lower-middle-income and low-income countries and check processing can be cumbersome and costly.

Although data on the costs of payment instruments would be valuable in developing a strategy to improve countries’ retail payment systems, this cost data is rarely available. If cost information is available, it typically fails to capture the full cost of payment instruments. Earlier cost studies have also been primarily focused on advanced economies, with only select stakeholders being examined, and the methodologies used have typically not allowed for cross-country comparisons.

This is why we have developed a comprehensive methodology to estimate retail payment costs for the demand side, supply side, and total economy, while also calculating savings in moving from cash and paper-based to electronic payment instruments.

We recently published the “Guide for Measuring Retail Payment Costs” and are seeking feedback by February 15, 2016.

Once finalized, the framework will complement the “Retail Payments Policy Package,” which consists of guidance the World Bank has synthesized over more than a decade of technical assistance programs and research in the retail payments space.

The new guide can serve as a practical tool for central banks, other public authorities and private stakeholders attempting to assess the cost of retail payments from their own perspective, but also from the overall economy’s perspective, while also being able to benchmark, compare across time and across countries, and create a baseline to measure progress.
The design is based on four fundamental principles:

  • Applicability: the guide is meant to be applied at the country level in order to derive retail payment costs, following a step-by-step process.
  • Comparability: the methodology allows for the comparison of retail payment costs across time and across countries.
  • Efficiency: the framework allows for the identification of the most cost-efficient payment instruments and for the estimation of savings in moving from paper-based to electronic payment instruments.
  • Standardization: common and internationally recognized terminology in the context of retail payments has been used in order to ensure external validity and facilitate comparisons.
Even though payment instruments are at the forefront of the methodology, other relevant determinants have also been captured, since all together, they form an interactive system that determines costs. Those include:
  1. Payment Instruments The methodology captures 10 payment instruments: paper-based (cash, cheque, voucher) and electronic (debit/credit/prepaid card, direct credit transfer, direct debit transfer, mobile money, online money).
  2. Stakeholders The demand side (consumers, businesses, government agencies) and supply side (payment service providers; payment infrastructure providers) have been considered. The sum of the costs of both, the demand and supply side, reveals the costs for the entire economy.
  3. Transmission Methods Examination of how a payment is initiated/received: in-person (point of interaction, collection office, branch, ATM, agent outlet) and remotely (mail, internet, telephone/mobile phone network).
  4. Payment Purposes/Use Cases Examination of the reason/need for the transaction (compensation for an economic transaction; payment due to an entitlement or obligation; personal transfer; reorganization of the payer’s own funds).
  5. Payment Types Examination of the parties involved in the transaction, and the identification of the payer/payee relationship. 
This analysis of all the cost determinants allows for the identification and measurement of the relevant cost elements. The cost elements are further classified by attribution (direct vs. indirect), variability (fixed vs. variable), and nature (resource vs. transfer). Implementing the cost methodology will allow for the derivation of important indicators such as:
  • Demand Side: total costs in using each retail payment instrument; total costs borne by each category of end users, associated with a payment instrument; average cost per use case and payment instrument combination, given a transmission method used.
  • Supply Side: average cost per payment processed, by payment instrument; average cost per combination of payment instrument processed and transmission method used; total annual costs for payment service and payment infrastructure providers, separately, by payment instrument.
  • Total Economy: total resource costs associated with each payment instrument; savings that could incur from different substitution scenarios.
This analysis of retail payment costs will ideally form a basic foundation for an increasing number of countries working to improve their national retail payments system. Having a solid understanding of the costs associated with different retail payment instruments for users, providers, and the economy as a whole, is essential for developing a national retail payments system strategy. Enhancing the quality and cost-efficiency of all types of payments is an important element for achieving broader financial inclusion, and can lead to significant savings for the economy overall.

We are looking forward to receiving your feedback. You can either comment on this blog post or send us an email through our consultation webpage.


Massimo Cirasino

Practice Manager, Financial Infrastructure & Remittances Service Line, Head of the Payment Systems Development Group

Thomas Lammer

Senior Financial Sector Specialist

Holti Banka

Senior Financial Sector Specialist

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