Lars Nyberg: Prices and costs in the Swedish payment market Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, to Scandinavian Card Markets, Stockholm, 25 January 2005. *  *  *  To begin with, I would like to thank you for the invitation to participate in this conference. In my previous speech at this forum in 2003, I mentioned the pricing of card products and of other payment instruments as an area of special interest for us. I announced then that the Riksbank, in consultation with the banks, had launched a research project related to this issue. The aim was to examine how well the price structure for retail payments reflects the underlying production costs for these services. Today, given the short time at my disposal, I will confine myself to discussing the results of this study.1  The evolution of card payments in Sweden and in the Nordic countries In order to achieve a more efficient payment system the prices for payment services should be based on production costs, including not only costs in the producing unit but also the end users’ and the intermediaries’ costs. Other things equal, transparent and cost-reflecting prices give users the information they need to choose the payment instruments that cost less to produce. It is usually assumed that society’s total payment-related costs are lower the larger the use of electronic payment instruments.
Conclusions Summing up, our results imply that there might be considerable cost savings to be made by the banks through a more transparent and cost-based pricing This is because such a pricing strategy would lead to changes in the pattern of demand. Consumers would have economic incentives to shift to those instruments that are less costly to produce. According to our cost estimates, they would use debit cards more and credit cards and cash less and they would increase their use of electronic credit transfers and direct debits at the cost of paper-based credit transfers. A more cost-based price strategy would result in private customers facing transaction fees on paperbased and electronically-initiated credit transfers and in the introduction of transaction fees for cash withdrawals. Fees for acquiring services would have to decrease. The fact that Swedish banks do not take any fees whatsoever for cash withdrawals, while such fees can be observed in the other Nordic countries, may very well be the explanation for our greater use of cash and lesser use of card payments. Based on the data on variable costs and volumes, the banking sector could lower their variable costs by around 560 million Swedish kronor annually if bank customers replaced charge and credit cards and cash with debit card payments. The shift from paper-based to electronically-initiated credit transfers could result in a further reduction in the banking sector’s variable costs of almost 200 million Swedish kronor annually. One interesting issue to consider is the reason for this pricing strategy.