BIS Review 51/2002  3  The classical example is the telephone - who wants one if no one else has one? With regard to payments, positive network effects mean that the benefit for the consumer of using a particular payment system grows in relation to the size of the system. This means that their willingness to pay also increases. Network effects also influence the introduction of new technology and here the consumers’ expectations of the future scope of the system play a decisive role. Consumers can continue using a certain payment instrument or system, even if a superior alternative is available, because the old system/instrument is established and accepted and has a large market share. To continue with the telephone analogy, imagine you were the only one with a new GSM telephone, what use would it be to you if everyone else was still using NMT? The fact that GSM is considered to be a superior system is hardly any comfort. The producers therefore have greater opportunity to reach a critical mass when new systems are being introduced if they co-operate with one another. The ATM co-operation, where customers can withdraw money from an ATM regardless of whether they have an account with that particular bank, is a good example of this. It also shows that co-operation, even if it essentially benefits the customers, may come into conflict with the Competition Act. The Swedish banks’ approach to launching e-money in the Cash system is another example, to which I will return shortly.
Preliminary figures indicate that approximately 130 million giro payments were made over the Internet during 2001. Between 1998 and 2000 the number of giro payments initiated over the Internet increased by a good 890 per cent. Today all Swedish banks offer Internet banks with rapidly growing range of services. Studies also indicate that Sweden is way ahead with regard to utilisation of Internet services. At the end of 2001 there were more than 3 million bank customers subscribed to Internet banks. For the banks the electronic payments entail considerable opportunities for rationalisation, probably to a much greater extent than could be foreseen just a few years ago. Some time ago I met the manager of a banking office in Stockholm who told me that he now had the same number of employees as five years ago, but his turnover was almost 50 per cent higher. This was largely due to the fact that the companies (including small and medium-sized companies) that had earlier been serviced by the bank could now carry out many of their transactions themselves via the Internet bank, which simplified their work and facilitated cash management. The companies could, for instance, with one click (as we say nowadays) pay all wages through a paperless transfer from the company’s account to the employees’ accounts and at the same time do the bookkeeping and pay slips, all without the long paper strips that needed to be manually checked.