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**_The substitution of card payments for cash in Europe._** Electronic POS card-based transactions with real-time linkages to account data represent a new stage in the evolution of payments in Europe and combine the finality advantage associated with currency use (legal tender) with the efficiency advantages of electronic account transfers. This is the case wit) on-line POS terminals that offer immediate settlement of transactions at the moment of exchange . These POS payments are close substitutes to currency in the sense that the party accepting payment takes no risk since funds are effectively transferred to the payee when the terminal is activated. On-line card-based payments thus enhance efficiency by reducing transaction costs, reduce the time interval before a payment order is credited to a payee's account, and limit the amount of paper in the payment system (Padoa-Schioppa, 1986).

In Europe, both the number of POS terminals accepting debit and/or credit cards and the number of transactions handled are, on a per person basis, greatest in Finland and France. Denmark, Norway, Belgium and the U.K. are also relatively advanced in this regard. Finland and France in particular demonstrate the power of cooperation between banks as a way to bring about a rapid diffusion of electronic payments. Cooperation in the establishment of infrastructure, the wide acceptability and compatibility of cards issued by different institutions, and the seemingly effective competition among institutions for customers has permitted the rapid diffusion of on-line card-based POS payments in France (Kearney, 1993) and Finland during the 1980s.

**_Reasons for giro dominance in Europe: banking concentration, nationwide networks, and cooperation._** A concentrated banking industry and the nationwide branch networks of banks and postal savings institutions made it possible to establish giro payment systems in Europe based on credit transfers. Within the postal bank network, for example, it was only a relatively small step to bring in business accounts and offer first local, then regional, and finally nationwide bill payment services to savings account holders (Thomson, 1964). With centralized accounting, on a local, regional, and then a national basis, it was possible to determine whether a payor had sufficient savings in his giro account before a payment was made. As payments are rejected if funds in an account are insufficient, credit risk to the payee does not exist. Centralization of depositor account information made the shift from paper to electronic giro transactions in the 1960s and 1970s an internal issue, similar to that which has occurred within-but not between-banks in the U.S. during the same period. Compared to European countries, the U.S. is geographically many times larger, has a much more unconcentrated and decentralized banking system, and has no nationwide postal payment service (other than little used postal money orders). In this environment checks have a clear advantage over credit transfers, at least before the recent development of low cost electronic communication technology.

Banking concentration has also played a major role in Europe by facilitating cooperation between banks and other institutions in the payment business. In a concentrated market, it is much easier to reach an agreemen **t** o establish a jointly owned giro system that, because of centralizeA clearing, is a lower cost alternative than use of geographically dispersed local clearing houses.

_27 Some POS systems do not operate on-line and allow the use of credit or deferred payment._ _28 In Europe, restrictions on bank geographical dispersion within countries have been scarce (Gual and Neven, 1992) and antitrust policy has been more behavior-oriented, trying to detect cases where firms exploit their dominant market position", rather than limiting market concentration itself (which has been the U.S. approach)._