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. if you plot the share of electronic payments for a number of countries against the share of cash to gdp you get a broad measure of the cost efficiency of the different payment systems. the further to the northwest corner of such a diagram, the more automated the payment system is. according to these measures, the swedish payment market seems to be performing very well, as are the payment markets in the other nordic countries. swedes, however, seem to be using more cash than other nordic countries. the swedish m0 / gdp ratio lies 1 - 2 per centage points higher than the other nordic countries. as cash and card payments are close substitutes - in fact the only alternatives available for transactions at the point of sale2 - we would expect that the more widespread use of cash in sweden would be reflected in a lower use of card payments. payments data support this. swedes use more cash and make fewer card payments per capita than other nordic citizens. why do we observe these differences in the use of cash and the use of card payments in countries that otherwise have very similar payment systems? what variables influence the users ’ choice of payment instruments? given that users

be locked into a situation where they would benefit from a joint shift to more cost - based pricing, but no bank wants to be the first to make such a move. being the first mover can be costly in terms of lost customers and market shares. an alternative explanation can be that banks view payment services as complementary to other business areas that are more profitable, such as saving products, mortgage loans, etc. finally, we have to bear in mind that for the time being, we have considered banks ’ costs only, so we confine our results to potential cost savings within the banking sector. in order to be able to draw conclusions on potential efficiency gains for society as whole, we need to consider all costs associated with payment services ; the costs for all the parties involved, ie the retail sector, banks and private consumers. this could be one important area for future research. thank you for your attention. 3 / 3