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Journal of Financial Services Research

, Volume 41, Issue 3, pp 163–195 | Cite as

Returns to Retail Banking and Payments

  • Iftekhar Hasan
  • Heiko Schmiedel
  • Liang SongEmail author
Article

Abstract

The present paper examines the fundamental relationship between the country-level infrastructure of the retail payment market and overall bank performance. Using data from across 27 European markets over the period 2000–07, the results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance, although they have a positive influence on the performance of commercial banks as well. Additionally, the findings reveal that the impact of retail services on bank performance is more pronounced through fee income, although their impact through interest income is also positive. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications.

Keywords

Retail payment Bank performance Cost and profit efficiency 

JEL classification

G21 G28 

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Fordham UniversityNew YorkUSA
  2. 2.Bank of FinlandHelsinkiFinland
  3. 3.European Central BankFrankfurtGermany
  4. 4.The School of Business and Economics of Michigan Technological UniversityHoughtonUSA

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