The Effect of New Technology in Payment Services on Banks’ Intermediation

In many countries, payment services in banking have shifted from paper-based giro and check payments to electronic giro and debit card payments. This paper analyses the effect of this change in payment technology within a multiple-output framework using Norwegian banklevel panel data. The dual approach with four variable inputs is applied, and the general model includes random coefficients to capture heterogeneity in the production technology across banks. The results show that the move towards electronic payment services has (i) decreased average costs, (ii) increased the economies of scale in the production of deposits more than in the production of loans, and (iii) affected input demand asymmetric. The input ratio between labour and both physical capital and materials have decreased.