Payment services cheaper and more profitable for the banks

Staff memo Digitalisation has reduced banks' costs for payment services. For example, their costs for handling cash have decreased by almost SEK 3 billion in 2021 compared to 2009. Together with the increase in digital payments, this has made payment services more profitable for the banks. This is described by Anders Mölgaard Pedersen and Nina Engström of the Riksbank's Payments Department in a staff memo.

Banks incur costs to provide payment services, including labour and IT systems. In recent years, digitalisation has significantly reduced banks' costs for payment services. For example, digitalisation has reduced the cost of providing cash services by 80 per cent, or SEK 2.7 billion, in 2021 compared to 2009. This can be explained partly by the declining use of cash and banks are offering fewer and fewer cash services.

Moreover, as more payments are made digitally, the banks' costs per payment decrease, as the costs of digital payments are largely fixed and do not increase as the number of payments increases. On the other hand, the banks' revenues increase as payments increase, especially for cards. As a result, banks have gone from making a loss on their payment services in 2009 to making a profit on them in 2021.

The Swedish payment infrastructure is to be modernised, and it remains to be seen how this will affect banks' costs for payment services going forward. The work requires a lot of resources from banks and entails higher costs in the short term. In the longer term, it is likely that modernisation will lead to a more efficient payment infrastructure and help to further reduce banks' costs of providing payment services.

Authors: Anders Mölgaard Pedersen and Nina Engström at the Payments Department of the Riksbank.

Staff memo

A Staff Memo provides members of the Riksbank’s staff with the opportunity to publish advanced analyses of relevant issues. It is a publication for civil servants that is free of policy conclusions and individual standpoints on current policy issues. Publication is approved by the appropriate Head of Department. The opinions expressed in Staff Memos are those of the authors and should not be regarded as the Riksbank’s standpoint.

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Updated 11/03/2024