The pricing of bank payments services

Abstract

Analyses alternative forms of pricing and pricing strategies of bank payments services and reports the results of an international survey of pricing practices in 11 countries. Makes a distinction between implicit and explicit pricing and, in the context of British banks′ policy of implicit pricing for personal accounts maintained in credit, compares the pricing practice of British banks and those in other countries. Considers how each compares with optimal strategies indicated by the theoretical analysis. Finds that British banks are alone in not making explicit charges for payments services which is sub‐optimal: there is no incentive for customers to economize on their use of current account; this induces behaviour which raises the costs of banks, and there is no incentive for consumers to use cheaper forms of payment media. Implies a structure of cross‐subsidies which is unlikely to be sustainable in a more competitive market environment.

Citation

Drake, L. and Llewellyn, D.T. (1995), "The pricing of bank payments services", International Journal of Bank Marketing, Vol. 13 No. 5, pp. 3-11. https://doi.org/10.1108/02652329510147319