Costs, advantages and drawbacks of the various means of payment

The total macroeconomic costs of the payment instruments used in the points of sale can be estimated to be 2.034 million euros, or 0.74 p.c. of Belgian GDP in 2003. The payment costs arising from cash were 0.58 p.c. of GDP, compared to 0.11 p.c. for debit cards, 0.04 p.c. for credit cards and 0.02 p.c. for the electronic purse Proton. About 50.5 p.c. of the payment costs originate in points of sale, whilst 47.1 p.c. come from the financial sector and 2.3 p.c. from currency-issuing institutions. If the costs of payment instruments are confronted to the transactions carried out, it can be seen that the costs per transaction are similar for three instruments. Costs are lowest for cash, at about 53 eurocents, but this instrument is closely followed by Proton (54 eurocents) and debit cards (55 eurocents). For credit cards, the costs are noticeably higher (2.62 euros). The costs per euro of turnover show that debit cards are the least expensive (1 eurocent), whilst cash, credit cards (at 3 eurocents in both cases), and especially Proton (10 eurocents), generate higher costs. These differences in costs, though, do not give any indication of the savings which could be made by replacing payment instruments with high variable costs with other instruments offering lower ones. The composition of the costs differs significantly between the different payment methods studied. Electronic payment costs are essentially fixed in nature : a significant part of these costs is linked to the infrastructure required for carrying out electronic transactions. The percentage is highest for Proton, with total fixed costs of 83 p.c. Next come credit cards (75 p.c.) and debit cards (61 p.c.). The cost breakdown for cash is far more balanced : 49 p.c. for fixed costs and 51 p.c. for variable costs (25 p.c. depending on the number of transactions and 26 p.c. on the amounts transacted). Variable costs per additional transaction are lowest for electronic purses, followed by cash, then debit cards and credit cards. Variable costs by additional euro of turnover are the highest for cash, since variable costs per transaction increase markedly according to the amount to be paid. In Belgium debit cards do not entail variable costs per additional euro of turnover and therefore give a level development for variable costs in relation to turnover. Essentially, variable costs for cash and debit cards are identical for a transaction of 10.24 euros ; it is better to pay smaller amounts in cash and higher amounts using a debit card. Moreover, it should be pointed out that the costs for using Proton are always lower than those for using cash but as soon as the sum to be paid reaches 53.74 euros, Proton becomes more expensive than using a debit card. It is possible to quantify a possible efficiency improvement in the use of payment instruments through a simulation. In order to do this, an analysis was carried out of the hypothetical replacement of 750 million transactions settled in cash by 250 million transactions (of an average 5 euros) paid by using Proton, and 500 million (of an average of 20 euros) using a debit card. The finding was that the saving would be about 58 million euros or 0.02 p.c. of GDP. Such a saving is rather low, even if a comparison is made at overall cost level (0.74 p.c. of GDP). Only a shift to a cashless society could generate substantial savings. This is, however, a purely theoretical scenario. As its market share shows, cash continues to be the public’s firm favourite : cash transactions make up 81.3 p.c. of point of sale operations. Cash does have intrinsic advantages ; it continues to be the only payment instrument which is universally accepted, basically because of its legal tender status, but also because its use does not require a terminal. Moreover, it can be used for operations between private individuals. Cash guarantees confidentiality in transactions and offers complete security in terms of protecting the private sphere of life. In addition, its use is unlikely to lead to building up excessive debts and lastly, it can also be a factor in social integration. Consumers should be able to continue to choose the payment methods they wish to use freely. Diversifying them contributes to greater flexibility for settling transactions and is therefore socially justified. In the future, efforts to make payment instruments more useful and more efficient will obviously have to be made. The spontaneous development of payments is already on the right lines, given the constant advances made in the area of electronic payments.