Size Matters:Economies of Scale in the European Payments Market

This thesis investigates the existence and extent of economies of scale in the European payments processing industry. SEPA aims to facilitate the emergence of a competitive, intra- European market by making cross-border payments as easy as domestic transactions. It is expected that SEPA will spur consolidations and mergers among European payments processors to more fully realize economies of scale. We find evidence for the existence of significant economies of scale using data of eight European payment processors during the years 1990-2005. This thesis also reveals that ownership structure is an important factor to explain cost differences across European Automated Clearing Houses (ACHs).