The Costs of Point‐of‐Sale Payments in Canada

Staff Discussion Paper/Document d��analyse du personnel 2017�\4

The Costs of Point�\of�\Sale

Payments in Canada

by Anneke Kosse, Heng Chen, Marie�\H��l��ne Felt, Val��ry Dongmo

Jiongo, Kerry Nield and Angelika Welte

Bank of Canada staff discussion papers are completed staff research studies on a wide variety of subjects relevant to central bank policy,

produced independently from the Bank��s Governing Council. This research may support or challenge prevailing policy orthodoxy. Therefore, the

views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them

should be attributed to the Bank.

bank�\banque�\canada.ca

Bank of Canada Staff Discussion Paper 2017-4

March 2017

The Costs of Point-of-Sale Payments in Canada

by

Anneke Kosse,1 Heng Chen,2 Marie-H��l��ne Felt,2 Val��ry Dongmo Jiongo,2

Kerry Nield2 and Angelika Welte2

1De

Nederlandsche Bank

Amsterdam, The Netherlands

and

Currency Department

Bank of Canada

Ottawa, Ontario, Canada K1A 0G9

2Currency

Department

Bank of Canada

Ottawa, Ontario, Canada K1A 0G9

costofpayments-coutdespaiements@bank-banque-canada.ca

ISSN 1914-0568

? 2017 Bank of Canada

Acknowledgements

This study would not have been possible without the contribution of various trade

organizations, financial institutions, cash transportation companies, the Canadian Bankers

Association and other individual market participants. The authors are also grateful to the

Bank of Canada's Currency Department regional teams for their recruitment of respondents

and advice. Many thanks to Ben Fung and Kim P. Huynh for their continuing support and

valuable advice and guidance, to C��line Armstrong for her help on the communication

aspects of the study, and to Jean-Fran?ois Beaumont (Statistics Canada) and Alan

Roshwalb (Ipsos Reid) for their expert comments and suggestions. We also thank our

colleagues, especially Rene Bidart, Stan Hatko, Casey Jones, Emma McGuire, Gradon

Nicholls, Zixin Nie, Rallye Shen, Kyle Vincent and Blair Williams for excellent research

assistance, and Theodoros Garanzotis and Gerald Stuber for helpful comments and

suggestions. We acknowledge Shelley Edwards, Jessica Wu and the Ipsos Reid team for

their collaboration on this project. Finally, we thank our colleagues at other central banks

for sharing their experiences and lessons learned: Terje ?m?s (Norges Bank), Maria Tereza

Cavaco (Banco de Portugal), David Emery (Reserve Bank of Australia), Geoffrey Gerdes

(Federal Reserve Board), Nicole Jonker (De Nederlandsche Bank), Anders M?lgaard

Pedersen (Danmarks Nationalbank), Bj?rn Segendor (Sveriges Riksbank) and Chris

Stewart (Reserve Bank of Australia). This paper was written when Anneke Kosse was

seconded from De Nederlandsche Bank to the Bank of Canada.

i

Abstract

This study provides insight into the costs of cash, debit card and credit card payments made

at the point of sale in Canada in 2014. For each payment method, it examines the total

resource costs, which capture the overall use of resources by society as a whole. Using

extensive survey data from retailers, financial institutions and cash transportation

companies as well as internal and external data sources, the results show that the resource

costs of payments in Canada are non-negligible (0.78 per cent of GDP). Credit cards are

most costly in terms of resource costs per transaction, while cash carries the highest

resource costs per dollar transacted. Debit cards are the least costly, both in terms of costs

per transaction and costs per dollar in sales. The study also demonstrates how the costs

vary with transaction sizes. Considering the variable resource costs only, cash is found to

be cheapest for transactions up to $6, while debit cards are the least costly for transactions

larger than $6. The study also looks into the total private costs, which are the costs incurred

by each stakeholder, thereby providing insight into how costs are affecting the use and

acceptance of payment methods.

Bank topics: Bank notes; Financial institutions; Payment clearing and settlement

systems; Digital currencies

JEL codes: D12, D23, D24, E41, E42, G21, L2

R��sum��

Cette ��tude permet de mieux cerner les co?ts des paiements effectu��s en argent comptant,

par carte de d��bit et par carte de cr��dit dans les points de vente au Canada en 2014. Pour

chacun de ces modes de paiement, nous examinons l��ensemble des co?ts en ressources, qui

rendent compte de l��utilisation globale des ressources par la soci��t�� tout enti��re. Les

r��sultats, fond��s sur de nombreuses donn��es d��enqu��te aupr��s des d��taillants, des

institutions financi��res et des soci��t��s de transport de fonds, ainsi que sur des sources de

donn��es internes et externes, montrent que les co?ts en ressources associ��s aux paiements

au Canada ne sont pas n��gligeables (0,78 % du PIB). Les paiements par carte de cr��dit sont

les plus co?teux par transaction sur le plan de l��utilisation des ressources, tandis que les

paiements en argent comptant entra?nent les co?ts en ressources les plus importants par

dollar de vente. Les r��glements par carte de d��bit sont les moins co?teux par transaction et

par dollar de vente. Par ailleurs, nous montrons comment les co?ts varient selon le montant

des transactions. Du point de vue des seuls co?ts variables en ressources, les paiements les

moins co?teux d��coulent des transactions en argent comptant allant jusqu���� 6 $ et des

ii

transactions par carte de d��bit de plus de 6 $. L����tude porte ��galement sur l��ensemble des

co?ts individuels, �� savoir les co?ts assum��s par chaque partie prenante, ce qui permet de

mieux comprendre leur incidence sur l��utilisation et l��acceptation des diff��rents modes de

paiement.

Sujets : Billets de banque ; Institutions financi��res ; Syst��mes de compensation et de

r��glement des paiements ; Monnaies num��riques

Codes JEL : D12, D23, D24, E41, E42, G21, L2

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