Pricing of card payment services in Scandinavian banking: a comment

Abstract

Willesson [(2009). Pricing of card payment services in Scandinavian banking. The Service Industries Journal, 29(3), 387–399] purports to demonstrate that when it comes to pricing of card payment services, Scandinavian banks with foreign operations will typically align themselves with the ‘pricing tradition’ in their foreign market(s). Unfortunately, a problem with Willesson's approach is that for several banks in his sample the foreign pricing tradition happens to coincide with the pricing strategy that the bank uses in its home market. As a result, it is impossible to determine whether these banks have really opted for a strategy of national responsiveness.

Keywords:

• payment services
• pricing
• inter-organisational imitation
• Scandinavia
• debit cards

Acknowledgements

I am indebted to my colleagues Valérie-Anne Bleyen and Marc Jegers and to anonymous referees for comments on an earlier version. Leo Van Hove is Professor of Economics at the Vrije Universiteit Brussels (Free University of Brussels), where he teaches courses in monetary economics, network economics, and e-commerce. His current research interests include currency usage, demand for e-money, and e-publishing. He has published extensively on these and other subjects in international journals (such as Journal of Money, Credit, and Banking; International Journal of Electronic Commerce; De Economist; Netnomics; Energy Economics; and European Journal of Operational Research).

Notes

In other words, branches of non-Scandinavian banks are excluded.

Interestingly, anecdotal evidence for Sweden – one of the countries covered by Willesson – that seems to confirm the existence of a prisoner's dilemma, also highlights the importance of a player's size. The following quote relates to the possible introduction of charges for ATM withdrawals: ‘The real question is whether one of the big four banks – Handelsbanken, Nordea, SEB, and Swedbank – is prepared to risk introducing charges. “Everyone is waiting and seeing”, says Jan-Olof Brunila who is responsible for payments within Swedbank: “No one wants to make the first move”’ (Source: Welch, 2002, pp. 13–14; emphasis added). Where cheque payments are concerned, the 2003 edition of the so-called ‘Red Book’ of the Bank for International Settlements notes that ‘one of the major Swedish banks introduced a rather high charge on all cheque transactions at the beginning of the 1990s. The other banks subsequently followed this example and also imposed heavy fees’ (Committee on Payment and Settlement Systems, 2003, p. 349; emphasis added).

The same scheme can also be used to illustrate my point about consistency in a bank group's strategy. In Table 2, observation 3 shows that our Finnish bank does not follow a national responsiveness strategy across the board. This calls into question whether the other observations should be counted as a ‘true positive’ – including observation 4 where the bank does diverge from its domestic strategy. To Willesson's defense: as there is only one outlier in his Table 4, this criticism only affects one banking group at most – and thus four observations maximum.

To be clear: unlike for the previous five combinations, ‘75% of the banks operating in Norway’ need not equate with ‘75% of Norwegian banks with foreign operations’. The same holds true for all following combinations. Also, if I read Willesson's Table 2 (on p. 390) correctly, the combinations NO-IS and DK-IS are only theoretical possibilities, as there do not appear to be any foreign banks that are active in Iceland.