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Occasional Papers, No. 1A, 2003
Retail Payments Innovations and the Banking Industry

This study examines the impact of new payments technologies on the value of the banking industry. Chakravorti and Kobor (2003) find that payment providers offer new payments products most often as a bundled service offering in order to retain their customers and with the expectation of increased long-term profits. Rice and Stanton (2003) estimate that payments revenue accounts for approximately 16 percent of operating revenue. According to Rice (2003), payments activities affect the value of the banking franchise and estimates of profit efficiency. A crosssection of bankers surveyed by Kellogg (2003) indicates four key concerns related to emerging payments technologies: changing delivery channels and safeguards, fraud, vendor oversight and operational risk measurement and reporting. Lemieux (2003) identifies network vulnerabilities as having resiliency implications. These five studies highlight how income from payments activities is becoming a significant portion of banks’ revenue and show that the lines between banks and nonbanks are becoming increasingly blurred.

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