|February 1999 Number 62
|JEL classification: G20, G21
Author: Lawrence J. Radecki
The amount of fee income earned by the banking sector suggests that the significance of payment services has been understated or overlooked. This paper attempts to develop a clearer picture of the importance of payment services to the industry by delineating the payments area broadly and by analyzing data disclosed in bank holding company annual reports on sources of noninterest income.
We find that payment services bring in from one-third to two-fifths of the combined operating revenue of the twenty-five largest bank holding companies. This contribution to revenue is considerably larger than commonly appreciated and indicates that the production and distribution of payment services is one of the core activities of commercial banks. The greater-than-expected importance of payment services has several implications for the identification and measurement of the banking sector's output and for theories of the fundamental nature of commercial banking.
For a published version of this report, see Lawrence J. Radecki, "Banks' Payments-Driven Revenues," Economic Policy Review 5, no. 2 (July 1999): 53-70.