Abstract

Costs and Prices for Payment Transfer Services

In this article, a novel argument is advanced to indicate that costs are important for rational pricing policies. It is shown that the conflict between direct costing and full costing which is generally assumed in the literature, particularly in the banking literature, can be resolved. The first half of the article analyses the new pricing policy for payment transfer services introduced by the Dresdner Bank in April 1980. This bank has been the first German bank to charge different prices for different payment services to its customers who cannot negotiate prices. The new schedule seems, at first sight, to be motivated by £full-cost considerations. It is demonstrated, however, that it can also be considered as an interesting, convincing, and novel application of the idea of direct costing. The arguments developped for the case study of the Dresdner Bank’s new pricing policy are discussed and generalized in the second half of the paper. Costs are important for rational pricing policies because prices induce customers’ reactions which, in turn, determine the costs of banks. Therefore prices should be set taking cost consequences into account. When banks (and other firms) are forced by their position in the market or by the nature of their output or service to make general (or standing) offers which customers can choose to accept or reject, but cannot negotiate, the relevant costs are not the costs of the individual (payment transfer) service, but rather of the total of services demanded by the customers on the basis of the set price. This fact resolves the conflict between direct costing and full costing: Direct costs have to be considered; but they are direcct costs not for the individual service but for the general offer. Very often, the cost effect of any specific kind of (payment) service depend on the availability and the prices of other comparable services offered by the same supplier. Therefore, cross product effects have to be taken into account: The prices for all payment transfer) services have to be set jointly such that the intended reduction of costs, due to the reactions of all customers to all relevant prices, can be achieved