CNB seminar "Payment Initiation and Transaction Costs"

Prague, 21 May 2025

Alistair Milne (Loughborough Business School)

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Alistair Milne is a Professor of Financial Economics at Loughborough Business School. He has previously held positions at the Bank of England, the University of Surrey, London Business School, HM Treasury and the National Statistics Office of Malawi. In recent years his principal research has been on bank balance sheet management and regulation, and its relationship to banking performance, monetary transmission and financial stability; and on the network economics of financial infrastructure, including retail payments and securities and derivatives clearing and settlement. He has also worked on a variety of other issues in financial risk management, liquidity risk, central banking, financial regulation, housing markets, development finance and macroeconomics. Since 2005 Alistair has been an annual research visitor at the Monetary Policy and Research Department of the Bank of Finland. He has been a consultant to the Houses of Parliament, the Financial Services Authority, the European Commission, and to several private sector institutions and trade bodies.

Payment Initiation and Transaction Costs (abstract)

The economics of payment initiation is under researched. This paper discusses the impact of the choice between pull and push initiation on transaction costs, both historically and in modern digital payments and decentralized finance. There are trade-offs: pull requires greater institutional involvement but can reduce: (i) cognitive and other processing costs; and (ii) (through pre-commitment to pay) frictions in consumer and commercial transactions and risk in financial markets. An illustrative formal model demonstrates welfare improvement from pull in purchase of a good of subjective quality. Decentralisation of initiation emerges as a key issue in fintech innovation.