In the past decade, the US economy has witnessed a tremendous surge in the usage of electronic payment processing services and an increased importance of the firms that provide these services. The payments industry has also undergone changes in cost structure with the introduction of new...

This paper uses a stochastic cost frontier to examine the scale economies, cost efficiencies, and technological change of three payment instruments (check, ACH, and Fedwire processing) provided by the Federal Reserve over the period 1990-1994. We find evidence of substantial scale economies and...