With greater streamlining in electronic payment intermediation and an increased number of
transactions, the cost of payments to society has declined since 2018, when it was last measured. The estimated social cost (internal cost) of using payment instruments in Iceland was
around 47 b.kr. at the 2021 price level, or 1.43% of GDP. Each debit card transaction costs
society less than each credit card transaction does. On the other hand, the cost of each cash
transaction has increased, primarily because use of cash has declined in recent years. Payment
services are most expensive in terms of the social cost per unit, including operation and maintenance of payment equipment.

Payment service providers (like banks, savings banks and acquirers) bear the highest cost
of payment intermediation, but they also earn income from it. The commercial and savings
banks lost money on cash withdrawals and payment services in payment intermediation
in 2021, but both they and acquirers profited on payment card operations. Credit cards
generated the greatest profits. The average profit is estimated at 122 kr. per credit card
transaction, as compared with 8 kr. per debit card transaction.

The social cost (internal cost) to sales and service providers has increased by nearly 1 b.kr.
since the 2018 measurement, in part due to increased wage costs and investment in new payment equipments. Merchants’ largest expense stems from merchant service charges (MSC),
which are paid to acquirers and are part of external costs. This item totalled nearly 11 b.kr. The
cost stemming from debit cards was considerably lower, however: the cost per transaction
averaged 55 kr. for debit cards, as opposed to 103 kr. for credit cards. Merchants pay a fee
averaging about 0.6% on each debit card transaction and 0.9% on each credit card transaction. For foreign payment cards (credit and debit cards alike), the MSC averaged roughly 0.9%.

Households are of the view that it takes less time to pay by payment card at a physical
outlet, or point of sale, than it did in 2018. This reduces households’ estimated cost of payments. Therefore, households are of the opinion that efficiency has increased with payment
card use. They are also of the opinion that cash payment for goods and services was more
time-consuming in 2021 than in 2018. As a result, they find that cash payment has grown
less efficient. The majority of households’ costs stem from fees they pay for use of payment
instruments – mainly for payment card use – at an estimated total cost of around 10 b.kr. in
2021. Each debit card transaction costs households 45 kr. and each credit card transaction
around 91 kr. It can also be said that households indirectly pay fees that merchants remit to
acquirers via mark-ups on the price of goods and services.

The cost of cross-border payment services is high in comparison with domestic payment
services. Fees for cross-border payments are estimated to have totalled just over 760 m.kr. in
2021, including 510 m.kr. for transfers of funds and 250 m.kr. electronic money transfers. On
average, each digital cross-border transfer of funds cost 1,921 kr., and each money transfer
cost 3,242 kr.