nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2016‒02‒23
eighteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments? By Bartzsch, Nikolaus; Seitz, Franz
  2. The value of network neutrality to European consumers By Arnold, René; Waldburger, Martin; Morasch, Bastian; Schmid, Frieder; Schneider, Anna
  3. Loss aversion on the phone By Christos Genakos; Costas Roumanias; Tommaso Valletti
  4. A case study cost modelling of regulatory alternatives to mitigate the mobile network coverage and capacity problems in rural areas By Sundquist, Mårten; Markendahl, Jan
  5. Interbank networks in the national banking era: their purpose and their role in the panic of 1893 By Charles W Calomiris; Mark A Carlson
  6. The drivers of the substitution of individual services for bundled services: The case of Spain By Urueña López, Alberto; Gijón, Covadonga; Castro García-Muñoz, Raquel; Ureña Fernández, Olga; Feijóo, Claudio
  7. Internet of Things: redefinition of Business Models for the next generation of Telecom services By Ghanbari, Amirhossein; Álvarez, Óscar; Markendahl, Jan
  8. How fixed mobile usage interact? Does FTTH deployment influence the interaction? By Liang, Julienne
  9. A Mixed Frequency Approach to Forecast Private Consumption with ATM/POS Data By Cláudia Duarte; Paulo M.M. Rodrigues; António Rua
  10. Eliciting preferences for public goods in non-monetized communities: Accounting for preference uncertainty By Pondorfer, Andreas; Rehdanz, Katrin
  11. An Efficient Solution Approach for Combinatorial Bandwidth Packing Problem with Queuing Delays By Jayaswal, Sachin; Vidyarthi, Navneet; Das, Sagnik
  12. Financial intermediaries and economic growth in Ghana: an empirical investigation By Odhiambo, Nicholas. M; Nyasha, Sheilla
  13. Hidden cost of better bank services: carefree depositors in riskier banks? By Choi, Dong Boem; Velasquez, Ulysses
  14. Information, Contract Design, and Unsecured Credit Supply: Evidence from Credit Card Mailings By Han, Song; Keys, Benjamin J.; Li, Geng
  15. Motivation, Regulation And Actor Constellations - Experiences From A Multidisciplinary Research Project On Health And Wellbeing As Part Of The Internet Of Things By Laya, Andrés; Sundquist, Mårten; Markendahl, Jan
  16. Decentralized clearing in financial networks By Csóka P.; Herings P.J.J.
  17. The Analysis of the Ghana Telecom Industry By Osei-Owusu, Alexander
  18. The Impact of Entry and Merger on the Price of Mobile Telecommunications Services By Houngbonon, Georges Vivien

  1. By: Bartzsch, Nikolaus; Seitz, Franz
    Abstract: This paper models the demand for banknotes issued in Germany. It highlights that all motives for holding banknotes are present in this case. Inter alia, special attention is paid to the role of card payments. For small and large denomination notes we are able to establish meaningful vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area and non-cash payments are part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are largely determined by foreign demand. It was not possible to setup a VECM for medium denominations for which we resort to a singleequation approach. Card payments do not play any role for the medium and large denomination categories.
    Abstract: Das vorliegende Papier modelliert die Nachfrage nach Euro-Banknoten, die von der Deutschen Bundesbank emittiert wurden. Dabei wird offensichtlich, dass alle Motive der Bargeldhaltung in diesem Fall relevant sind. Ein spezielles Augenmerk wird darauf gerichtet, welche Rolle bargeldlose Zahlungen in Form von Kartenzahlungen spielen. Für große und kleine Stückelungen gelingt es, aussagekräftige Vektorfehlerkorrekturmodelle (VECM) mir ökonomischem Gehalt aufzustellen. Langfristig wird die Nachfrage nach kleinen Stückelungen vor allem getrieben von inländischen Transaktionen und der Nachfrage außerhalb des Euro-Währungsgebietes. Das Transaktionsmotiv in den anderen Euro-Ländern und Kartenzahlungen treiben die Kurzfristdynamik. Die langfristige Nachfrage nach großen Stückelungen wird dagegen hauptsächlich von der Auslandsnachfrage innerhalb und außerhalb des Euro-Währungsgebiets getrieben. Die globale Finanzkrise führte dabei zu einem einmaligen Sprung in der realen Nachfrage nach diesen Noten. Für die mittleren Stückelungen konnte kein VECM aufgestellt werden. Deshalb musste auf einen Einzelgleichungsansatz zurückgegriffen werden. Kartenzahlungen beeinflussen weder die Nachfrage nach großen noch nach mittleren Stückelungen.
    Keywords: banknotes,vector error correction,card payments
    JEL: C22 C32 E41
    Date: 2015
  2. By: Arnold, René; Waldburger, Martin; Morasch, Bastian; Schmid, Frieder; Schneider, Anna
    Abstract: In light of the lack of studies into the value of network neutrality to consumers, BEREC has commissioned a European (CR; CZ; EL; SE) mixed-methods study to explore this issue. This paper presents selected results of this study. To understand the value of network neutrality to European consumers, one first has to explore the role that the Internet plays in consumers’ lives. We find that whilst the Internet has become very important to the majority of consumers across the four test areas studied in this paper, its role in consumers’ lives differs greatly depending on the national culture, but also to some extent on the quality of Internet access available in the specific country. Consumers usually find being able to access all content and applications on the Internet fundamental to their quality of experience. They do not want to see their access restricted in any way, but many find it fair if emergency relief services or the police receive prioritised access. The same is true if others pay extra for prioritised access to specific applications as long as this does not compromise the experience of those who do not pay extra. Taking a closer look at consumers’ understanding and conceptualisation of network neutrality supports that consumers do not have a clear understanding of the concept. However, they care strongly about the effects deviations from network neutrality have for their own quality of experience or the quality of experience of others. The conjoint analysis conducted for this study highlights the importance of network neutrality-related product attributes for consumers’ purchase decisions. In fact, they make up around half of their purchase decisions for at home Internet access. A closer analysis of the part-worth utilities reveals a surprising preference for the best effort Internet access to applications over the prioritised one. It seems likely that this result is due to their lack of experience with prioritised services. The paper discusses various alternative explanations of this preference pattern. In line with expectations, the conjoint analysis also finds that any restrictions of consumers’ access results in a significantly reduced willingness-to-pay for their at home Internet access.
    Date: 2015
  3. By: Christos Genakos; Costas Roumanias; Tommaso Valletti
    Abstract: We analyze consumer switching between mobile tariff plans using consumer-level panel data. Consumers receive reminders from a specialist price-comparison website about the precise amount they could save by switching to alternative plans. We find that the effect on switching of being informed about potential savings is positive and significant. Controlling for savings, we also find that the effect of incurring overage payments is also significant and six times larger in magnitude. Paying an amount that exceeds the recurrent monthly fee weighs more on the switching decision than being informed that one can save that same amount by switching to a less inclusive plan, implying that avoidance of losses motivates switching more than the realization of equal-sized gains. We interpret this as evidence of loss aversion. We are also able to weigh how considerations of risk versus loss aversion affect mobile tariff plan choices: we find that a uniform attitude towards risk in both losses and gains has no significant influence on predicting consumers’ switching, whereas perceiving potential savings as avoidance of losses, rather than as gains, has a strong and positive effect.
    Keywords: loss aversion; consumer switching; tariff plans; risk aversion; mobile telephony
    JEL: D10 D12 D81 L96
    Date: 2015–09
  4. By: Sundquist, Mårten; Markendahl, Jan
    Abstract: Despite a continued build-out of mobile networks, both mobile network coverage and capacity problems in rural areas are increasing. This counterintuitive situation is due to the exponential growth in mobile data usage, the long inter-base station site distance in rural areas and the increasing requirements on ubiquitous coverage not only for humans but also for the Internet of Things. With today’s communication systems and business models, it is not commercially viable to solve the problems by the MNOs (Mobile Network Operators) alone. The paper aims instead of studying the different regulatory strategies available for NRAs (National Regulatory Agencies) to improve the situation. The main focus and contribution of the paper is to make a cost modelling of the main regulatory solutions available to improve the coverage and capacity in rural areas. An overall cost benchmark is then made, where the relative cost for network operators, affected end-users and the public sector is displayed.
    Date: 2015
  5. By: Charles W Calomiris; Mark A Carlson
    Abstract: The unit banking structure of the United States gave rise to a uniquely important interbank correspondent network, which linked banks throughout the country during the National Banking Era. During normal times, these interbank network relationships provided banks with access to money markets, facilitated payment processing, and helped banks meet legal reserve requirements. We collect and analyze data on individual correspondent relationships of national banks to map the structure of the network, identify the factors that led banks to adopt different correspondent network structures, and examine the consequences of network choices for bank liquidity risk. Banks' network profiles differed according to the range of services they needed or provided to their customers. For instance, banks providing more checking services focused their interbank relationships on banks in New York City, which was central to the payment clearing system. Location characteristics also mattered; banks in areas with more manufacturing firms maintained more network connections. Differences in network profiles propagated liquidity risk during the Panic of 1893, one of the most severe panics of the National Banking Era. Banks with relatively high two-sided interbank liquidity risk - those that both held more of their liquid assets with their correspondents and were funded to a greater extent by the deposits of other banks - were more likely to close. New York City banks suspended convertibility during the crisis. Banks that relied more heavily on New York correspondents as a source of liquidity were more likely to close.
    Keywords: interbank networks, correspondent banking, banking panics, contagion, National Banking Era
    Date: 2016–01
  6. By: Urueña López, Alberto; Gijón, Covadonga; Castro García-Muñoz, Raquel; Ureña Fernández, Olga; Feijóo, Claudio
    Abstract: In 2007, Spanish telecoms companies began to offer bundled services. Operators started by offering phone plus broadband and phone plus broadband plus pay television bundles, and in doing so, were able to reduce aggregated prices for consumers. In addition to monetary incentives, this study examines the causes that lead consumers (individuals) and households (as economic agents) to replace individual contracts with bundled contracts including more (or fewer) services from those previously subscribed to individually. A model of demand of access to household and individual services was estimated for three services: landline phone, Internet, and pay television using a representative panel of telecoms consumers in Spain. The results show –in decreasing order- the influence of previous experience with particular services, followed by factors related to usage and factors linked with socio-demographic characteristics. Monetary incentives -contrary to common belief- play a significant but minor role.
    Keywords: telecoms bundles,substitution,landline phone,broadband Internet,pay tv,triple play,random effects model
    Date: 2015
  7. By: Ghanbari, Amirhossein; Álvarez, Óscar; Markendahl, Jan
    Abstract: This paper provides an assessment of existing M2M business models and arrangements in selected industry segments. It studies the drivers and barriers for adaption of M2M and IoT in transforming operations in the selected industry segments, and focusses on identifying recurring patterns in the transformation process. The change in value propositions as well as how value networks transform is studied and analysed. The studied segments and services are: - Public transportation services, - Automotive and vehicle related services, - Smart energy services, - Health care and home care services. The analysis has targeted business modelling KPIs of the type “Business application cases” and includes two different cases; one for a mobile operator and one for a system and network equipment manufacturer. In both cases the description focuses on the identified business opportunities for the actors and the required actions that are identified in order to exploit the opportunities, the following aspects are included: - The set of features that can be offered to end users, - Capabilities, resources or knowledge to develop, - Business relations to exploit and develop, - Change of position in the value network, - Potential conflicts (with partners, customers and internally) to handle. All of these items are clearly related to transformation of the business and hence a change for the involved actors and their customers, suppliers and partners. In summary the findings of the analysis are as follows: For drivers and benefits the common themes from the cases are that users get a value of being connected and/or to be available and/or to be able to collect data or perform activities on the move. Identified barriers include challenges related to acquiring new competences about services and application areas and to build up and maintain new customer relations.. Also the number of customers at a market (national or global) is a key issue. A mobile operator may be able to have business relations with 10 big actors but not with 100 or 1000 smaller actors. The same applies for telecom vendors that are used to handle a limited number of big customers. In addition to new competences and ability to handle customer relations a key to success is to be able to change market position.
    Date: 2015
  8. By: Liang, Julienne
    Abstract: We estimate the interaction between …fixed and mobile usage both for voice and data services using consumer level data from April 2013 to March 2014 in a European country. We …find a signi…cant proportion of …fixed voice consumption could be substituted by mobile voice, and vice versa. However, a substantial proportion of fixed data consumption, and also mobile data consumption, is generated by fixed-mobile interaction in both directions. FTTH deployment has no signi…cant impact on …fixed-mobile voice substitution. The … fixed data consumption generated by mobile to …fixed interaction appears to increase with FTTH deployment.
    Keywords: Fixed mobile,…fixed mobile usage interaction,voice consumption,data consumption,substitution versus complementarity,FTTH deployment
    JEL: L43 L50 L96
    Date: 2015
  9. By: Cláudia Duarte; Paulo M.M. Rodrigues; António Rua
    Abstract: The recent worldwide development and widespread use of electronic payment systems opened the opportunity to explore new data sources for monitoring macroeconomic activity. In this paper, we analyse the usefulness of data collected from Automated Teller Machines (ATM) and Points-Of-Sale (POS) for nowcasting and forecasting quarterly private consumption. To take advantage of the high frequency availability of such data, we use Mixed Data Sampling (MIDAS) regressions. A comparison of several MIDAS variants proposed in the literature is conducted, both single- and multiple variable models are considered, as well as different information sets within the quarter. Given the high penetration of ATM/POS technology in Portugal, it becomes a natural case study to assess its information content for tracking private consumption behaviour. We find that ATM/POS data displays better forecast performance than typical indicators, reinforcing the potential usefulness of this novel type of data among policymakers and practitioner.
    JEL: C53 E27
    Date: 2016
  10. By: Pondorfer, Andreas; Rehdanz, Katrin
    Abstract: One major challenge when conducting contingent valuation studies in developing countries is the choice of the appropriate payment vehicle. Since regular cash-income does not exist for the majority of the population and market integration is low, households in rural areas have less experience with monetary exchanges. In these cases labour time may be a more appropriate payment vehicle. A common finding of studies using labour time as the payment vehicle is that households are more often willing to contribute working time as compared to money. However, so far empirical evidence is missing if the labour time elicitation format reduces respondent's uncertainty of contributions. In this study we analyze and compare uncertainty of people's stated willingness to contribute (WTC) time and money for a local public good in a non-monetized small-scale community in Bougainville, Papua New Guinea. We do so by establishing an open-ended method for eliciting people's WTC, the Range-WTC-method, which elicits the upper and lower bound of a person's WTC. We find that uncertainty is reduced when respondents are asked for labour time contribution instead of monetary contributions. Thus, we provide empirical evidence that, indeed, labour time is the preferred to money in the elicitation of stated WTC in non-monetized communities.
    Keywords: Contingent valuation,Non-monetized community,Payment vehicles,Preference uncertainty
    JEL: D81 Q51 Q56
    Date: 2015
  11. By: Jayaswal, Sachin; Vidyarthi, Navneet; Das, Sagnik
    Abstract: The Combinatorial bandwidth packing problem (CBPP), arising in a telecommunication network with limited bandwidth, is defined as: given a set of request, each with its potential revenue and consisting of calls with their bandwidth requirements, deciding (i) a subset of the requests to accept/reject, and (ii) a route for each call in an accepted request, so as to maximize total revenue earned. However, telecommunication networks are generally characterized by variability in the call (bits) arrival rates and service times, resulting in delays in the network. In this paper, we present a non-linear integer programming model for CBPP accounting for such delays. By using simple transformation and piecewise outer-approximation, we linearize the model, and present an efficient cutting plane based approach to solve the resulting linear mixed integer program to optimality.
  12. By: Odhiambo, Nicholas. M; Nyasha, Sheilla
    Abstract: This paper examines the impact of bank-based financial development on economic growth inGhana during the period from 1970 to 2014 ??? using the autoregressive distributed lag(ARDL) bounds testing approach. Unlike some previous studies, the current study uses fiveproxies to measure the level of bank-based financial development, including a compositeindex of bank-based financial development derived from various financial developmentindicators. The empirical results of this study show that the impact of bank-based financialdevelopment on economic growth in Ghana is sensitive to the proxy used to measure bankbasedfinancial development. The results also tend to vary over time. Overall, our resultsshow that when the ratio of domestic credit extension to the private sector by banks to GDP,and the composite index are used as proxies, bank-based financial development has apositive impact on economic growth in Ghana. However, when the ratio of deposit moneybanks' assets to GDP is used as a proxy, bank-based financial development has a negativeimpact on economic growth. These results apply, irrespective of whether the analysis is donein the short run or in the long run. Other results show that when the ratio of the claims ofdeposit money banks on the private sector to broad money is used as a proxy for bank-basedfinancial development, bank-based financial development is found to have a negative impacton economic growth in the short run, but a positive impact in the long run. However, whenthe ratio of quasi liquid liabilities to GDP is used, the relationship tends to be positive in theshort run, but negative in the long run.
    Keywords: Ghana, Bank-Based Financial Development, Economic Growth
    Date: 2015–10
  13. By: Choi, Dong Boem (Federal Reserve Bank of New York); Velasquez, Ulysses (Federal Reserve Bank of New York)
    Abstract: Better customer service provisions by banks—such as more branches and ATMs, longer business hours, and more personalized services—help attract more core deposits and increase funding stickiness by raising depositors’ switching costs and enhancing their loyalty. Funding stickiness from depositor loyalty, however, could impair market discipline and lead to excessive risk taking or lax lending standards in banks. We find that, compared to banks that spend less on customer services, banks providing better services attract more core deposits, pay less for their funding, and are exposed to lower funding outflow risks. At the same time, these banks have worse loan quality and lower Z-scores. We argue that this contradictory finding of low asset quality and low funding cost stems from the lack of risk monitoring by carefree depositors, which exacerbates agency problems; funding cost is less sensitive to the risk characteristics of banks providing better services.
    Keywords: bank liability; funding cost; liquidity risk; risk taking; market discipline
    JEL: G20 G21
    Date: 2016–01–01
  14. By: Han, Song (Board of Governors of the Federal Reserve System (U.S.)); Keys, Benjamin J. (University of Chicago); Li, Geng (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: How do lenders of unsecured credit use screening and contract design to mitigate the risks of information asymmetry and limited commitment in the absence of collateral? To address this question, we take advantage of a unique dataset of over 200,000 credit card mail solicitations to a representative sample of households over the recent credit cycle--a period that includes the implementation of the CARD Act. We find that while lenders use credit scores as a prominent screening device, they also take into account a wide array of other information on borrowers' credit histories and financial and demographic characteristics. For instance, the likelihood of receiving an offer is sensitive to the exact timing of a prior bankruptcy filing. We also find that credit market conditions affect the marginal information used in lenders' offer decisions, as lenders sharply reduced credit supplied to subprime borrowers during the crisis and in response to the CARD Act. Finally, we document that lenders extend multiple distinct offers to the same consumers over a relatively short period, likely designed such that consumers reveal private information in their choice of contract.
    Keywords: Credit supply; information asymmetry; credit cards; mail solicitation; personal bankruptcy; CARD Act; household finance
    Date: 2015–11–16
  15. By: Laya, Andrés; Sundquist, Mårten; Markendahl, Jan
    Abstract: Internet of Things is an inherently multi-disciplinary area, as mobile connectivity, sensor device technologies and cloud solutions make strong impact in a multitude of applications in diverse sectors. In this paper we study some technical solutions, business models and behavior aspects of IoT in a Health and Wellbeing context. The work is based on an ongoing research project initiated by a wireless research center. This project includes two startup-up companies that are developing services based on connected devices. As part of the evaluation activities, the project counts with the collaboration of the largest nonprofit training organization in Sweden. As part of the research project, a prototype application is developed for training. Leveraging on the insights related to the individual motivational aspects, collected from an end-user study on motivational and adoptability aspects of Internet of Things in a workout context. In order to better understand the context on which services are provided, an ecosystem analysis is elaborated in order to highlight the differences between the healthcare and wellbeing contexts.
    Date: 2015
  16. By: Csóka P.; Herings P.J.J. (GSBE)
    Abstract: We consider a situation in which agents have mutual claims on each other, summarized in a liability matrix. Agents assets might be insufficient to satisfy their liabilities leading to defaults. We assume the primitives to be denoted in some unit of account. In case of default, bankruptcy rules are used to specify the way agents are going to be rationed. We present a convenient representation of bankruptcy rules. A clearing payment matrix is a payment matrix consistent with the prevailingbankruptcy rules that satisfies limited liability and priority of creditors. Both clearing payment matrices and the corresponding values of equity are not uniquely determined. We provide bounds on the possible levels equity can take. We analyze decentralized clearing processes and show the convergence of any such process in finitely many steps to the least clearing payment matrix. When the unit of account is sufficiently small, all decentralized clearing processes lead essentially to the same value of equity as a centralized clearing procedure. As a policy implication, it is not necessary to collect and process all the sensitive data of all the agents simultaneously and run a centralized clearing procedure.
    Keywords: Cooperative Games; General Financial Markets: General (includes Measurement and Data);
    JEL: C71 G10
    Date: 2016
  17. By: Osei-Owusu, Alexander
    Abstract: Drawing on institutional theory, this paper is aimed at providing further understanding and explanation to the Ghanaian telecom industry today. In particular the research sought to determine: how the industry was governed from the pre-reformation to the reformation period; the process of transitional reform and how it has molded the industry, especially on market competition; major policy initiatives and periods undertaken, since the beginning of the transitional process; how institutions have affected the reform of telecommunication in Ghana and to what extent various actors has impacted the industry. The study identified two major periods and their various level of governance, from the Nationalization period or era where management of the sector started from traditional leaders, later to municipalities/ districts and finally to the works and housing department; at the denationalization period or era management was solely in the hands of an independent and a national regulatory authority. It was also revealed three main policy direction across the period of reform: market liberalization (1997-2007) where Westel limited was introduced into the fixed line market, spacefon, celltell and mobitel all introduced into the cellular telephony market. At the beginning of 2008 policy was directed towards infrastructure expansion, as a result infrastructure licensing was introduced opening the door for international tower companies. Recently, from the beginning of 2011 up to date, policy is directed to consumer protection and projects such as Mobile Number Portability and SIM Card Identification has been rolled out. The use of the institutional theory provided further understanding of the sector reforms. In summation, the research also provided a full picture of how the Ghanaian telecom industry looks today.
    Keywords: Institutional theory,reforms,transitional reform,Nationalization,denationalization
    Date: 2015
  18. By: Houngbonon, Georges Vivien
    Abstract: According to static models of industrial organization, a rise in competition decreases prices. In this paper, I test whether this conclusion can be reversed in the mobile telecommunications markets where dynamic e ciency e ects might be signi cant. The empirical test relies on the change in the intensity of competition introduced by the entry of the fourth mobile operator in France and the merger between the third and the fourth mobile operators in Austria. Using a hedonic price model and a double-di erence matching identi cation strategy, I nd that the entry in the French market has raised the unit price of mobile data services by 4 dollars per Gigabyte; contrary to the merger in the Austrian market which lowers the unit price of mobile data by 6 dollars per Gigabyte. These results suggest that the dynamic e ciency e ects actually outweigh the static ones in the mobile telecommunications industry. Therefore, a merger from four to three mobile operators may be welfare enhancing.
    Keywords: Dynamic Efficieny Effects,Ex-post Merger Evaluation,Nolinear Pricing,Mobile Telecommunications
    JEL: D43 L11 L13
    Date: 2015

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