nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2016‒03‒10
five papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. What makes consumers switch mobile phone tariffs? By Christos Genakos; Costas Roumanias; Tommaso Valletti
  2. Wait a Minute: The Efficacy of Discounting versus Non-Pecuniary Payment Steering By Angelika Welte
  3. "Money, Power, and Monetary Regimes" By Pavlina R. Tcherneva
  4. Reject inference in application scorecards: evidence from France By Ha-Thu Nguyen
  5. Attack-Deterring and Damage-Control Investments in Cybersecurity By LAM, W.

  1. By: Christos Genakos; Costas Roumanias; Tommaso Valletti
    Abstract: The potential psychological pain of nasty surprises on mobile phone bills is a great motivator to switch tariffs, according to research by Christos Genakos and colleagues. Their study notes that navigating through thousands of tariff plans for mobile phones to find the best one is not easy in today's telecoms market - and having an 'expert friend' calculate the contract with the biggest savings definitely helps. But the findings suggest that regulators cannot rely on price comparison sites to discipline the market since savings are not necessarily the first thing even well informed consumers are looking for. Rather, it is their desire to avoid psychological losses.
    Keywords: loss aversion, consumer switching, tariff plans, risk aversion, mobile telephony
    JEL: D03 D12 D81 L96
    Date: 2016–02
  2. By: Angelika Welte
    Abstract: Merchants who accept credit cards face payment processing fees. In most countries, the no-surcharge rule prohibits them from using surcharges to pass these fees on to customers. However, merchants are allowed to steer consumers toward less costly payment methods by offering discounts or using non-pecuniary incentives such as convenience and speed. Drawing upon micro data from a survey of Canadian households, I estimate a discrete choice model of consumers’ payment methods to establish merchant costs for both of these strategies. I find that, while discounts are unprofitable because they subsidize a large portion of consumers who are already using cash and debit cards, non-pecuniary steering can be an effective strategy for transactions above $25.
    Keywords: Bank notes, Market structure and pricing, Payment clearing and settlement systems
    JEL: D12 E58 G28
    Date: 2016
  3. By: Pavlina R. Tcherneva
    Abstract: Money, in this paper, is defined as a power relationship of a specific kind, a stratified social debt relationship, measured in a unit of account determined by some authority. A brief historical examination reveals its evolving nature in the process of social provisioning. Money not only predates markets and real exchange as understood in mainstream economics but also emerges as a social mechanism of redistribution, usually by some authority of power (be it an ancient religious authority, a king, a colonial power, a modern nation state, or a monetary union). Money, it can be said, is a "creature of the state" that has played a key role in the transfer of real resources between parties and the redistribution of economic surplus. In modern capitalist economies, the currency is also a simple public monopoly. As long as money has existed, someone has tried to tamper with its value. A history of counterfeiting, as well as that of independence from colonial and economic rule, is another way of telling the history of "money as a creature of the state." This historical understanding of the origins and nature of money illuminates the economic possibilities under different institutional monetary arrangements in the modern world. We consider the so-called modern "sovereign" and "nonsovereign" monetary regimes (including freely floating currencies, currency pegs, currency boards, dollarized nations, and monetary unions) to examine the available policy space in each case for pursuing domestic policy objectives.
    Keywords: History of Money; Monetary Sovereignty; Chartalism; Counterfeiting; Public Monopoly; Currency Issuers vs. Currency Users; Exchange Rate Systems
    JEL: B5 E6 E42 E63 N1 Z1
    Date: 2016–02
  4. By: Ha-Thu Nguyen
    Abstract: Credit scoring models are commonly developed using only accepted Known Good/Bad (G/B) applications, called KGB model, because we only know the performance of those accepted in the past. Obviously, the KGB model is not indicative of the entire through-the-door population, and reject inference precisely attempts to address the bias by assigning an inferred G/B status to rejected applications. In this paper, we discuss the pros and cons of various reject inference techniques, and pitfalls to avoid when using them. We consider a real dataset of a major French consumer finance bank to assess the effectiveness of the practice of using reject inference. To do that, we rely on the logistic regression framework to model probabilities to become good/bad, and then validate the model performance with and without sample selection bias correction. Our main results can be summarized as follows. First, we show that the best reject inference technique is not necessarily the most complicated one: reweighting and parceling provide more accurate and relevant results than fuzzy augmentation and Heckman’s two-stage correction. Second, disregarding rejected applications significantly impacts the forecast accuracy of the scorecard. Third, as the sum of standard errors dramatically reduces when the sample size increases, reject inference turns out to produce an improved representation of the population. Finally, reject inference appears to be an effective way to reduce overfitting in model selection.
    Keywords: Reject inference, sample selection, selection bias, logistic regression, reweighting,parceling, fuzzy augmentation, Heckman’s two-stage correction.
    JEL: C51 C52 C53 G21
    Date: 2016
  5. By: LAM, W. (University of Liege)
    Abstract: This paper studies investment in cybersecurity, where both the software vendor and the consumers can invest in security. In addition, the vendor can undertake attack-deterring and damage-control investments. I show that full liability, under which the vendor is liable for all damages, does not achieve eciency and, in particular, the vendor underinvests in attack deterrence and overinvests in damage control. Instead, the joint use of an optimal standard, which establishes a minimum compliance framework, and partial liability can restore eciency. This suggests that policies that encourage not only firms, but also consumers to invest in security might be desirable.
    Keywords: cybersecurity, investment, standard, liability, bilateral care
    JEL: K13 L1 L8
    Date: 2015–05–01

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