nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2016‒07‒02
sixteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. New Innovations in Payments By Marc Rysman; Scott Schuh
  2. Decentralized Clearing in Financial Networks By Peter Csoka; P. Jean-Jacques Herings
  3. Substitution between fixed, mobile, and voice over IP telephony: Evidence from the European Union By Lange, Mirjam R. J.; Saric, Amela
  4. Digital Convergence and Beyond: Innovation, Investment and Competition in Communication Policy and Regulation for the 21st Century By OECD
  5. A New Currency of the Future: The Novel Commodity Money with Attenuation Coefficient Based on the Logistics Cost of Anchor By Boliang Lin; Ruixi Lin
  6. The Business Models and Economics of Peer-to-Peer Lending By Milne, Alistair; Parboteeah, Paul
  7. Clearing and Settlement Systems from Around the World: A Qualitative Analysis By Michael Tompkins; Ariel Olivares
  8. Cashless Payments and Tax Evasion By Giovanni Immordino; Francesco Flaviano Russo
  9. Adoption of New Information and Communications Technologies in the Workplace Today By Timothy Bresnahan; Pai-Ling Yin
  10. (In)Efficient Interbank Networks By Noémie NAVARRO; Fabio CASTIGLIONESI
  11. Managing Digital Security and Privacy Risk By OECD
  12. New Forms of Work in the Digital Economy By OECD
  13. A Change is in the Air: Emerging Challenges for the Cloud Computing Industry By Graf, Marlon; Hlavka, Jakub; Triezenberg, Bonnie
  14. Do Credit Card Companies Screen for Behavioral Biases? By Hong Ru; Antoinette Schoar
  15. Non-monotonic Tradeoffs of Tiering in a Large Value Payment System By Carlos A. Arango; Freddy H. Cepeda
  16. Internet and Voting in the Web 2.0 Era: Evidence from a Local Broadband Policy By Samuele Poy; Simone Schüller

  1. By: Marc Rysman; Scott Schuh
    Abstract: We discuss prospects for innovation in consumer payment instruments. We discuss recent research into consumer payments and what can be learned about consumer behavior towards new payment options. We consider three new innovations in payments: mobile payments, faster payments and digital currencies. For each, we describe prospects and impediments to adoption.
    JEL: L1
    Date: 2016–06
  2. By: Peter Csoka (Momentum Game Theory Research Group - Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest - Corvinus Business School, Department of Finance); P. Jean-Jacques Herings (Department of Economics, Maastricht university, The Netherlands)
    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 prevailing bankruptcy 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: Networks, Bankruptcy Problems, Systemic Risk, Decentralized Clearing, Indivisibilities.
    JEL: C71 G10
    Date: 2016–01
  3. By: Lange, Mirjam R. J.; Saric, Amela
    Abstract: Developments in the EU telecommunications markets require a recurrent redesign of the regulatory framework for telecommunications services. In this regard, the analysis of the substitution effects between different types of telephony is the cornerstone of market definition and therefore of effective regulation. This paper explores the access substitution between fixed-lines, mobiles, and managed VoIP in a unified EU cross-country framework. We employ a half-yearly dataset for 20 EU countries for the 2008-2011 period and apply dynamic panel data methods. Our analysis demonstrates strong access substitution between fixed-lines and mobiles and provides indicative evidence on the substitution between fixed-lines and VoIP. Overall, we find evidence in favor of access substitution and therefore of joint market definition. Regulatory obligations imposed on the market for access to fixed telephone networks might therefore be redundant.
    Keywords: Fixed-mobile-VoIP substitution,Telecommunications markets,(De)regulation,Market definition,Dynamic panel data analysis
    JEL: C23 L43 L51 L96
    Date: 2016
  4. By: OECD
    Abstract: The digital convergence anticipated during the 2008 Seoul Ministerial has become a reality. Historically, communication services were delivered via single-purpose dedicated networks (e.g. telephone, television). Many OECD countries now function with converged networks, facilitated by the Internet Protocol (IP) in which “bits” are the building blocks for transmission of all content and service – all “applications.” This process of convergence is steadily deepening as technology evolves and more and more activity shifts online. In particular, technological, service and business innovations both at the core and at the edge of the network are significantly affecting competitors, investors and consumers. This report identifies trends in convergence, the opportunities and challenges arising from these changes and suggests policies to meet them.
    Date: 2016–06–07
  5. By: Boliang Lin; Ruixi Lin
    Abstract: In this paper, we reveal the attenuation mechanism of anchor of the commodity money from the perspective of logistics warehousing costs, and propose a novel Decayed Commodity Money (DCM) for the store of value across time and space. Considering the logistics cost of commodity warehousing by the third financial institution such as London Metal Exchange, we can award the difference between the original and the residual value of the anchor to the financial institution. This type of currency has the characteristic of self-decaying value over time. Therefore DCM has the advantages of both the commodity money which has the function of preserving wealth and credit currency without the logistics cost. In addition, DCM can also avoid the defects that precious metal money is hoarded by market and credit currency often leads to excessive liquidity. DCM is also different from virtual currency, such as bitcoin, which does not have a corresponding commodity anchor. As a conclusion, DCM can provide a new way of storing wealth for nations, corporations and individuals effectively.
    Date: 2016–06
  6. By: Milne, Alistair; Parboteeah, Paul
    Abstract: This paper reviews peer-to-peer (P2P) lending, its development in the UK and other countries, and assesses the business and economic policy issues surrounding this new form of intermediation. P2P platform technology allows direct matching of borrowers’ and lenders’ diversification over a large number of borrowers without the loans having to be held on an intermediary balance sheet. P2P lending has developed rapidly in both the US and the UK, but it still represents a small fraction, less than 1%, of the stock of bank lending. In the UK – but not elsewhere – it is an important source of loans for smaller companies. We argue that P2P lending is fundamentally complementary to, and not competitive with, conventional banking. We therefore expect banks to adapt to the emergence of P2P lending, either by cooperating closely with third-party P2P lending platforms or offering their own proprietary platforms. We also argue that the full development of the sector requires much further work addressing the risks and business and regulatory issues in P2P lending, including risk communication, orderly resolution of platform failure, control of liquidity risks and minimisation of fraud, security and operational risks. This will depend on developing reliable business processes, the promotion to the full extent possible of transparency and standardisation and appropriate regulation that serves the needs of customers.
    Date: 2016–05
  7. By: Michael Tompkins; Ariel Olivares
    Abstract: As Canada continues to engage in a dialogue to develop the approach to modernizing its core payment systems, we analyze the core payment systems that exist in countries around the world. We study payment systems in 27 jurisdictions, encompassing a broad range of geographic regions, through three levels of analysis. First, we identify and discuss the different types of core systems, and the prevalence of each of them. At a high level, we find that most jurisdictions have added a new real-time retail system, all have a batch retail payment system, and the vast majority have made upgrades to their large-value payment systems. Second, we evaluate what core system upgrades have resulted in improved access, functionality, interoperability, timeliness and risk management. Finally, we analyze the overarching design found in multiple core payment systems across jurisdictions and identify four distinct core payment system configurations. These main core system configurations reflect the different approaches taken to modernize, depending on jurisdictional factors, including public policy objectives, drivers, needs, payment instruments and gaps resulting from legacy systems. We conclude that it is necessary to have a complete understanding of modernization objectives, based on each country’s unique jurisdictional factors. A comprehensive set of modernization objectives can then be used to develop a holistic multi-system plan, designed to modernize each core payment system in a complementary manner.
    Keywords: Financial services, Financial system regulation and policies, Payment clearing and settlement systems
    JEL: E42 L14 L15 L52
    Date: 2016
  8. By: Giovanni Immordino (Università di Napoli Federico II and CSEF); Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: Cashless payments hinder tax evasion because they build a trail for the underlying transactions. We find empirical evidence supporting this claim for Europe, showing a negative relationship between VAT evasion and the payments with credit and debit cards. We also find that using electronic cards to gather cash at ATMs, by making cash more abundant, fosters VAT evasion. Policies aimed at reducing tax evasion should therefore subsidize the direct use of electronic cards as payments, not their possession.
    Keywords: tax evasion; electronic payments.
    JEL: O17 H26
    Date: 2016–06–17
  9. By: Timothy Bresnahan; Pai-Ling Yin
    Abstract: The invention of new applications based on information and communications technologies (ICTs) has had two economic effects up to now. These applications have transformed production, creating value for applications-inventing companies and their customers and increasing economic growth through quality improvements. The same applications have shifted the relative demand for different kinds of labor, raising the demand for already highly-compensated managers and professionals relative to other workers. This paper considers the likely impact of new ICT technologies coming into application in the workplace today in light of the economic and technical forces behind ICT application up to now.
    JEL: O3
    Date: 2016–06
    Abstract: We study the optimality and the (decentralized) formation of an interbank network. Banks can offer higher expected returns to depositors by establishing connections in the network. However, banks have an incentive to gamble with depositors\' money if not sufficiently capitalized. The bankruptcy of a bank negatively affects the banks connected to it (counterparty risk). We show that both the efficient network and the decentralized one are characterized by a core-periphery structure. Nevertheless, when bank capital transfers are not possible, the two network structures coincide only if counterparty risk is sufficiently low. Otherwise, the decentralized network is under-connected as compared to the optimal one. Finally, we show that bank capital transfers do not avoid the formation of inefficient networks.
    Keywords: Interbank Network, Core-periphery, Liquidity Coinsurance, Counterparty Risk
    JEL: D85 G21
    Date: 2016
  11. By: OECD
    Abstract: This report discusses how increased connectivity and data-driven innovation have brought about significant economic and social opportunities while changing the scale and scope of digital security and privacy challenges. These developments highlight the need for an evolution in policies and practices to build and maintain trust in the digital economy in order to fully realise its economic and social potentials. Building on key messages of the OECD Digital Security Risk Recommendation and the OECD Privacy Guidelines, the report articulates why an approach grounded in risk management is essential to ensure that measures are appropriate to and commensurate with the risk, and focus on the economic and social objectives of public and private organisations. The report examines what further work is needed to understand how public policy can work jointly with private sector to overcome barriers and address the special challenges faced by small and medium enterprises (SMEs).
    Date: 2016–06–10
  12. By: OECD
    Abstract: This paper provides new evidence on the development of online platforms and explores the emergence of new forms of work in the digital economy. Following the rise of platforms that match demand and supply of goods (e-commerce) and information (search, social networks), platform markets for services traded over the Internet (the "x"-economy) have grown exponentially in recent years. The paper analyses how online platforms affect the organisation of markets and work; discusses related opportunities and challenges for individuals participating in such markets; presents analysis of trends and effects of non-standard work in OECD countries; and identifies policy issues related to new forms of work. It finds that the transformative effects of online platforms may challenge existing institutions and might necessitate reviews of policy and regulatory frameworks in many areas. To further analyse such digital transformation, better data is needed on the effects of online platforms in all of these areas.
    Date: 2016–06–21
  13. By: Graf, Marlon; Hlavka, Jakub; Triezenberg, Bonnie
    Abstract: A growing number of individuals, companies and regulators are concerned about who has access to data stored on the cloud and where exactly that cloud is. Actions taken in response to those concerns take the form of lawsuits, restrictive contracts, and government regulation of cloud computing. This trend toward restricting information storage to specific geographic boundaries is called “data localization†and leads to growing uncertainty about the future of digital commerce and communication that is the economic engine of the information age.  This paper offers an overview of recent regulatory trends in cloud computing around the world, assesses key regional differences and problems, and draws on expert interviews in charting the way forward for the industry. We show that while more restrictions and greater data localization are likely to characterize the internet of the future, new business opportunities will emerge for providers of cloud computing technology and services who succeed in developing products that satisfy differential regulation and consumer preferences.
    Date: 2016–03
  14. By: Hong Ru; Antoinette Schoar
    Abstract: We look at the supply side of the credit card market to analyze the pricing and marketing strategies of credit card offers. First, we show that card issuers target less-educated customers with more steeply back-loaded fees (e.g., lower introductory APRs but higher late and over-limit fees) compared offers made to educated customers. Second, issuers use rewards programs to screen for unobservable borrower types. Conditional on the same borrower type, cards with rewards, such as low introductory APR programs, also have more steeply backloaded fees. In contrast, cards with mileage programs, which are offered mainly to the most-educated consumers, rely much less on back-loaded fees. Finally, using shocks to the credit risk of customers via increases in state-level unemployment insurance, we show that card issuers rely more heavily on back-loaded and hidden fees when customers are less exposed to negative cash flow shocks. These findings are in line with the recent behavioral contract theory literature.
    JEL: G02 G1 G21 G23
    Date: 2016–06
  15. By: Carlos A. Arango (Banco de la República de Colombia); Freddy H. Cepeda (Banco de la República de Colombia)
    Abstract: Even though international authorities encourage open and wide access to large value payment systems, the optimal level of access, or tiering, is still an open question. In the case of real-time gross settlement systems (RTGS) the level of access, or tiering, may be limited by the tradeoff between potentially higher liquidity needs of a larger pool of direct participants settling in real time and the lower counter-party credit risks as a result of a lower number of second-tier participants entering in uncovered bilateral credit positions with correspondent banks. Previous literature has evaluated this tradeoff through simulations finding monotonically increasing liquidity savings and increasing credit risk exposures as the level of tiering in the system rises. In contrast, we find that in the Colombian RTGS case the liquidity savings of limited access to direct participation may not increase monotonically but rather show a hump shape where at the margin, tiering of an additional participant may actually increase the liquidity needs of the system. Our results provide insights into the effects of tiering when participants are too-big or too-connected to tier. Classification JEL: E42
    Keywords: Tiering, RTGS payment systems, liquidity, Credit risk, network topology
    Date: 2016–06
  16. By: Samuele Poy; Simone Schüller
    Abstract: This article analyzes the impact of a local broadband expansion policy on electoral turnout and party vote share. We exploit a unique policy intervention involving staged broadband infrastructure installation across rural municipalities in the Province of Trento (Italy), thus generating a source of exogenous (spatial and temporal) variation in the provision of advanced broadband technology (ADSL2+). Using a difference-in-differences strategy, we find positive effects of broadband availability on overall electoral turnout at national parliamentary elections. Party vote share analysis shows significant shifts across the ideological spectrum. These shifts, however, are likely transitory rather than persistent. Placebo estimations support a causal interpretation of our results. We provide further evidence that broadband availability is linked to actual adoption in that the broadband policy increased overall Internet and broadband take-up among private households.
    Keywords: Higher Broadband Internet, Political Participation, Voting Behavior, Quasi-Natural Experiment
    JEL: D72 L82 L86
    Date: 2016–06

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