nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2016‒11‒13
twelve papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Bitcoin and other cryptocurrency as an instrument of crime in cyberspace By Dominik Stroukal; Barbora NedvÄ›dová
  2. The Secured Credit Card Market By Santucci, Lawrence
  3. The Regulatory Future By Jan Kregel
  5. Does credit scoring improve the selection of borrowers and credit quality? By Giorgio Albareto; Roberto Felici; Enrico Sette
  6. Financial Dollarization: Evidence from a Survey on Branches of Cambodian Financial Institutions By AIBA, Daiju
  7. Towards a privacy framework for India in the age of the internet. By Bhandari, Vrinda; Sane, Renuka
  8. Music industry intermediation in the digital era and the resilience of the majors’ oligopoly: The role of transactional capabilities. By Rémy Guichardaz; Laurent Bach; Julien Penin
  9. Price discrimination of ott providers under duopolistic competition and multi-dimmesional product differentiation in retail broadband access By José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes
  10. Lost in space? NASA and the changing publicprivate eco-system in space By Mariana Mazzucato; Douglas K Robinson
  11. Gender appropriateness of field days in knowledge generation and adoption of push-pull technology in eastern Africa By Murage, A.W.; Pittchar, J.O.; Midega, C.A.O.; Onyango, C.O.; Pickett, J.A.; Khan, Z.R.
  12. The welfare cost of lawlessness: evidence from Somali piracy By Timothy Besley; Thiemo Fetzer; Hannes Mueller

  1. By: Dominik Stroukal (University of Finance and Administration, Prague); Barbora NedvÄ›dová (University of Economics, Prague)
    Abstract: Bitcoin and other cryptocurrencies transformed the trade in illegal goods, especially drugs. Thanks to them in conjunction with other anonymization tools could arise dark markets, illegal marketplaces in cyberspace. Despite active intervention by the authorities, their number and quantity of goods on offer is growing significantly. Besides, we observed a tendency to change the structure of the drug market. This article is next to the description of the operation of dark markets based on identified trends and look to the future of how will dark markets look like. . . . . . . . . . . . .
    Keywords: Bitcoin, cryptocurrency, cyberspace, cybercrime, dark web, deep web
  2. By: Santucci, Lawrence (Federal Reserve Bank of Philadelphia)
    Abstract: In this paper, we present a brief exposition of the history of the secured credit card, beginning with its origins in California in the 1970s. We present a series of stylized facts based on a December 2015 cross section of the secured card market. We find that most secured cards require an annual fee, tend not to have promotional offers or rewards, and often have higher purchase annual percentage rates than their unsecured counterparts. We also find that the percentage of secured card accounts in a delinquency status is more than double that of unsecured cards and that far fewer secured cards are inactive compared with unsecured cards. In addition, the annual income of secured card consumers is about 43 percent lower than unsecured card consumers. Last, we examine how the credit scores of consumers opening a secured card account change during the first two years of account history. We find that keeping a secured card account open is correlated with improved creditworthiness, while closing an account, either in good standing or in default, is correlated with significantly reduced creditworthiness.
    Keywords: secured; credit cards
    JEL: D14
    Date: 2016–11–01
  3. By: Jan Kregel (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)
    Abstract: New lending and payment systems challenge traditional banks by splitting the two sides of the balance sheet into separate operations, leaving traditional regulated institutions as the bridge between the two. They thus also represent a potential challenge to the existing regulatory system designed for traditional deposit banking. None of these payment systems are themselves subject to prudential regulation, although they have linkages to parts of the formal financial system that are regulated in different ways. This raises the question of whether these new developments are increasing the efficiency and stability of the financial system. The new payments systems have the ability to evade or distort the regulation on the liability side of financial institutions, while the p2p system replace the due diligence of bank loan officers and bank supervisors with computer algorithms. It is for this reason these system will be the major challenge to the future regulation of the financial system
    Keywords: Financial regulations, regulatory foresight, Hyman P. Minsky, Henry Kaufman, financial innovation, payment and lending systems, P2P
    JEL: G18 G21 G23 G28 O16 O31
    Date: 2016–06–30
  4. By: Josef KokeÅ¡ (Czech Technical University); Michal BejÄ ek (Charles University)
    Abstract: The paper deals with the cryptocurrencies. First, a general introduction to crypto-currencies is given from the programmer’s point of view. It describes some basic strategies for automated trading. Also explained is the algorithm Floyd-Warshall and its modifications for automation arbitrage. An illustrative example is given and a trading algorithm is listed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    Keywords: cryptocurrency; arbitrage strategies; algorithm Floyd-Warshall
    JEL: C60 C80 G01
  5. By: Giorgio Albareto (Bank of Italy); Roberto Felici (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: This paper studies the effect of credit scoring by banks on bank lending to small businesses by addressing the following questions: does credit scoring increase or decrease the propensity of banks to grant credit? Does it improve the selection of borrowers? Does credit scoring improve or reduce the likelihood that a borrower defaults on its loan? We answer these questions using a unique dataset that collects data from both a targeted survey on credit scoring models and the Central Credit Register. We rely on instrumental variables to control for the potential endogeneity of credit scoring. We find that credit scoring does not change the propensity of banks to grant loans to the generality of borrowers but helps them select borrowers. We also find that credit scoring reduces the likelihood that a borrower defaults, in particular for smaller borrowers and for banks that declare to use credit scoring mainly as a tool to monitor borrowers. These results are homogeneous across bank characteristics such as size, capital, and profitability. Overall our results suggest that credit scoring has a positive effect on the selection of borrowers and on credit performance.
    Keywords: credit scoring, credit supply, bank risk-taking, loan defaults
    JEL: G21
    Date: 2016–10
  6. By: AIBA, Daiju
    Abstract: We conducted a survey on Cambodian financial institutions and collected financial data at bank- and branch-level, in order to reveal the actual situation of dollarization in Cambodian financial institutions. We found that there were differences in shares of FX currency deposit and loans between commercial banks (CBs) and microfinance institutions (MFIs). MFIs are likely to have more local currency in their cash on hand, loans, deposits, and borrowings, while CBs rely mostly on FX currency in intermediation. Furthermore, although it is subtle, it can be observed that the share of local currency in deposits has increased over the period of 2009-2013 in the cases both of CBs and MFIs. It might suggest that there is the potential that local currency deposits can be facilitated. However, commercial banks did not allocate KHR funds, although they had large excess KHR funds in Phnom Penh. Moreover, FX currency shares in MFIs' loans have been increasing despite the increase of KHR currency in their deposits. Finally, we found that there were regional differences in dollarization of deposits and loans. In particular, branches in rural areas tend to extend more local currency loans than in Phnom Penh area.
    Date: 2016–10
  7. By: Bhandari, Vrinda; Sane, Renuka (Indian Statistical Institute)
    Abstract: Over the last decade, there have been vast improvements in surveillance technology and the availability, storage, and mining of personal information online, supported by developments in big data analytics. This has created a public policy conundrum over balancing the benefits of big data with the threat to the right to privacy. In an environment of pervasive surveillance and intrusive technology, there is a need for improved protection of privacy rights through a mixture of legislation and regulation, and building public awareness and demand for safeguards. This paper makes a case for the need for privacy from both the State and the private sector; examines the jurisprudential development of the right to privacy in India, and lays down privacy principles, that will underlie any proposed privacy law. It then evaluates the Indian IT Act, and the recently legislated Aadhaar Act, against the proposed privacy principles.
    Keywords: Privacy ; big data ; India
    JEL: H10 L86
    Date: 2016–11
  8. By: Rémy Guichardaz; Laurent Bach; Julien Penin
    Abstract: The digital revolution has significantly impacted the traditional business model of the music industry by lowering barriers to market entry. This change is usually depicted as a comeback to “the old-time”: artists would have more control and more autonomy in the business thanks to a new range of web intermediaries that challenges the big incumbent firms, the so-called majors (Universal, Sony and Warner). This paper argues that such diagnostic is incomplete and does not take into account the recent changes that the majors have successfully implemented on their business model. Based on a case study of the French major’s filial of Sony Music Entertainment the paper shows how and why majors are still playing competitive intermediary functions thanks to the development of transactional capabilities.
    Keywords: Research Productivity, Creativity, Collaboration.
    JEL: I23 O31 O32
    Date: 2016
  9. By: José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes
    Abstract: Network neutrality regulation prevents price discrimination from Access Providers to Content Providers and product differentiation in terms of connection quality in the retail broadband access market. This paper analyzes the economic implications of price discrimination under duopolistic competition and multi-dimensional product differentiation in retail internet access using a sequential-moves game theoretic model. Under this framework, we discuss the impact of product differentiation and price discrimination on social welfare, and offer systematic simulations using feasible ranges for parameters value to help discern the impact of departing from network neutrality regulation on social welfare.
    Keywords: network neutrality, two sided markets, price discrimination, product differentiation, queuing theory, network congestion, duopoly, competition policy.
    JEL: C70 D43 L10 L13 L51 L86 L96
    Date: 2016–11
  10. By: Mariana Mazzucato (Science Policy Research Unit, University of Sussex, UK); Douglas K Robinson (Science Policy Research Unit, University of Sussex, UK)
    Abstract: U.S. public activities in space directed via NASA are undergoing change. While NASA has historically been able to drive market creation, through its procurement policy (which is much weaker in Europe), the past decade has seen a visible shift in US space policy, away from NASA-directed developments in low-Earth orbit (LEO) towards an ecosystem with a mix of private, not-for-profit, and public actors in LEO. This has fundamentally changed NASA‘s role from an orchestrating/directing role, to a more ‘facilitating’ one driven by commercialization needs. This shift in mission and approach has ramifications for the LEO ecosystem as well as NASA’s innovation policy, which has previously centred on clearly defined “mission-oriented” objectives, such as putting a man on the moon or creating the shuttle fleet. Such objectives required ‘active’ innovation policy whereby NASA both funded and ‘directed’ the innovation, within its walls and with its partners. The emerging multi-actor ecosystem approach has involved a more open-ended objective that does not have a unified nor clearly defined end-game. In this situation, NASA’s ability to shape activities in a direction in line with its mission will depend on its relationships with other members in the system. The rise of new actors in the space eco-system, and new relationships between them, presents interesting challenges for innovation policy informed by an Innovation System approach. In this paper, we critique the market failure approach of public intervention in markets and describe further work to be done in the innovation systems literature - more focus on the interactions between agents (and the type of agents) as complimentary to the dominant focus on funding programmes in innovation systems. In this paper, we present the evolving processes of NASA’s engagement in building a low-earth orbit economy to draw out case specific insights into a public agency shifting its mission to incorporate approaches to facilitate the market creation policy. The paper focuses on the way that NASA structures its new innovation policy, away from a classical supply side oriented R&D investment through NASA itself, towards a policy of orchestration and combination of instruments rather. We close the paper with a reflection on the ramifications of NASA’s approach to building a sustainable low-Earth orbit economic ecosystem.
    Keywords: Space economy, market creation, innovation ecosystem, mission-oriented innovation policy, NASA
  11. By: Murage, A.W.; Pittchar, J.O.; Midega, C.A.O.; Onyango, C.O.; Pickett, J.A.; Khan, Z.R.
    Abstract: Women are taking over the Agriculture sector in sub-Saharan Africa and policies that enhance their empowerment in farming would have positive gains in enhancing food security and transforming lives. Adoption studies have identified gender as one of the factors that determine technology uptake, and this has been linked to women’s access to farming information or lack of it. Technology scaling up systems should utilize pathways that are compatible with the needs of rural women who have to juggle farming with other household chores. Unfortunately, there has been limited effort to evaluate the suitability of the information pathways used to specific gender. This study evaluates the appropriateness of field days with respect to gender of the participants. A total of 2,615 participants were interviewed out of 6,221 who attended field days in Kenya, Uganda and Tanzania. The determinants of level knowledge level gained and willingness to adopt was evaluated using an ordered probit and logit model. Our findings shows that majority of the participants were women (51.3%), middle aged (40-45 years) and with primary level education (54.1% women). The model results shows that women farmers understood more about push-pull (coefficient of ordered probit = -0.112) and were more willing to adopt push-pull (coefficient of logit = -0.367). Age, education, being a push-pull farmer, perception of Striga severity and having a mobile phone were also significant. Our findings demonstrate that field days are appropriate for training farmers especially women who are often disadvantaged in information access.
    Keywords: Gender-appropriateness, Field days, Knowledge accumulation, Adoption, Consumer/Household Economics, Teaching/Communication/Extension/Profession,
    Date: 2016–09
  12. By: Timothy Besley; Thiemo Fetzer; Hannes Mueller
    Abstract: In spite of general agreement that establishing the rule of law is central to properly functioning economies, little is known about the cost of law and order breakdowns. This paper studies a specific context of this by estimating the effect of Somali piracy attacks on shipping costs using data on shipping contracts in the dry bulk market. To estimate the effect of piracy, we look at shipping routes whose shortest path exposes them to piracy and find that the increase in attacks in 2008 led to around an 8% to 12% increase in costs. From this we calculate the welfare loss imposed by piracy. We estimate that generating around 120 USD million of revenue for Somali pirates led to a welfare loss in excess of 630 USD million, making piracy an expensive way of making transfers.
    JEL: D23 H11 K42
    Date: 2015–04

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