nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2017‒07‒09
sixteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. ICT, Information Asymmetry and Market Power in the African Banking Industry By Simplice Asongu; Nicholas Biekpe
  2. Digital and Competing Information Sources: Impact on Environmental Concern und Prospects for Cooperation By Vladimir Udalov; Paul J.J. Welfens
  3. Central Bank Digital Currencies: A Framework for Assessing Why and How By Ben Fung; Hanna Halaburda
  4. How do consumers make their payment choices? By Stavins, Joanna
  5. Mobile Phone Innovation and Entrepreneurship in Sub-Saharan Africa By Simplice Asongu; Nicholas Biekpe
  6. Payment discounts and surcharges: the role of consumer preferences By Stavins, Joanna; Wu, Huijia
  7. The Bitcoin price formation: Beyond the fundamental sources By Jamal Bouoiyour; Refk Selmi
  8. G20 safeguards digital economy vulnerabilities with financial sector focus By Carin, Barry
  9. The blockchain folk theorem By Biais, Bruno; Bisière, Christophe; Bouvard, Matthieu; Casamatta, Catherine
  10. To enable private banks to create and lend out money, households must first be driven into debt. By Musgrave, Ralph S.
  11. A Deep Reinforcement Learning Framework for the Financial Portfolio Management Problem By Zhengyao Jiang; Dixing Xu; Jinjun Liang
  12. The Credit Card Act and Consumer Finance Company Lending By Gregory E. Elliehausen; Simona Hannon
  13. The Role of Money in the Business Cycle By Zhao Jianglin
  14. Checking account activity and credit default risk of enterprises: An application of statistical learning methods By Jinglun Yao; Maxime Levy-Chapira; Mamikon Margaryan
  15. The Digital Revolution and Targeting Public Expenditure for Poverty Reduction By Kanbur, Ravi
  16. Toward a global norm against manipulating the integrity of financial data By Maurer, Tim; Levite, Ariel; Perkovich, George

  1. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Biekpe (Cape Town, South Africa.)
    Abstract: This study assesses how market power in the African banking industry is affected by the complementarity between information sharing offices and information and communication technology (ICT). The empirical evidence is based on a panel of 162 banks consisting of 42 countries for the period 2001-2011. Four estimation techniques are employed, namely: (i) instrumental variable Fixed effects to control for the unobserved heterogeneity; (ii) Tobit regressions to control for the limited range in the dependent variable; and (iii) Instrumental Quantile Regressions (QR) to account for initial levels of market power. Whereas results from Fixed effects and Tobit regressions are not significant, with QR: (i) the interaction between internet penetration and public credit registries reduces market power in the 75th quartile and (ii) the interaction between mobile phone penetration and private credit bureaus increases market power in the top quintiles. Fortunately, the positive net effects are associated with negative marginal effects from the interaction between private credit bureaus and mobile phone penetration. This implies that mobile phones could complement private credit bureaus to decrease market power when certain thresholds of mobile phone penetration are attained. These thresholds are computed and discussed.
    Keywords: Financial access; Information asymmetry; ICT
    JEL: G20 G29 L96 O40 O55
    Date: 2017–05
  2. By: Vladimir Udalov (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Summary: The environmental concern of people in industrialized and developing countries is analysed. Using the 2010-2014 wave of the World Value Survey (WVS), the main purpose of our analysis is to investigate the effect of different information sources on the affective, conative and behavioural components of the environmental concern of people in the developed and developing countries. As independent variables we use a set of economic data as well as information-related variables, including the internet, mobile phones, TV, radio and newspapers. The digital variables of the internet and mobile phones turn out to have a highly significant impact on environmental concern so that digital modernization of countries should have pro-environmental impacts as a side-effect of internet and mobile phone services expansion. With the developing countries catching-up vis-à-vis the OECD countries in the field of mobile phone density and internet density, respectively, one may expect better prospects for cooperation between developed and developing countries since attitudes/the environmental concern of people in developed and developing countries will become more similar – an effect that is reinforced through the income variable.
    Keywords: environmetnal concern, world value survey, mass media, information technologies, international economics
    JEL: Q50 D10 C83 D80
    Date: 2017–04
  3. By: Ben Fung; Hanna Halaburda
    Abstract: Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks. One key policy question for public authorities such as a central bank is whether or not to issue its own digital currency that can be used by the general public to make payments. There are several public policy arguments for a central-bank-issued digital currency. This paper proposes a framework for assessing why a central bank should consider issuing a digital currency and how to implement it to improve the efficiency of the retail payment system.
    Keywords: Digital Currencies, Financial services, Payment clearing and settlement systems
    JEL: E41 E42
    Date: 2016
  4. By: Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: Payment transformation has generated a shift from paper to cards and electronic payments in the United States, but there is also a large degree of heterogeneity among consumers in how they pay. We present factors affecting consumer payment behavior, show data on how consumers pay in the United States, and summarize existing literature on consumer payment choice. On the supply side, technology, regulation, and cost affect payment behavior. On the demand side, consumer demographics and income, consumer preferences, and consumer assessments of payment method attributes have all been found significant. We focus on price differentiation by payment method by merchants and the effect of such price incentives on payment method use, and on the effect of demographics and of perceptions of payment characteristics on consumer payment choice, emphasizing the effect of security. The studies mentioned here utilize a growing number of data sources, including several surveys and diaries on consumer behavior conducted in the United States and in other countries. We also identify gaps where more research is needed to understand consumer payment choices.
    Keywords: consumer payments; consumer surveys; payment behavior
    JEL: D12 D14 E41
    Date: 2017–05–31
  5. By: Simplice Asongu (Yaoundé/Cameroun); Nicholas Biekpe (Cape Town, South Africa.)
    Abstract: This study assesses how knowledge diffusion modulates the effect of the mobile phone on entrepreneurship in Sub-Saharan Africa with data for the period 2000-2012.The empirical evidence is based on interactive Generalised Method of Moments in which mobile phones are interacted with three knowledge diffusion variables, namely: education, internet penetration and scientific output. Ten variables of entrepreneurship are used. The following three main findings are established. First, the net effects from interacting mobile phones with the internet and scientific publications are negative whereas the corresponding net impact from the interaction between mobile phones and education is positive on the cost of doing business. Second, the mobile phone interacts with education (the internet) to have a positive (negative) net effect on the time needed to construct a warehouse whereas, the corresponding interaction with the internet yields a net negative effect on the time to enforce a contract. Third, there is a positive net effect from the interaction of mobile phones with education on the time to start a business. Given the construction of the education variable, the positive net effects from education are consistent with corresponding negative net effects from the other knowledge diffusion variables. The main policy implication is that mobile phone innovation (by means of internet penetration, scientific output and quality education) decreases constraints of entrepreneurship. Suggestions on how to boost these knowledge diffusion channels are discussed. Other practical and theoretical implications are also covered. To the best our knowledge, this is the first inquiry to assess the relevance of mobile phone innovation in entrepreneurship in Sub-Saharan Africa.
    Keywords: Entrepreneurship; the Mobile Phone; Knowledge Diffusion; Sub-Saharan Africa
    JEL: L59 L98 O10 O30 O55
    Date: 2017–05
  6. By: Stavins, Joanna (Federal Reserve Bank of Boston); Wu, Huijia
    Abstract: We use new data from the 2015 Diary of Consumer Payment Choice to analyze price discounts and surcharges based on the payment method used for transactions. We examine consumer preferences for specific payment instruments and test whether consumer demand for payment instruments is price elastic. Specifically, we test whether consumers are likely to deviate from their preferred methods in order to get a discount or to avoid a surcharge. We find that the occurrence of price incentives is low, but consumers who preferred other payment methods had an 11.7 percent probability of switching to cash because of cash discounts, after controlling for merchant category and dollar value of the transaction. Payment method choice is affected very strongly by consumer individual preferences, but steering by merchants may be effective under some circumstances. Both merchants’ reluctance to offer price discounts and consumers’ limited response to them lead to the low observed occurrences of such incentives.
    Keywords: consumer payments; consumer preferences; merchant steering; discounts; surcharges
    JEL: D03 D14 G02
    Date: 2017–02–14
  7. By: Jamal Bouoiyour (CATT); Refk Selmi (CATT)
    Abstract: Much significant research has been done to investigate various facets of the link between Bitcoin price and its fundamental sources. This study goes beyond by looking into least to most influential factors-across the fundamental, macroeconomic, financial, speculative and technical determinants as well as the 2016 events-which drove the value of Bitcoin in times of economic and geopolitical chaos. We use a Bayesian quantile regression to inspect how the structure of dependence of Bitcoin price and its determinants varies across the entire conditional distribution of Bitcoin price movements. In doing so, three groups of determinants were derived. The use of Bitcoin in trade and the uncertainty surrounding China's deepening slowdown, Brexit and India's demonetization were found to be the most potential contributors of Bitcoin price when the market is improving. The intense anxiety over Donald Trump being the president of United States was shown to be a positive determinant pushing up the price of Bitcoin when the market is functioning around the normal mode. The velocity of bitcoins in circulation, the gold price, the Venezuelan currency demonetization and the hash rate were found to be the fundamentals influencing the Bitcoin price when the market is heading into decline.
    Date: 2017–07
  8. By: Carin, Barry
    Abstract: The G20 can ensure a secure, resilient, sustainable and responsible digital economy, especially in the financial sector, by removing vulnerabilities in Internet infrastructure, encouraging cross-border cooperation, providing guidance to telecommunications regulators and implementing norms regarding cyber-attacks.
    Keywords: digital economy,cyber security,global governance
    JEL: L86 L59 L96 O38
    Date: 2017
  9. By: Biais, Bruno; Bisière, Christophe; Bouvard, Matthieu; Casamatta, Catherine
    Abstract: Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective, way to record transactions and asset ownership, but are they? We model the blockchain as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. We show that mining the longest chain is a Markov perfect equilibrium, without forking on the equilibrium path, in line with the seminal vision of Nakamoto (2008). We also clarify, however, that the blockchain game is a coordination game, which opens the scope for multiple equilibria. We show there exist equilibria with forks, leading to orphaned blocks and also possibly to persistent divergence between different chains.
    Date: 2017–05
  10. By: Musgrave, Ralph S.
    Abstract: There are two main forms of money: state issued money (so called “base money”) and money created by private banks. It is perfectly feasible to have either type of money predominate and in most economies nowadays, private money predominates. Introducing private money to an economy which uses only base money increases demand. To counter that extra demand, it is necessary to confiscate base money from households, which drives some people into debt. Conversely, if in 2017 real world economies private money were banned (as advocated by several Nobel laureate economists), that would be deflationary, which in turn would require government to create and distribute significant amounts of base money to households which would reduce their need to borrow.
    Keywords: debt; base money; privately created money.
    JEL: E42 E51
    Date: 2017–07–01
  11. By: Zhengyao Jiang; Dixing Xu; Jinjun Liang
    Abstract: Financial portfolio management is the process of constant redistribution of a fund into different financial products. This paper presents a financial-model-free Reinforcement Learning framework to provide a deep machine learning solution to the portfolio management problem. The framework consists of the Ensemble of Identical Independent Evaluators (EIIE) topology, a Portfolio-Vector Memory (PVM), an Online Stochastic Batch Learning (OSBL) scheme, and a fully exploiting and explicit reward function. This framework is realized in three instants in this work with a Convolutional Neural Network (CNN), a basic Recurrent Neural Network (RNN), and a Long Short-Term Memory (LSTM). They are, along with a number of recently reviewed or published portfolio-selection strategies, examined in three back-test experiments with a trading period of 30 minutes in a cryptocurrency market. Cryptocurrencies are electronic and decentralized alternatives to government-issued money, with Bitcoin as the best-known example of a cryptocurrency. All three instances of the framework monopolize the top three positions in all experiments, outdistancing other compared trading algorithms. Although with a high commission rate of 0.25% in the backtests, the framework is able to achieve at least 4-fold returns in 30 days.
    Date: 2017–06
  12. By: Gregory E. Elliehausen; Simona Hannon
    Abstract: The Credit Card Accountability and Disclosure Act (CARD Act) of 2009 restricted several risk management practices of credit card issuers. Using a quasi-experimental design with credit bureau data on consumer lending, we find evidence consistent with the hypothesis that the act’s restrictions on risk management practices contributed to a large decline in bank card holding by higher risk, nonprime consumers but had little effect on prime consumers. Looking at consumer finance loans, historically a source of credit for higher risk consumers, we find greater reliance on such loans by nonprime consumers in states with high consumer finance rate ceilings following the CARD Act than by nonprime consumers in states with low rate ceilings or by prime consumers. That nonprime consumers in states with high consumer finance rate ceilings relied more heavily on consumer finance loans suggests that consumer finance loans were a substitute for subprime credit cards for risky consum ers when rate ceilings permit such loans to be profitable. Consumer finance loans would not be available to many higher risk, nonprime consumers in low rate states because such loans would be unprofitable, and prime consumers would not need consumer finance loans because other, less expensive types of credit would generally be available to them.
    Keywords: CARD Act ; Consumer credit ; Credit cards ; Credit supply ; Household finance ; Personal loans ; Subprime credit
    JEL: G21 G23 G28
    Date: 2017–06–29
  13. By: Zhao Jianglin
    Abstract: The aim of this paper is to reemphasize the money theory of exchange which is centered on the function of exchange medium of money, and make a contribution towards linearization of the quantity equation of exchange. A dynamical quantity equation is presented and an important balanced path of economic evolution is derived. To understand the business cycle we propose a hypothesis of natural cycle and driving cycle concerning the evolution of the balanced path and plentiful conclusions can be made.
    Date: 2017–06
  14. By: Jinglun Yao; Maxime Levy-Chapira; Mamikon Margaryan
    Abstract: The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on corporate loans. Classical methods model the default probability by financial ratios using the logistic regression. As one of the major commercial banks in France, we have access to the the account activities of corporate clients. We show that this transactional data outperforms classical financial ratios in predicting the default event. As the new data reflects the real time status of cash flow, this result confirms our intuition that liquidity plays an important role in the phenomenon of default. Moreover, the two data sets are supplementary to each other to a certain extent: the merged data has a better prediction power than each individual data. We have adopted some advanced machine learning methods and analyzed their characteristics. The correct use of these methods helps us to acquire a deeper understanding of the role of central factors in the phenomenon of default, such as credit line violations and cash inflows.
    Date: 2017–07
  15. By: Kanbur, Ravi
    Abstract: The Digital Revolution is often argued as providing solutions to the problems of targeting of public expenditure for poverty reduction. This paper revisits the fundamentals of the theory of targeting to pinpoint the possible impacts of the digital revolution on the three dimensions of fine targeting highlighted there - information costs, high implicit marginal tax rates, and political economy. It is argued that while the digital revolution may reduce information costs, although the exact nature of its impact needs to be carefully considered, it does not necessarily address all issues and indeed in some situations may worsen the tradeoffs. Thus the object of this paper is to sound a note of caution. The hype around the digital revolution needs to be duly mitigated by the lessons of the conventional literature on targeting of anti-poverty transfers.
    Date: 2017–06
  16. By: Maurer, Tim; Levite, Ariel; Perkovich, George
    Abstract: The financial crisis that erupted in 2007 highlighted how important trust is for the global system and how fragile it can be. The 2016 Bangladesh central bank cyber incident exposed a new threat to financial stability and the unprecedented scale of the risk that malicious cyber actors pose to financial institutions. Beyond theft, using cyber operations to manipulate the integrity of data, in particular, poses a distinct and greater set of systemic risks than other forms of financial coercion. The complex and interdependent character of the financial system and its transcendence of physical and national boundaries mean that manipulating the integrity of financial institutions' data can, intentionally and/or unintentionally, threaten financial stability and the stability of the international system. Importantly, unlike the 2007-2008 global crisis, this risk exists independent of the underlying economic fundamentals and will only increase as more and more governments make cashless economies an explicit goal. The G20 finance ministers and central bank governors should be commended for urging improvements in the resilience of the global financial system in their March 2017 communique. In a next step, the G20 member states could commit their countries explicitly to refrain from using offensive cybertools to corrupt the integrity of data in the financial system and to cooperate when such attacks do occur.
    Keywords: G20,cybersecurity,financial stability,data integrity,financial institutions
    JEL: F50 F55 G15 H87 K33
    Date: 2017

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