nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2018‒02‒12
sixteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Financial Inclusion and Digital Financial Services: Empirical evidence from Ghana By Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha
  2. K-Chains: A New Class of Blockchains and Related Turing Machines Based on Quantum Mechanics By Hegadekatti, Kartik
  3. Automation Processes and Blockchain Systems By Hegadekatti, Kartik
  4. Legal Systems and Blockchain Interactions By Hegadekatti, Kartik
  5. Regulating the digital economy: Are we moving towards a 'win-win' or a 'lose-lose'? By Gehl Sampath, Padmashree
  6. From cash to cards. How debit card payments overtook cash in the Netherlands By Nicole Jonker; Lola Hernandez; Renate de Vree; Patricia Zwaan
  7. Analysis of Contracts in Various Formats of Blockchain By Hegadekatti, Kartik
  8. Analysis of Present Day Election Processes vis-à-vis Elections Through Blockchain Technology By Hegadekatti, Kartik
  9. Equity crowdfunding and early stage entrepreneurial finance: damaging or disruptive? By Estrin, Saul; Gozman, Daniel; Khavul, Susanna
  10. Competition and the public interest in the digital market for information By Lombardi, Claudio
  11. Liability, Information, and Anti-fraud Investment in a Layered Retail Payment Structure By Kyoung-Soo Yoon; Jooyong Jun
  12. Tail Risk in a Retail Payment System: An Extreme-Value Approach By Hector Perez-Saiz; Blair Williams; Gabriel Xerri
  13. Market Structure and Investment in the Mobile Industry By François Jeanjean; Georges Vivien Houngbonon
  14. Blockchain-based Settlement for Asset Trading By Jonathan Chiu; Thorsten Koeppl
  15. Characterization of catastrophic instabilities: Market crashes as paradigm By Anirban Chakraborti; Kiran Sharma; Hirdesh K. Pharasi; Sourish Das; Rakesh Chatterjee; Thomas H. Seligman
  16. Big Data and Machine Learning in Government Projects: Expert Evaluation Case By Nikitinsky, Nikita; Shashev, Sergey; Kachurina, Polina; Bespalov, Aleksander

  1. By: Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha
    Abstract: The paper examines the relationship between increasing accessibility to digital financial services (DFS) and financial inclusion in lower income countries (LICs). Banks and non-bank organisations use DFS and the analysis indicates non-bank-based DFS emerges as the most efficient means of delivering cost effective financial services to the previously unbanked. Mobile cellular penetration and internet usage are mutually inclusive means through which digital financial services foster financial inclusion. Analysis of data for Ghana, as a case study, uses ordinary least squares and logistic regression models. The results in Difference-In-Difference method confirms the positive significant trend of mobile money usage and negative trend of bank-based DFS facilities over the period 2011-2014 in Ghana. Unambiguous policy ramifications are emphasised, paying attention to technological deepening stimulate positive outcomes of a broader and inclusive financial system.
    Keywords: Digital financial services (DFS), financial inclusion, Logistic regression, Difference-in-Difference, LICs, Ghana.
    JEL: G2 O30 O5
    Date: 2016–11–30
  2. By: Hegadekatti, Kartik
    Abstract: Quantum Mechanical principles have brought about a revolution in the way we perceive our world and use technology. One of the possible impacts and usage of Quantum mechanics is in the field of economics. Quantum mechanics can be applied to build a new class of Blockchain systems. This paper explores that possibility. It deals with how Quantum Mechanics can be best implemented to bring into existence a new class of Blockchain systems. These Quantum Blockchains (called K-Chains) will have several advantages like possible Faster-Than-Light (FTL) communication of Transactions, Unlimited network capacity and the revolutionary prospect of an Off-line Blockchain which will not need to be connected to the internet for transactions to occur. Extrapolation of this likelihood can lead to the designing of Quantum Turing Machines which are based on Quantum Blockchain (K-Chain) Technology. Real time information and communication systems spanning distances across light-years will most likely be probable. This can allow Mankind to instantly exchange value and information across vast distances of space almost instantly. The paper starts by briefly explaining the basics of Blockchains, cryptocurrencies and relevant Quantum mechanical concepts. Then we discuss how Quantum mechanics can be amalgamated with Blockchain Technology to achieve K-Chains. Later we will delve into the various impediments that make achieving a Quantum Blockchain (K-Chain) difficult with present day hardware technology. The paper concludes by discussing the various aspects of Quantum Technology, Blockchain Systems and the possibilities of constructing a Blockchain based Quantum Turing Machines.
    Keywords: Quantum, Blockchain, Cryptocurrency, RSBC, Controlled Blockchain, K-Y Protocol
    JEL: C63 C67 L14 L63 L86 O14 O33 Q55
    Date: 2017–01–13
  3. By: Hegadekatti, Kartik
    Abstract: Blockchain Systems and Ubiquitous computing are changing the way we do business and lead our lives. One of the most important applications of Blockchain technology is in automation processes and Internet-of-Things (IoT). Machines have so far been limited in ability primarily because they have restricted capacity to exchange value. Any monetary exchange of value has to be supervised by humans or human-based centralised ledgers. Blockchain technology changes all that. It allows machines to have unique identities and hence a virtual presence. Blockchain technology even allows for automated verification by the network of machines itself. It permits machines to exchange value and introduce the element of discretion in the hands of Machines. This can form the basis for ultimately developing IoT going on to Artificial Intelligence. This paper deals with the various interplays of Blockchain with Automation processes. Firstly, the concept of cryptocurrencies (also referred to as cryptocoins in this paper) is explained. Then the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs) is discussed. Later on, I explain how Blockchain systems are related to IoT. Then we discuss the concept of Smart Mining that will lead to advanced Blockchain activity and Machine intelligence. Finally, the paper concludes as to how Blockchain technology will impact automation processes.
    Keywords: blockchain, bitcoin, cryptocurrency, rsbc, nationcoins, K-Y Protocol, automation, singularity
    JEL: L60 O14 O32 O33
    Date: 2017–02–06
  4. By: Hegadekatti, Kartik
    Abstract: A large amount of money is spent globally in the litigation process. A significant chunk of litigations can actually be prevented from even arising if the policies, contracts and laws can be fully objectivised. Presently, the interpretation of law, contracts, policies etc. lead to a lot of confusion and ambiguities. This complicates the justice process. This paper deals with simplifying the legal procedures by using Blockchain Technology. Firstly I introduce the concept of Blockchains and Cryptocurrencies. Then we discuss the present legal services. The ways in which Blockchain technology can be applied to legal processes is identified. Civil and Common law systems are the most widespread in the world. The probable impact of Blockchain on law systems is evaluated. The paper concludes by summarizing the consequences and suitability of using Blockchain Technology in Law systems and Legal services.
    Keywords: blockchain, bitcoin, cryptocurrency, rsbc, nationcoins, K-Y Protocol
    JEL: K11 K12 K41 K42 L14 P37 P48
    Date: 2017–01–03
  5. By: Gehl Sampath, Padmashree (UNCTAD)
    Abstract: The digital economy has been growing by leaps and bounds in recent years, mostly as a result of new digital technologies that are promoting a global transformation to industry 4.0. The resulting expansion of digital trade has sparked off a political and policy controversy on digital economy and e-commerce, where its boundaries stand and how best to regulate it. Policy discussions on the topic however do not take into account the true expanse of digital trade, which encompasses hardware, software, networks, platforms, applications and data as its core elements, and stretches the boundaries of e-commerce policy to trade in goods, services and intellectual property protection. This article focuses on the challenges in regulating the digital economy, with a particular focus on development, and offers a discussion of the interdependency between the economic, social, personal and developmental aspects of digital trade for developing countries. Section II opens with a detailed discussion on key digital technologies and their plausible impacts on employment globally and industrial catch-up of particular importance to developing countries, to highlight the divisive nature of digital technologies. Section III then analyses the unfulfilled promise of a pro-development perspective at the WTO looking at how multilateralism has currently failed e-commerce. In this section, the incoherence between digital realities and the policy debates at the WTO are presented to show how the institution might have become a means to legitimise national policies of industrialised countries on a universal level in this important area of policymaking. Norm-setting through FTAs is also analysed at length in section III of the article, which provides a comprehensive review of the plurilateral and bilateral policy developments in e-commerce. The ramifications for developing countries are discussed in the form of a couple of examples. Section IV presents some options for developing countries for the future at the national and international level.
    Keywords: digital economy, e-commerce, industry 4.0, digital trade, robotics and process automation, artificial intelligence, 3D printing, manufacturing, development, trade, free trade agreements, digital industrial policy
    JEL: L11 L23 L25 L41 L51 L81 L86 O19 O31 O33 O34 O38
    Date: 2018–01–22
  6. By: Nicole Jonker; Lola Hernandez; Renate de Vree; Patricia Zwaan
    Abstract: In this study, we present and discuss the developments in the use of instruments of payments in the Netherlands from 2010 to 2016. During this period, the Dutch retail payments landscape has undergone major changes which have influenced the way consumers and merchants behave. The results come from a longitudinal survey on consumers' payment behaviour carried out yearly since 2010 which gathers payment diary data from 119,117 Dutch consumers aged 12 years and older. The results reveal a gradual substitution of cash by debit card payments between 2010 and 2016. In 2015 Dutch consumers for the first time made more payments with debit cards than with cash.
    Date: 2018–02
  7. By: Hegadekatti, Kartik
    Abstract: One of the important features of Blockchain is that it allows the hosting and execution of contracts. Such a contract in the digital world is known as a Smart Contract. But the process and consequences of a contract vary radically from one format of Blockchain to another. One of the formats (and the most common at present) is the Unregulated Blockchain (like Bitcoin and Ethereum) with no government supervision whatsoever. Another format is the Controlled Blockchain which is managed and guaranteed by the Government. It is this difference that is vital in understanding the impacts and consequences of entering into and abiding by Smart Contracts. Firstly, the concept of cryptocurrencies (also referred to as cryptocoins in this paper) is explained. Then the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs) is discussed. Later on, I explain how contracts vary between the two Blockchain formats. Finally, the paper concludes as to how smart contracts can be best executed and on which format of Blockchain.
    Keywords: blockchain, bitcoin, cryptocurrency, RSBC, nationcoins, K-Y Protocol
    JEL: D86 J52 K12 L14 L24 L33
    Date: 2016–12–27
  8. By: Hegadekatti, Kartik
    Abstract: Currently, Democracy is realised through representatives elected by the people. These elections are periodic activities. They involve expenditure of big amounts of manpower, money, time and other resources. It is important to note that during an election, the administration and day-to-day lives of people are affected as election activities take centre stage. Present day elections are amenable to influence where Voters can possibly be intimidated to vote against their will. In many instances, the trustworthiness of the election process is itself uncertain. In such a situation, we need an election process that is fair, convenient transparent, and inexpensive. Blockchain technology provides a possibility to attain a highly dependable and certifiable election process. This process is also inexpensive at the same time. This paper deals with examining possibilities of conducting elections through the Blockchain. Blockchain technology is briefly introduced. The procedure that underlies voting through Blockchain is defined. The advantages of such a system are then deliberated. The various points vis-a-vis present day election processes are analysed. The paper concludes by analysing the possible impacts of voting through the Blockchain.
    Keywords: elections, blockchain, voting, democracy, blockchain use cases, republic, bitcoin
    JEL: D72 D74 D81 J18 O33
    Date: 2017–01–24
  9. By: Estrin, Saul; Gozman, Daniel; Khavul, Susanna
    Abstract: Equity crowdfunding (ECF) offers founders of new ventures an online social media marketplace where they can access a large number of investors who, in exchange for an ownership stake, provide finance for business opportunities that they find attractive. In this paper, we first quantify the evolution of the ECF market in the UK, the world leader, as well as the benign regulatory environment. ECF already represents more than 15% of British early stage entrepreneurial finance. We then use qualitative methods to explore three research questions. First, do these large financial flows via ECF platforms supplement or merely divert more traditional forms of funding for entrepreneurs? Second, do investors understand and appropriately evaluate the risks that they are bearing by investing in this new asset class? Finally, does ECF finance bring with it the spillovers, e.g. advice and guidance critical to entrepreneurial success, associated with other sources of funding such as Venture Capital? Our study is based on extensive interviews with investors, entrepreneurs (including some who chose not to use ECF in favour of traditional funding sources) and regulators. We conclude that ECF provides real additionality to the sources of entrepreneurial finance while not bringing major new risks for investors. This suggests other jurisdictions might consider implementing the British “principles based” regulatory framework
    Keywords: equity crowdfunding; early stage entrepreneurial finance; financial regulation; investor choices
    JEL: G21 G3 M21
    Date: 2017–09–01
  10. By: Lombardi, Claudio
    Abstract: Our behaviour on the internet is continuously monitored and processed through the elaboration of big data. Complex algorithms categorize our choices and personalise our online environment, which is used to propose, inter alia, bespoke news and information. It is in this context, that the competition between sources of information in the "market for ideas", takes place. While these mechanisms bring efficiency benefits, they also have severe downsides that only very recently we have begun to uncover. These drawbacks regard not only deadweight losses caused by market distortions, but also public policy issues, in particular in case of politically relevant news. What are the public and private interest concerns impacted by this practice? Can this algorithm-driven selection of news be captured by competition laws? The digital news market, as constructed around online advertising, presents peculiarities which necessitate a reframing of standard approaches to traditional information markets, and of the creation and distribution of ideas.
    Keywords: competition law,antitrust,marketplace of ideas,online behavioural targeting,public interest,post-truth society,fake news,online environment
    Date: 2017
  11. By: Kyoung-Soo Yoon (Department of Economics, Daegu University); Jooyong Jun (Economic Research Institute, The Bank of Korea)
    Abstract: Motivated by recently introduced retail payment schemes using information technology, often called "FinTech," we examine the effects of fraud liability regime and information accessibility on the incentive for the anti-fraud investment in a vertically separated payment scheme. When the payment service providers make their revenue from consumer fee, it is shown that the anti-fraud investment is made more by parties with liability, and the anti-fraud investment is socially sub-optimal. When the FinTech payment service provider (FPP) makes its revenue other than from counsumer fee, the FPP liability regime leads to greater anti-fraud investment and lower accident probability, compared to the case in raising revenue from consumer fees. The effect under the IPP liability regime, however, is inconclusive. Finally, under certain conditions, the FPP's information accessibility to the IPP's transaction data can enhance the anti-fraud investment and welfare.
    Keywords: Payment system, Fraud, Liability, FinTech
    JEL: G23 G28 D43 L22
    Date: 2016–08–18
  12. By: Hector Perez-Saiz; Blair Williams; Gabriel Xerri
    Abstract: The increasing importance of risk management in payment systems has led to the development of an array of sophisticated tools designed to mitigate tail risk in these systems. In this paper, we use extreme value theory methods to quantify the level of tail risk in the Canadian retail payment system (ACSS) for the period from 2002 to 2015. Our analysis shows that tail risk has been increasing over the years, but the pace of growth has been reduced towards the end of our data sample, which suggests a slower rate of growth of collateral required to cover that risk.
    Keywords: Econometric and statistical methods; Financial stability; Payment clearing and settlement systems
    JEL: G21 G23 C58
    Date: 2018
  13. By: François Jeanjean (Orange Labs - Orange Labs [Belfort] - France Télécom); Georges Vivien Houngbonon (LGI - Laboratoire de Genie Industriel - CentraleSupélec)
    Abstract: The impact of market structure, that is the number of firms and asymmetry , on investment is an important topic in the mobile industry. However, previous literature remains ambiguous about the direction of the relationship. This paper provides an empirical evidence of the impact of market structure on investment in the European mobile industry. The empirical assessment is based on a Salop model with vertical differentiation. Consistently with the prediction of this model, we find that both the number of operators and market share asymmetry have significant effects on investment. In symmetric markets, investment per operator falls with the number of operators, with larger effects for operators that lose market share more than the average. The industry investment rises with the number of operators in the short run, but eventually falls in the long run due to significant adjustment costs of investment in the mobile industry. These findings suggest that investment should be taken into account when analysing the welfare effects of market structure in the mobile industry.
    Keywords: Mobile Telecommunications,Market structure,Investment
    Date: 2017
  14. By: Jonathan Chiu (Bank of Canada); Thorsten Koeppl (Queen's University)
    Abstract: Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery-vs-payment by linking transfers of assets with payments and operates via a Proof-of-Work protocol. The main problem is to overcome settlement fails where participants fork the chain to get rid of trading losses. To deter forking, the blockchain needs to restrict block size and block time in order to generate sufficient transaction fees which finance costly mining. We show that large enough trading volume, sufficiently strong preferences for fast settlement and limited trade size and risk are necessary conditions for blockchain-based settlement to be feasible. Despite mining being a deadweight cost, our estimates based on the market for US corporate debt show that gains from moving to faster and more exible settlement are in the range of 1-4 bps relative to existing legacy settlement systems.
    Keywords: Securities Settlement, Blockchain, Block Size, Block Time, Transaction Fees, Club Good
    JEL: G2 H4 P43
    Date: 2018–01
  15. By: Anirban Chakraborti; Kiran Sharma; Hirdesh K. Pharasi; Sourish Das; Rakesh Chatterjee; Thomas H. Seligman
    Abstract: Catastrophic events, though rare, do occur and when they occur, they have devastating effects. It is, therefore, of utmost importance to understand the complexity of the underlying dynamics and signatures of catastrophic events, such as market crashes. For deeper understanding, we choose the US and Japanese markets from 1985 onward, and study the evolution of the cross-correlation structures of stock return matrices and their eigenspectra over different short time-intervals or "epochs". A slight non-linear distortion is applied to the correlation matrix computed for any epoch, leading to the emerging spectrum of eigenvalues. The statistical properties of the emerging spectrum display: (i) the shape of the emerging spectrum reflects the market instability, (ii) the smallest eigenvalue may be able to statistically distinguish the nature of a market turbulence or crisis -- internal instability or external shock, and (iii) the time-lagged smallest eigenvalue has a statistically significant correlation with the mean market cross-correlation. The smallest eigenvalue seems to indicate that the financial market has become more turbulent in a similar way as the mean does. Yet we show features of the smallest eigenvalue of the emerging spectrum that distinguish different types of market instabilities related to internal or external causes. Based on the paradigmatic character of financial time series for other complex systems, the capacity of the emerging spectrum to understand the nature of instability may be a new feature, which can be broadly applied.
    Date: 2018–01
  16. By: Nikitinsky, Nikita; Shashev, Sergey; Kachurina, Polina; Bespalov, Aleksander
    Abstract: In this paper, we present the Expert Hub System, which was designed to help governmental structures find the best experts in different areas of expertise for better reviewing of the incoming grant proposals. In order to define the areas of expertise with topic modeling and clustering, and then to relate experts to corresponding areas of expertise and rank them according to their proficiency in certain areas of expertise, the Expert Hub approach uses the data from the Directorate of Science and Technology Programmes. Furthermore, the paper discusses the use of Big Data and Machine Learning in the Russian government project.
    Keywords: government project, Big Data, Machine Learning, expert evaluation, clustering
    JEL: O38
    Date: 2016–07–18

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