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on Payment Systems and Financial Technology |
| By: | Alicia Garcia-Herrero (Adjunct Professor, Department of Economics, Hong Kong University of Science and Technology; Chief Economist for Asia Pacific, NATIXIS; Institute for Emerging Market Studies , Hong Kong University of Science and Technology); Jianwei XU (Associate professor, Beijing Normal University) |
| Abstract: | This paper reviews international measures of the digital economy with those developed by Chinese officials and private sources. Given their lack of comparability, we use Chinaâs input and output and census data to come up with an internationally comparable estimate of Chinaâs size of the Information and Communication Technology (ICT) sector (the core of digital economy), both in terms of value added and employment. Based on the latest available statistics, our measurements indicate that Chinaâs digital economy is not bigger relative to the size of the Chinese economy than the OECD average, especially in terms of ICT employment. This finding, which might look striking based on the current perception of Chinaâs digital economy, masks large differences across regions (with Beijing, Guangdong and Shanghai ahead of the OECD average). |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201856&r=pay |
| By: | Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Transforming agriculture from a largely subsistence enterprise to a profitable commercial venture is both a prerequisite and a driving force for accelerated development and sustainable growth in sub-Saharan Africa. The objective of this investigation is to assess the impact of the Federal Government of Nigeria (FGN) e-wallet programme on informal farm entrepreneurship development in rural Nigeria. Informal sector farmers are those that are not legally registered at the national level though could be connected to a registered association. The research is motivated by the absence of literature focusing on the problem statement or objective of study. One thousand, one hundred and fifty-two rural farmers were sampled across the six geo-political zones of Nigeria. Results from the use of a bivariate probit model indicate that the mobile phone-based technology via the e-wallet programme is a critical factor that has enhanced farm entrepreneurship in rural Nigeria. However, results also show that the impact of mobile phones (as a channel to accessing and using modern agricultural inputs) is contingent on how mobile networks are able to link farmers who live in rural areas and work mainly in farming. The results suggest that increasing mobile phone services in rural Nigeria enhances farmers’ knowledge, information and adoption of improved farm inputs and by extension, spurs rural informal sector economic activities in sub-Saharan Africa. Implications for practice, policy and research are discussed. |
| Keywords: | Informal sector’s adoption, electronic wallet technologies, rural farmers’ entrepreneurship |
| JEL: | Q10 Q14 L96 O40 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:18/047&r=pay |
| By: | Jiang, Y.; Wang, H.H.; Jin, S. |
| Abstract: | With the booming of e-commerce, consumers are turning to online markets for food. Among all countries, China has the largest food online buyers with 0.541 billion consumers shopping for food online. Thanks to the free services provided by multiple e-commerce and social platforms and to the developed delivery networks, farmers can sell their products online at low transition cost in China. Meanwhile, the capacities of online stores to highlight traceablity and production process and of platforms to reveal quality signals through consumer s reviewing and scoring systems, can decrease asymmetric information about food product quality and safety compared with offline markets. Thus, those special features of online market may in return to encourage farmers to change their marketing plans to sell more safe food online. Our paper uses choice experiment method to solicit farmers different production and marketing preferences, and finds that farmers perceive higher rewards selling safer products than conventional products when using e-commerce platforms, an evidence supporting the positive impact of online market channel on the supply of safer food. Acknowledgement : Acknowledgments The authors would like to thank China Rural Household Panel Survey (CRHPS) for their helpful support. We also gratefully acknowledge the support from China Academy for Rural Development, Zhejiang University. |
| Keywords: | Food Consumption/Nutrition/Food Safety |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae18:277200&r=pay |
| By: | Egor Krivosheya (Moscow school of management SKOLKOVO, National Research University Higher School of Economics, Russian Federation); Ekaterina Semerikova (Moscow school of management SKOLKOVO) |
| Abstract: | This research empirically evaluates the effect of network externalities for individuals behavior at Russian retail payments market. Specifically, the effects of direct and indirect network externalities for cardholding and usage probabilities are examined. Using the representative sample of 1500 individuals from all Russian regions this study finds significant robust evidence of positive association between the degree of both types of network externalities and individuals? activity at the Russian retail payments market. Results are economically significant: a standard deviation increase in network effects leads to 2.5-4 percentage points increase in probability of cardholding and usage. Findings imply that one needs to account for network effects which play an important role for the payment behavior before implementing payment stimulating programs in Russia aimed at cardholders or users. |
| Keywords: | Retail payments; payment cards; network effects; cardholders' behavior; financial services |
| JEL: | G21 D53 E42 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:6910185&r=pay |
| By: | Edwin Theron (Stellenbosch University) |
| Abstract: | Customer relationship management has become more important than ever before, especially since service providers are faced with increased competition. It is not surprising to find that both marketing academics and practitioners are progressively confronted by the challenge to create new and innovative ways to manage relationships with customers. Although relationship management entails managing a vast number of dimensions, customer commitment is often viewed as one of the most important elements of any marketing relationship. Given this importance, service providers need to provide services in line with the promises made to customers. Service providers also need to strive towards creating an environment in which customers feel comfortable and free from unexpected changes. The reality is that no service is fail-safe, resulting in a situation where customers are frequently confronted with negative experiences. These negative experiences are often referred to as relational shocks.It was against this background that this study investigated the influence that varying levels of relational shocks might have on customer commitment. Three experiments were conducted. In each of the experiments, respondents were exposed to a different shock scenario, namely a low, a medium or a high shock scenario. A total of 372 Generation Y respondents participated, and the mobile phone industry was selected as context for the study. Data were analysed by means of SPSS Statistics version 25, and a one-way ANOVA was performed to examine possible differences. The results of the study revealed that the three different levels of relational shocks indeed influenced customer commitment, but not all three types of commitment (affective, calculative and normative) were influenced equally. The study also highlighted the importance of limiting relational shocks in general to improve customer commitment. However, the major contribution of the study is that it is the first of its kind, as far as could be ascertained, to investigate the effect of different levels of relational shock on customer commitment, specifically from a mobile phone perspective. |
| Keywords: | Affective commitmentCalculative commitmentNormative commitmentRelational shocks |
| JEL: | M31 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:8109841&r=pay |
| By: | Egor Krivosheya (Moscow school of management SKOLKOVO, National Research University Higher School of Economics, Russian Federation) |
| Abstract: | This research examines the role of network externalities in card acceptance by merchants on the retail payments market in Russia. The work empirically tests the effects of both direct and indirect network externalities for the merchants? card acceptance probability based on the representative survey of 800 traditional (offline) merchants from all Russian regions. The main finding of this study is that the probability of cashless payments acceptance by merchants increases with the presence of direct and indirect or both types of network externalities, controlling for a large set of control variables, including merchants? characteristics and location-specific differences between the retailers. The results are robust to the changes in measures of network externalities and inclusion of shadow economy controls. The findings are significant both statistically and economically. |
| Keywords: | Retail payments; payment cards; network effects; merchants' acceptance; financial services |
| JEL: | G21 E42 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:6910312&r=pay |
| By: | Patrice Baubeau; Eric Monnet; Angelo Riva; Stefano Ungaro |
| Abstract: | Despite France's importance in the interwar world economy, the scale and consequences of the French banking crises of 1930–1931 were never assessed quantitatively due to lack of data in the absence of banking regulation. Using a new dataset of individual balance sheets from more than 400 banks, we show that the crisis was more severe and occurred earlier than previously thought, and it was very asymmetric, without affecting main commercial banks. The primary transmission channel was a flight-to-safety of deposits from banks to savings institutions and the central bank, leading to a major, persistent disruption in business lending. In line with the gold standard mentality, cash deposited with savings institutions and the central bank was used to decrease marketable public debt and increase gold reserves, rather than pursue countercyclical policies. Despite massive capital inflows, France suffered from a severe, persistent credit crunch. |
| Keywords: | Great Depression, flight-to-safety, France, banking panics, Savings Banks, gold standard. |
| JEL: | N14 N24 G01 G21 G23 G33 E44 E51 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:698&r=pay |
| By: | Christine Laudenbach; Jenny Pirschel; Stephan Siegel |
| Abstract: | We examine the effect of personal, two-way communication on the behavior of borrowers, who have fallen behind on their consumer loan payments. While the lender has informed all borrowers about the delinquency through an automatically generated letter, some borrowers also receive a phone call from a randomly assigned bank agent. We find that borrowers, who speak with a bank agent typically for only a few minutes, are significantly more likely to make timely payments and significantly less likely to default. This finding holds in a subset of hard-to-reach borrowers as well as when we instrument for the call with exogenous variation in borrowers’ reachability. The effect of the call is also persistent. Borrowers, who receive a call, are significantly less likely to become delinquent again. Personal aspects of the call, such as the likeability of the agent’s voice, significantly affect payment behavior, while the surprise element of the call does not. Our results suggest that the form of communication significantly affects borrowers’ payment behavior. |
| Keywords: | Fintech, communication, guilt aversion, prosocial behavior |
| JEL: | D03 D10 D14 G20 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7295&r=pay |
| By: | Pedro Manuel Gomes Lopes; Pascale Chateau-Terrisse (UPEM - Université Paris-Est Marne-la-Vallée) |
| Abstract: | Based on a case study of the deployment of a digital portal in an accounting firm, the objective of this research is to study how a network of actors can emerge and adopt a managerial innovation. Using the Actor Network Theory, this study understand the development of a managerial innovation through the interactions between the actors and the tool. The results highlight the main translations and controversies that marked the construction of the tool. Initially, the non-consideration of users leads to an unsatisfactory deployment of the tool and the abandonment of the project by unrepresentative initiators. In a second step, the arrival of a new project manager acknowledging the problems related to the users allows him to identify the malfunctions of the tool and disrupts the structure of the network. Subsequently, challenging the original objectives of the tool brings new actors to the network and leads to the replacement of non-representative spokespersons. However, despite the controversy and the replacement of the spokesperson, the innovation network remains stable because of the number of important allies that have gradually been mobilized. It is then the successive translations which lead to the controversies but which also make it possible to go beyond them and to go towards the redefinition of the tool. This article highlights the contributions of ANT in understanding the adoption of digital tools. |
| Abstract: | À partir d'une étude de cas du déploiement d'un portail digital dans un cabinet comptable, l'objectif de cette recherche est d'étudier comment se constitue un réseau d'acteurs capable de construire et faire adopter une innovation managériale. En adéquation avec les fondements de la théorie de la traduction, la compréhension du développement d'une innovation managériale nécessite de saisir ses évolutions par le biais des interactions entre les acteurs et l'outil qui ont jalonné sa construction. Les résultats, issues d'observations et d'entretiens, mettent en lumière les principales traductions et controverses qui ont marqué la construction de l'outil. Dans un premier temps, la non-prise en compte des utilisateurs mène à un déploiement peu satisfaisant de l'outil et à l‘abandon du projet par des initiateurs non-représentatifs. Dans un deuxième temps, l'arrivée d'un nouveau chef de projet connaissant les problématiques liées au contexte et aux utilisateurs de l'outil lui permet d'identifier les dysfonctionnements de l'outil et bouleverse la structure du réseau. Par la suite une remise en cause des objectifs originaux de l'outil, apporte de nouveaux acteurs au réseau et conduit au remplacement des porte-parole non-représentatifs. Toutefois malgré les controverses et le remplacement du porte-parole, le réseau d'innovation se maintient stable en raison du nombre d'alliés importants qui ont progressivement été mobilisés. Ce sont alors les traductions successives qui mènent aux controverses mais qui permettent aussi de les dépasser et d'aller vers la redéfinition de l'outil. Cet article met en évidence les apports de la théorie de la traduction dans la compréhension de l'adoption des outils numériques. |
| Keywords: | management tools,digital,Actor Network Theory,outils de gestion,numérique,théorie de la traduction |
| Date: | 2018–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01907936&r=pay |
| By: | Daum, T.; Birner, R.; Buchwald, H.; Gerlicher, A. |
| Abstract: | One challenge of collecting socioeconomic data, such as data on time use, is recall biases. While time use researchers have continuously developed new methods to make data collection more accurate and easy, these methods are difficult to use in developing countries where study participants may have low literacy levels and no clock -based concepts of time. To contribute to the closing of this research gap, we developed a picture-based smartphone-app called Time-Tracker that allows the recording of data in real time to avoid recall biases. We pilot-tested the app in rural Zambia, collecting 2790 data days. In this paper, we compare the data recorded with the app to data collected with 24-hours-recall-questions. The results confirm the literature on recall biases, suggesting that using the app leads to valid results. We conclude that smartphone-apps using visual tools provide new opportunities for researchers collecting socioeconomic data in developing countries. Acknowledgement : We are especially grateful to all the farm families participating in the study. We are also grateful for the financial support from the Program of Accompanying Research for Agricultural Innovation , which is funded by the German Federal Ministry of Economic Cooperation and Development. |
| Keywords: | Research and Development/ Tech Change/Emerging Technologies |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae18:277076&r=pay |
| By: | Cazaubiel, Arthur (CREST, ENSAE ParisTech); Cure, Morgane (CREST, ENSAE ParisTech); Johansen, Bjørn Olav (University of Bergen, Department of Economics); Vergé, Thibaud (CREST, ENSAE ParisTech and University of Bergen, Department of Economics) |
| Abstract: | Using an exhaustive database of bookings in one large chain of hotels active in Oslo (2013-2016), we estimate a nested-logit demand model that allows us to evaluate substitution patterns between online distribution channels. Making use of the chains’ decision to delist from Expedia’s platform, we can then compare simulated and actual effects of such an event on prices and market shares and identify ways to improve on simulated counterfactual outcomes. |
| Keywords: | Multi-channel distribution; Pricing; Structural demand estimation; Online substitution |
| JEL: | D22 D43 L11 L81 |
| Date: | 2018–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2018_008&r=pay |
| By: | Reme, Bjørn-Atle (Telenor Research); Lie-Røhr, Helene (Telenor Research); Sæthre, Morten (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | We study consumer inertia in the mobile subscription market, focusing on the decision of whether to switch to a competing provider. To identify the extent of inertia, we exploit price changes faced by 270,000 consumers of a large telecom provider. We document that the propensity to switch provider after the price change increases among consumers whose costs decrease with the new prices. Furthermore, we find that the increase is largest right after consumers are informed of the upcoming change—during the two months prior to the tariff change—as opposed to when the price change is implemented. From these findings, we infer what we call a poking effect; the information of an upcoming price change causes consumers to engage in searches for alternative offers, leading to increased switching. We supplement the analysis with a survey and find indications that the poking effect is due to consumer inattention. To separate the effect on attention from the reaction to the actual price change, we estimate a model of consumer choice with limited attention. We find that when consumers are poked, it increases the share of consumers becoming attentive to competing offers. This leads many consumers to switch providers earlier than they would otherwise, explaining why they leave even though their terms with their current company improve. |
| Keywords: | Consumer Inertia; Inattention; Consumer Behavior; Telecom; Churn |
| JEL: | M00 |
| Date: | 2018–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2018_023&r=pay |
| By: | Lesley Chiou; Catherine Tucker |
| Abstract: | Online sources sometimes publish information that is false or intentionally misleading. We study the role of social networks and advertising on social networks in the dissemination of false news stories about childhood vaccines. We document that anti-vaccine Facebook groups disseminate false stories beyond the groups as well as serving as an “echo” chamber. We also find that after Facebook's ban on advertising by fake new sites, the sharing of fake news articles on Facebook fell by 75% on Facebook compared to Twitter. |
| JEL: | L86 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25223&r=pay |
| By: | Faure, Salomon; Gersbach, Hans |
| Abstract: | We examine monetary architectures in which money is solely created by the public and lent by the central bank to the private sector. We compare them to today's fractional-reserve system in which money is created mainly by commercial banks. We use a simple general equilibrium setting and determine under which conditions these architectures yield the same welfare and stability outcomes and under which conditions they do not. We show, in particular, that the decentralized sovereign money system yields the same level of money creation and allocation of commodities as the fractional-reserve monetary system if the central bank solely pursues interest-rate policy. |
| Keywords: | 100% reserve banking; Capital regulation; Chicago Plan; full-reserve banking; monetary architecture; monetary policy; monetary system; money creation; price rigidities; reserve requirement |
| JEL: | D50 E4 E5 G21 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13156&r=pay |
| By: | Olivier Desplebin (NIMEC - Normandie Innovation Marché Entreprise Consommation - UNICAEN - Université de Caen Normandie - NU - Normandie Université - ULH - Université Le Havre Normandie - NU - Normandie Université - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Gulliver Lux (IGR-IAE Rennes - Institut de Gestion de Rennes - Institut d'Administration des Entreprises - Rennes - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes) |
| Abstract: | Blockchain technology has very recently been involved in a wide range of extra-financial activities and is attracting a lot of interest in numerous sectors. The purpose of this paper is to discuss the implications of this technology for accounting, audit and control practices. Specifically, we will seek, in a prospective approach, to present this technology and to illustrate its innovative aspects, which will influence these activities in the years to come. |
| Abstract: | La technologie Blockchain, support de Bitcoin, se diffuse récemment à des activités extra financières variées et suscite un intérêt dans de nombreux secteurs d'activité. Cet article vise à discuter des conséquences à attendre de cette technologie pour les métiers du champ CCA. Plus précisément, nous chercherons, dans une approche prospective, à présenter cette technologie et à en illustrer les aspects novateurs, qui influenceront ces activités dans les années à venir. |
| Keywords: | accounting,control,management technology,Blockchain,comptabilité,contrôle,audit,technologie de gestion |
| Date: | 2018–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01907902&r=pay |
| By: | Eugenio Caverzasi; Daniele Tori |
| Abstract: | Neo-Schumpeterian economics inspired by the work of Schumpeter and the financial Keynesianism of Minsky are often regarded as unrelated theoretical strands. In this paper, we try to combine these two literatures building on a parallelism between non-financial and financial firms. We focus on recent financial innovations, highlighting how the evolution experienced by US financial institutions led them to transcend their traditional role of credit providers, shaping as 'producers' of financial products, through securitization. This allows on the one hand to broaden the application of Neo-Schumpeterian insights to the financial sector and, on the other, to provide an original explanation of the so-called sub-prime crisis by applying the Financial Instability Hypothesis of Minsky to the alternative context of financial production. We maintain that the 2007-8 crisis was not the result of an innovation in the real sector, but came from an innovation (or a series of innovations) intrinsic to the financial system itself, which fostered credit creation. We argue that this 'cluster of innovations' can be placed under the label 'securitization', defined as the business of packaging and reselling loans, with repo agreements as the main source of funds. |
| Keywords: | Minsky, Schumpeter, securitization, financial firms, Great Financial Crisis |
| Date: | 2018–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2018/36&r=pay |
| By: | Schintler, Laurie A.; Fischer, Manfred M. |
| Abstract: | Big Data on cities and regions bring new opportunities and challenges to data analysts and city planners. On the one side, they hold great promise to combine increasingly detailed data for each citizen with critical infrastructures to plan, govern and manage cities and regions, improve their sustainability, optimize processes and maximize the provision of public and private services. On the other side, the massive sample size and high-dimensionality of Big Data and their geo-temporal character introduce unique computational and statistical challenges. This chapter provides overviews on the salient characteristics of Big Data and how these features impact on paradigm change of data management and analysis, and also on the computing environment. |
| Keywords: | massive sample size, high-dimensional data, heterogeneity and incompleteness, data storage, scalability, parallel data processing, visualization, statistical methods |
| Date: | 2018–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus046:6637&r=pay |
| By: | Thies, Ferdinand; Wessel, Michael; Benlian, Alexander |
| Date: | 2018–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:108635&r=pay |
| By: | Gupta, I.; Veettil, P.C.; Speelman, S. |
| Abstract: | This paper analyzes the role of informal social networks in technology diffusion in a caste-based society in which a social hierarchical structure is prevalent. Often, information and technology diffusion are constrained by social and economic boundaries. In a complex and hierarchical social system in which caste plays a very decisive role in everyday life as well as in the political and policy fabric of the regional, state, and national system, proper targeting and dissemination of technology to the marginalized sections of society are very important for their development. Taking diffusion of improved rice varieties as an example, we analyze whether technology diffusion is confined within caste-based social networks or whether technology can break caste boundaries and spread across social networks. We found that informal networks tend to concentrate within caste-based groups and hence observed significantly stronger social network within caste than across caste categories. Strong within caste network discourages hybrids but facilitates stabilized technologies such as improved varieties whereas strong across caste networks discourage adoption of older and traditional varieties. It is important to highlight that existence of stronger within as well as across caste networks for scheduled tribes (ST) facilitated these marginalized communities to adopt improved and hybrid varieties. Acknowledgement : |
| Keywords: | Labor and Human Capital |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae18:277048&r=pay |
| By: | Thomas Palley |
| Abstract: | This paper discusses the evolution of money and the monetary system. The origins of money debate is framed in terms of functionalism versus chartalism. Endogenous Schumpeterian dynamics apply to the evolution of money and monetary systems, and those dynamics are supportive of the functionalist perspective. A functionalist Schumpeterian lens shows "Gresham's law" should be relabeled "Gresham's fallacy" because good money drives out bad. The Gresham dynamic is also supportive of the functionalist perspective. Lastly, the paper shows monetary history over the past millennium does not support chartalist public finance claims as represented by modern money theory (MMT). |
| Keywords: | Money, functionalism, chartalism, Gresham’s law, Schumpeterian dynamics, modern monetary theory |
| JEL: | E4 E44 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:34-2018&r=pay |
| By: | Petra Tausl Prochazkova (University of West Bohemia); Vaclav Sova Martinovsky (University of West Bohemia); David Musil (University of West Bohemia) |
| Abstract: | Alternative finance presents a stream that has boomed several years ago. These finance tools are often described with attributes such as ?non-traditional?, ?online? or ?innovative?. Since this research area is relatively new, there are scholar and practitioner discussions about what kind of financial tool belongs to the label ?alternative finance? and which one not. Indeed, alternative finance segment is on the rise and has to be understood as a reliable source of financing business ventures (even more not only ventures with business attribute). The aim of this paper is to provide theoretical and empirical remarks to this research stream. Authors continue with this paper with their research interest and present a part of gained information during their research. The paper is articulated as follows: first the alternative finance sphere is discussed including the taxonomy and current state of knowledge about this segment mainly on the European level. Second, follow-up empirical research is provided answering four hypotheses related to alternative finance attributes and general awareness among society. In conclusion final remarks and future perspectives are highlighted. |
| Keywords: | alternative finance, crowdfunding, peer-to-peer, SMEs, venture capital |
| JEL: | G24 L26 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:6910159&r=pay |
| By: | Joseph Hughes (Rutgers University); Julapa Jagtiani (Federal Reserve Bank of Philadelphia); Choon-Geol Moon (Hanyang University) |
| Abstract: | Using 2013 and 2016 data, we compare the performance of unsecured consumer loans made by U.S. bank holding companies to that of the fintech lender, LendingClub. We focus on the volume of nonperforming unsecured consumer loans and apply a novel technique developed by Hughes and Moon (2017) that decomposes the observed rate of nonperforming loans into three components: a best-practice minimum ratio, a ratio that gauges nonperformance in excess of the best-practice (reflecting the relative proficiency of credit analysis and loan monitoring), and the statistical noise. Stochastic frontier techniques are used to estimate a minimum rate of nonperforming consumer loans conditioned on the volume of consumer loans and total loans, the average contractual lending rate on consumer loans, and market conditions (GDP growth rate and market concentration). This minimum gauges best-observed practice and answers the question, what ratio of nonperforming consumer loans to total consumer lending could a lender achieve if it were fully efficient at credit-risk evaluation and loan management? The frontier estimation eliminates the influence of luck (statistical noise) and gauges the systematic failure to obtain the minimum ratio. The conditional minimum ratio can be interpreted as a measure of inherent credit risk. The difference between the observed ratio, adjusted for statistical noise, and the minimum ratio gauges lending inefficiency. In 2013 and 2016, the largest bank holding companies with consolidated assets exceeding $250 billion experience the highest ratio of nonperforming consumer loans among the five size groups constituting the sample. Moreover, the inherent credit risk of their consumer lending is the highest among the five groups, but their lending efficiency is also the highest. Thus, the high ratio of consumer nonperformance of the largest financial institutions appears to result from assuming more inherent credit risk, not from inefficiency at lending. In 2016, LendingClub’s scale of unsecured consumer lending is slightly smaller than the scale of the largest banks. And like these large lenders, its relatively high nonperforming loan ratio is the result of a higher best-practice ratio of nonperforming consumer loans – i.e., higher inherent credit risk. As of 2016, LendingClub’s lending efficiency is similar to the high average efficiency of the largest bank lenders - a conclusion that may not be applicable to other fintech lenders. While the efficiency metric is well-accepted, widely used, and conceptually sound, it may be subject to some data limitations. For example, our data do not include lending performance during an economic downturn when delinquency rates would be higher and when lenders more experienced with downturns might achieve higher efficiency. |
| Keywords: | commercial banking, online lending, credit risk, lending efficiency |
| JEL: | G21 L25 C58 |
| Date: | 2018–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201806&r=pay |