nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2020‒02‒24
nineteen papers chosen by

  1. A Probative Value for Authentication Use Case Blockchain By Dominique Guégan; Christophe Hénot
  2. Blockchain structure and cryptocurrency prices By Zimmerman, Peter
  3. The Digital World: II – Alternatives to the Bitcoin Blockchain? By Dominique Guegan
  4. Behavior Revealed in Mobile Phone Usage Predicts Credit Repayment By Bjorkegren,Daniel; Grissen,Darrell
  5. Políticas de fomento para la incorporación de las tecnologías digitales en las micro, pequeñas y medianas empresas de América Latina: revisión de experiencias y oportunidades By Heredia, Andrea
  6. The Digital Revolution: Lights and Shadows By Roberto Serrano
  7. Modernizing Our Payments System; Fourth Annual Financial Literacy Day: Understanding Global Markets and Finance By Loretta J. Mester
  8. Pricing and Fees in Auction Platforms with Two-Sided Entry By Marleen Marra
  9. Free Riding in Loan Approvals : Evidence from SME Lending in Peru By Arraiz,Irani; Bruhn,Miriam; Roth,Benjamin N.; Ruiz Ortega,Claudia; Stucchi,Rodolfo Mario
  10. Should Bitcoin be used to help devastated economies? Evidence from Greece By Jamal Bouoiyour; Refk Selmi
  11. Competition in Network Industries: Evidence from the Rwandan Mobile Phone Network By Daniel Bjorkegren
  12. What Makes Money Work? By Sobel, Joel
  13. Peer Networks and Entrepreneurship: A Pan-African RCT By Vega-Redondo, Fernando; Pin, Paolo; Ubfal, Diego; Benedetti-Fasil, Cristiana; Brummitt, Charles; Rubera, Gaia; Hovy, Dirk; Fornaciari, Tommaso
  14. The Graying of American Debt By Wilbert Van der Klaauw; Donghoon Lee; Meta Brown; Joelle Scally; Katherine Strair
  15. Efficient Incentives in Social Networks: Gamification and the Coase Theorem By Daske, Thomas
  16. Smartphone Use and Academic Performance: First Evidence from Longitudinal Data By Amez, Simon; Vujic, Suncica; De Marez, Lieven; Baert, Stijn
  17. Charging into Adulthood: Credit Cards and Young Consumers By Andrew F. Haughwout; Donghoon Lee; Joelle Scally; Wilbert Van der Klaauw
  18. (Unmet) Credit Demand of American Households By Wilbert Van der Klaauw; Max Livingston; Basit Zafar
  19. Double spend races By Cyril Grunspan; Ricardo Pérez-Marco

  1. By: Dominique Guégan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne, University of Ca’ Foscari [Venice, Italy], IPAG Business School); Christophe Hénot (UP1 - Université Panthéon-Sorbonne, PRISM - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Panthéon-Sorbonne)
    Abstract: The Fintech industry has facilitated the development of companies using blockchain technology. The use of this technology inside banking system and industry opens the route to several questions regarding the business activity, legal environment and insurance devices. In this paper, considering the creation of small companies interested to develop their business with a public blockchain, we analyse from different aspects why a company (in banking or insurance system, and industry) decides that a blockchain protocal is more legitimate than another one for the business it wants to develop looking at the legal (in case of dispute) points of view. We associate to each blockchain a probative value which permits to assure in case of dispute that a transaction has been really done. We illustrate our proposal using thirteen blockchains providing in that case a ranking between these blockchains for their use in business environment. We associate to this probative value some main characteristics of any blockchain as market capitalization and log returns volatilities that the investors need to take also into account with the new probative value for their managerial strategy.
    Keywords: volatility,Regulation,Proof of work,Mining,Attack,Blockchain,Crypto-currency,probative-value,evidential-value,Hash rate,Immutability
    Date: 2018–09
  2. By: Zimmerman, Peter (Bank of England)
    Abstract: I present a model of cryptocurrency price formation that endogenizes both the financial market for coins and the fee-based market for blockchain space. A cryptocurrency has two distinctive features: a price determined by the extent of its usage as money, and a blockchain structure that restricts settlement capacity. Limited settlement space creates competition between users of the currency, so speculative activity can crowd out monetary usage. This crowding-out undermines the ability of a cryptocurrency to act as a medium of payment, lowering its value. Higher speculative demand can reduce prices, contrary to standard economic models. Crowding-out also raises the riskiness of investing in cryptocurrency, explaining high observed price volatility.
    Keywords: Blockchain; cryptocurrency; global games; price volatility
    JEL: D04 E42 G13
    Date: 2020–02–14
  3. By: Dominique Guegan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne, IPAG Business School, University of Ca’ Foscari [Venice, Italy])
    Abstract: In a previous paper (The Digital World: I - Bitcoin: from history to real live, Guégan, 2018), we explain some limits and interests of the Bitcoin system and why the central bankers and regulators need to take some decision on its existence. In this article, we develop some alternatives to the Bitcoin blockchain which are considered by the banking system and industries.
    Keywords: Blockchain,Bitcoin
    Date: 2018–06
  4. By: Bjorkegren,Daniel; Grissen,Darrell
    Abstract: Many households in developing countries lack formal financial histories, making it difficult for firms to extend credit, and for potential borrowers to receive it. However, many of these households have mobile phones, which generate rich data about behavior. This article shows that behavioral signatures in mobile phone data predict default, using call records matched to repayment outcomes for credit extended by a South American telecom. On a sample of individuals with (thin) financial histories, our method actually outperforms models using credit bureau information, both within time and when tested on a different time period. But our method also attains similar performance on those without financial histories, who cannot be scored using traditional methods. Individuals in the highest quintile of risk by our measure are 2.8 times more likely to default than those in the lowest quintile. The method forms the basis for new forms of credit that reach the unbanked.
    Date: 2019–12–06
  5. By: Heredia, Andrea
    Abstract: La apropiación efectiva de las tecnologías de la información y las comunicaciones (TIC) conlleva una modificación del modelo de negocio a través del aprovechamiento de productos, servicios y soluciones digitales. Este proceso requiere de políticas de apoyo que vayan más allá del acceso a la red y del uso básico de Internet y que busquen la transformación de los distintos ámbitos del quehacer empresarial. El presente documento tiene por objetivo hacer un recuento de las políticas relacionadas al desarrollo de las TIC en nueve países de la región (Argentina, Brasil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, México y Perú) con el fin de identificar las iniciativas que promueven estrategias dirigidas específicamente a apoyar la transformación digital de las micro, pequeñas y medianas empresas (mipymes).
    Date: 2020–01–28
  6. By: Roberto Serrano
    Abstract: The digital revolution has brought about a wave of technological optimism, sustained by all the things technology does for us in our every day lives. This is in principle good, but it has a dark side, as the poor use of the new technologies may lead us to become lazier and to replace or strain rational processes of deliberation with the mechanical accumulation of numbers and data, which, allegedly, help objective and clear decision-making. This dark side produces a number of pathologies, which we could term "digitalitis." Manifestations of digitalitis include top5itis in the world of academic publishing, VAR-itis in the world of soccer, scooteritis in the world of means of transportation, or digital populism in democratic societies.
    Date: 2020
  7. By: Loretta J. Mester
    Abstract: The Federal Reserve System plays an important role in helping to ensure that our payments system is efficient, secure, and effective. I recently became chair of the Financial Services Policy Committee (FSPC), which oversees the provision of payment services to depository institutions and the U.S. Treasury by the 12 Federal Reserve Banks. So as a follow-up to the discussion we just heard about new forms of payments, I thought it would be useful to provide you with an update on some of the Fed’s ongoing work to modernize the U.S. payments system, and then offer a policy maker’s perspectives on some payments innovations. Of course, the views I will present today are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Keywords: financial literacy; payments system
    Date: 2020–02–14
  8. By: Marleen Marra (Département d'économie)
    Abstract: This paper presents, solves, and estimates the first structural auction model with seller selection. This allows me to quantify network effects arising from endogenous bidder and seller entry into auction platforms, facilitating the estimation of theoretically ambiguous fee impacts by tracing them through the game. Relevant model primitives are identified from variation in second-highest bids and reserve prices. My estimator builds off the discrete choice literature to address the double nested fixed point characterization of the entry equilibrium. Using new wine auction data, I estimate that this platform’s revenues increase up to 60% when introducing a bidder discount and simultaneously increasing seller fees. More bidders enter when the platform is populated with lower-reserve setting sellers, driving up prices. Moreover, I show that meaningful antitrust damages can be estimated in a platform setting despite this two-sidedness.
    Keywords: Auctions with entry; Two-sided markets; Nonparametric identification; Estimation; Nested fixed point
    JEL: D44 C52 C57 L81
    Date: 2019–12
  9. By: Arraiz,Irani; Bruhn,Miriam; Roth,Benjamin N.; Ruiz Ortega,Claudia; Stucchi,Rodolfo Mario
    Abstract: This paper provides evidence that commercial lenders in Peru free ride off their peers'screening efforts. Leveraging a discontinuity in the loan approval process of a large bank, the study finds that competing lenders responded to additional loan approvals by issuing approvals of their own. Competing lenders captured almost three-quarters of the new loans to previously financially excluded borrowers, greatly diminishing the profits accruing to the initiating bank. Lenders may therefore underinvest in screening new borrowers and expanding financial inclusion, as their competitors reap some of the benefit. The results highlight that information spillovers between lenders may operate outside credit registries.
    Date: 2019–12–03
  10. By: Jamal Bouoiyour (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Refk Selmi (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour, IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC Pau)
    Keywords: Empirical Mode Decomposition,Grexit,Uncertainty,Bitcoin
    Date: 2019
  11. By: Daniel Bjorkegren
    Abstract: This paper develops a method to analyze the effects of competition policy in a network industry. Competition has mixed effects on incentives to invest: when a network is split between competitors, each captures only a fraction of potential network effects. However, a firm may invest in components that are not shared, to attract customers to its network. I structurally estimate the utility of adopting a mobile phone from its subsequent usage, using transaction data from nearly the entire Rwandan network over 4.5 years. I simulate the equilibrium choices of consumers and network operators, and consider Rwanda’s decision to delay the introduction of competition. I show that there is a policy under which adding a competitor earlier would have reduced prices and increased incentives to invest in rural towers, increasing welfare by the equivalent of 1% of GDP. I analyze the effects of setting different interconnection rates, and reducing switching costs through number portability.
    Date: 2020
  12. By: Sobel, Joel
    Date: 2019–12–18
  13. By: Vega-Redondo, Fernando (Universidad de Alicante); Pin, Paolo (Bocconi University); Ubfal, Diego (Bocconi University); Benedetti-Fasil, Cristiana (European University Institute); Brummitt, Charles (Harvard University); Rubera, Gaia (Bocconi University); Hovy, Dirk (Bocconi University); Fornaciari, Tommaso (Bocconi University)
    Abstract: Can large-scale peer interaction foster entrepreneurship and innovation? We conducted an RCT involving almost 5,000 entrepreneurs from 49 African countries. All were enrolled in an online business course, and the treatment involved random assignment to either face-to-face or virtual (Internet-mediated) interaction. We find positive treatment effects on both the submission of business plans and their quality, provided interaction displays some intermediate diversity. Network effects are also significant on both outcomes, although diversity plays a different role for each. This shows that effective peer interaction can be feasibly implemented quite broadly but must also be designed carefully, in view of the pursued objectives.
    Keywords: social networks, peer effects, entrepreneurship, innovation, semantic analysis
    JEL: C93 D04 D85 O12 O31 O35
    Date: 2019–12
  14. By: Wilbert Van der Klaauw; Donghoon Lee; Meta Brown; Joelle Scally; Katherine Strair
    Abstract: The U.S. population is aging and so are its debts. In this post, we use the New York Fed Consumer Credit Panel, which is based on Equifax credit data, to look at how debt is changing as baby boomers reach retirement age and millennials find their footing. We find that aggregate debt balances held by younger borrowers have declined modestly from 2003 to 2015, with a debt portfolio reallocation away from credit card, auto, and mortgage debt, toward student debt. Debt held by borrowers between the ages of 50 and 80, however, increased by roughly 60 percent over the same time period. This shifting of debt from younger to older borrowers is of obvious relevance to markets fueled by consumer credit. It is also relevant from a loan performance perspective as consumer debt payments are being made by older debtors than ever before.
    Keywords: Repayment; Aging; Household debt
    JEL: D1 R3
  15. By: Daske, Thomas
    Abstract: This study explores mechanism design for networks of interpersonal relationships. Agents' social (more or less altruistic or spiteful) preferences and private payoffs are all subject to asymmetric information; utility is quasi-linear. Remarkably, the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. The main result is a constructive proof of the Coase theorem, in its typical mechanism-design interpretation, for networks of at least three agents: If endowments are sufficiently large, any such network can resolve any given allocation problem with a budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. The endogenously derived solution concept is interpreted as gamification: Resolve the agents' allocation problem with an efficient social-preference robust mechanism; attract agents' participation by complementing this mechanism with a budget-balanced game that operates on their social preferences and provides them with a platform to live out their propensities to cooperate or compete.
    Keywords: mechanism design,social preferences,gamification,Coase theorem
    JEL: C72 C78 D62 D82
    Date: 2020
  16. By: Amez, Simon (Ghent University); Vujic, Suncica (University of Antwerp); De Marez, Lieven (Ghent University); Baert, Stijn (Ghent University)
    Abstract: To study the causal impact of smartphone use on academic performance, we collected – for the first time worldwide – longitudinal data on students' smartphone use and educational performance. For three consecutive years we surveyed all students attending classes in eleven different study programmes at two Belgian universities on general smartphone use and other drivers of academic achievement. These survey data were merged with the exam scores of these students. We analysed the resulting data by means of panel data random effects estimation controlling for unobserved individual characteristics. A one standard deviation increase in overall smartphone use results in a decrease of 0.349 points (out of 20) and a decrease of 2.616 percentage points in the fraction of exams passed.
    Keywords: smartphone use, academic performance, longitudinal data, causality
    JEL: I23 J24
    Date: 2019–12
  17. By: Andrew F. Haughwout; Donghoon Lee; Joelle Scally; Wilbert Van der Klaauw
    Abstract: The New York Fed’s Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2019. Total household debt balances grew by $193 billion in the fourth quarter, marking a $601 billion increase in household debt balances in 2019, the largest annual gain since 2007. The main driver was a $433 billion annual upswing in mortgage balances, also the largest since 2007. Auto loan and credit card balances both increased by a brisk $57 billion last year, while student loan balances climbed by a more muted $51 billion, well below the $114 billion increase recorded in 2013—the fastest pace of growth for the series. The source for the Quarterly Report is the New York Fed’s Consumer Credit Panel—a panel data set that now spans twenty-one years, 1999-2019. The unique panel design allows us to identify new entrants to the credit market: as young people age into having credit reports and using credit products, they are “born” into the panel, enabling us to observe the credit behavior of young borrowers.
    Keywords: consumer credit panel; household finance; CCP
    JEL: D14
    Date: 2020–02–11
  18. By: Wilbert Van der Klaauw; Max Livingston; Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University)
    Abstract: One of the direct effects of the 2008 financial crisis on U.S. households was a sharp tightening of credit. Households that had previously been able to borrow relatively freely through credit cards, home equity loans, or personal loans suddenly found those lines closed off?just when they needed them the most. In recent months, aggregate statistics such as the Federal Reserve?s Consumer Credit series and the Senior Loan Officer Opinion Survey have shown a gradual improvement in consumer credit. The former series is an indicator of interaction of credit supply and demand, while the latter shows only short-term changes in demand and supply (as reported by lenders) separately. It is, therefore, not entirely clear whether the observed trends are a result of fluctuations in demand or supply. Are those demanding credit getting it? What differences are there among U.S. consumers in their demand for and access to credit?
    JEL: D1
  19. By: Cyril Grunspan (ESILV Léonard de Vinci); Ricardo Pérez-Marco (IMJ-PRG - Institut de Mathématiques de Jussieu - Paris Rive Gauche - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique)
    Abstract: We correct the double spend race analysis given in Nakamoto's foun-dational Bitcoin article and give a closed-form formula for the probability of success of a double spend attack using the Regularized Incomplete Beta Function. We give the first proof of the exponential decay on the number of confirmations and find an asymptotic formula. Larger number of confirmations are necessary compared to those given by Nakamoto.
    Keywords: Regularized Incomplete Beta Function,double spend,blockchain,Bitcoin,proof-of-work,mining
    Date: 2018–11–01

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