nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2020‒03‒02
twenty-one papers chosen by

  1. The Digital World: I - Bitcoin: from history to real live By Dominique Guegan
  2. Policy and Regulatory Issues with Digital Businesses By Chen,Rong - DECAG
  3. Consumer propensity to adopt PSD2 services: trust for sale? By Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker
  4. Online banking services and branch networks By Amanda Carmignani; Marco Manile; Andrea Orame; Marcello Pagnini
  5. Canada; Financial Sector Assessment Program-Technical Note-Oversight of Financial Market Infrastructures and Fintech Development By International Monetary Fund
  6. On fintech and financial inclusion By Thomas Philippon
  7. The Effect of Network Adoption Subsidies: Evidence from Digital Traces in Rwanda By Daniel Bj\"orkegren; Burak Ceyhun Karaca
  8. Taxation of Digital Platforms By Marko Köthenbürger
  9. Recent or Free? An Experimental Study of the Motivations for Pirating Movies By Marc Bourreau; Marianne Lumeau; Francois Moreau; Jordana Viotto da Cruz
  10. Estimating the Costs of Standardization: Evidence from the Movie Industry By El Hadi Caoui
  11. Is the Bitcoin Rush Over? By Dominique Guegan; Marius Frunza
  12. Libra or Librae? Basket based stablecoins to mitigate foreign exchange volatility spillovers By Paolo Giudici; Thomas Leach; Paolo Pagnottoni
  13. Bahrain and the Fourth Industrial Revolution By Lopez, Claude; Bendix, Joseph; Servin, Cesar
  14. Improving regional regulatory platform tools for the development of small and medium businesses By Olga, Kuznetsova; Anna, Zakharkina; Lab, SDAG
  15. How Magic a Bullet Is Machine Learning for Credit Analysis? An Exploration with FinTech Lending Data By J. Christina Wang; Charles B. Perkins
  16. Prospects of Blockchain in Contract and Property By Benito Arruñada
  17. STO vs ICO: A Theory of Token Issues Under Moral Hazard and Demand Uncertainty By Miglo, Anton
  18. Central Bank Digital Currency: Central Banking For All? By Jesús Fernández-Villaverde; Daniel Sanches; Linda Schilling; Harald Uhlig
  19. Zombie International Currency: The Pound Sterling 1945-1973 By Maylis Avaro
  20. Pricing and Fees in Auction Platforms with Two-Sided Entry By Marleen Marra
  21. Social influence tactics in e-commerce onboarding: The role of social proof and reciprocity in affecting user registrations By Röthke, Konstantin; Klumpe, Johannes; Adam, Martin; Benlian, Alexander

  1. 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, University of Ca’ Foscari [Venice, Italy])
    Abstract: Bitcoin can be considered as a medium exchange restricted to online markets, but it is not a unit of account and a store of value, and thus cannot be considered as a money. Bitcoin value is very volatile and traded for different prices in different exchanges platforms, and thus can be used for arbitrage purpose. His behavior can be associated with a high volatile stock, and most transactions in Bitcoin are aimed to speculative instruments. The high volatility in Bitcoin and the occurrence of speculative bubble depend on positive sentiment and confidence about Bitcoin market: several variables may be considered as indicators (volume of transactions, number of transactions, number of Google research, wikipedia requests). The star of the crypto-currencies has attained the 19 716 dollars in December 2017 and decreased to 6 707 dollars March 29, 2018. In capitalization it is at this time the 30th mondial currency. 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, and what could be the possible evolution of the Bitcoin Blockchain.
    Keywords: Bitcoin,Blockchain
    Date: 2018–03
  2. By: Chen,Rong - DECAG
    Abstract: Advances in digital technology are expanding the boundaries of firms. Digital platform firms, which leverage a"platform"to create value through facilitating exchanges between two or more interdependent groups, are the new disrupters in the market. They exhibit distinct features such as scale without mass, positive network effects, accumulation of tremendous data, and a convoluted value creation process with user participation. Meanwhile, they bring more opportunities to traditional businesses by closely connecting suppliers and customers and reducing transaction frictions. Such a changing business landscape calls for adaptive policies and regulations. This policy paper lays out the key policy and regulatory issues around digital businesses. Competition laws need to be revisited to address the winner-take-all tendency of digital platform businesses. Tax systems should also be updated to close the loopholes available to digital platform businesses so that they pay their fair share to society. This paper also provides the first analysis of the World Bank's Digital Business Indicators initiative, which collects information on the existence and quality of regulations in broadband connectivity, digital payment, data privacy and security, as well as logistics, in 21 pilot countries. It aims to explore the possibilities for developing the regulatory and policy indicators that governments can work with to promote the digital economy.
    Keywords: Information Security&Privacy,Information Technology,Telecommunications Infrastructure,Economic Adjustment and Lending,Public Finance Decentralization and Poverty Reduction,Macro-Fiscal Policy,Public Sector Economics,Taxation&Subsidies,ICT Applications
    Date: 2019–07–24
  3. By: Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker
    Abstract: We study consumers' attitudes towards sharing payments data with incumbent and new providers of payment and account information services, and using their services. This is important, in order to understand the possible impact of the revised Payment Services Directive (PSD2) on the functioning of the retail payments market. We do so using a representative panel of Dutch consumers. We obtain a number of results. First, consumers' propensity to give consent for payments data usage is highest if the data user is their own bank. Only a minority would give consent to the usage of payments data to make a financial overview with personalised offers. Second, an explicit financial reward can tempt more people to use this service and to demand the service from a BigTech instead of one's own bank. Third, support for the usage of payments data by other banks and BigTechs to decide on loans is also positively related to financial incentives. Finally, the propensity to use the two new PSD2 services is driven by consumers' trust in the providers of these services. Consumers have more trust in their own bank than in BigTechs.
    Keywords: consumers; discrete choice models; PSD2; retail payments; trust; pricing
    JEL: C25 D12 E42 G21 G24 G28
    Date: 2020–02
  4. By: Amanda Carmignani (Bank of Italy); Marco Manile (Bank of Italy); Andrea Orame (Bank of Italy); Marcello Pagnini (Bank of Italy)
    Abstract: Notwithstanding internet banking is now widely used by retail customers, little is known about its effect on the banking industry. In this paper we study how internet banking relates to branching policies in Italian local credit markets. Focusing on the period 2012-2015, we show that branch closures were more intense for those local markets and banks where the diffusion of digital banking services was higher.
    Keywords: online banking services, bank branch networks
    JEL: G21 G34
    Date: 2020–02
  5. By: International Monetary Fund
    Abstract: Financial market infrastructures (FMIs) have operated normally under a well-established legal and oversight framework that is distinct for Canada. A major modernization program is ongoing. The systemically important payment system (SIPS), which has been operational for around 20 years, will be replaced with a real-time gross settlement (RTGS) system. A fast retail payment system is also being implemented. The governance structure respects the regulatory, supervisory and oversight powers at both the federal and provincial levels. The Payment Clearing and Settlement Act (PCSA) assigns the Bank of Canada (BOC) the authority to oversee the designated FMIs, with responsibility being shared by three provincial securities regulators based on their respective securities legislation. The Department of Finance (DOF) is also involved in the oversight of payment systems.
    Date: 2020–01–24
  6. By: Thomas Philippon
    Abstract: The cost of financial intermediation has declined in recent years thanks to technology and increased competition in some parts of the finance industry. I document this fact and I analyze two features of new financial technologies that have stirred controversy: returns to scale and the use of big data and machine learning. I argue that the nature of fixed versus variable costs in robo-advising is likely to democratize access to financial services. Big data is likely to reduce the impact of negative prejudice in the credit market but it could reduce the effectiveness of existing policies aimed at protecting minorities.
    Keywords: fintech, discrimination, robo advising, credit scoring, big data, machine learning
    JEL: E2 G2 N2
    Date: 2020–02
  7. By: Daniel Bj\"orkegren; Burak Ceyhun Karaca
    Abstract: Governments spend billions of dollars subsidizing the adoption of different goods. However, it is difficult to gauge whether those goods are resold, or are valued by their ultimate recipients. This project studies a program to subsidize the adoption of mobile phones in one of the poorest countries in the world. Rwanda subsidized the equivalent of 8% of the stock of mobile phones for select rural areas. We analyze the program using 5.3 billion transaction records from the dominant mobile phone network. Transaction records reveal where and how much subsidized handsets were ultimately used, and indicators of resale. Some subsidized handsets drifted from the rural areas where they were allocated to urban centers, but the subsidized handsets were used as much as handsets purchased at retail prices, suggesting they were valued. Recipients are similar to those who paid for phones, but are highly connected to each other. We then simulate welfare effects using a network demand system that accounts for how each person's adoption affects the rest of the network. Spillovers are substantial: 73-76% of the operator revenue generated by the subsidy comes from nonrecipients. We compare the enacted subsidy program to counterfactual targeting based on different network heuristics.
    Date: 2020–02
  8. By: Marko Köthenbürger
    Abstract: Tech giants such as Google and Facebook generate significant amounts of advertising income, which is mainly reported in low-tax countries. This has created a policy discussion of how to re-align the location of value creation and taxation. The success of the business model of these digital platforms relies on the existence of indirect network effects, which are the prime reason why platforms exist and generate advertising income. To account for these effects, conventional tax policy needs to be adjusted. This includes an adjusted concept of nexus that should rely on the location of users, which generate the relevant indirect network effects. The recent EU proposal of a digital service tax goes in this direction and constitutes a policy option for other countries.
    Date: 2020
  9. By: Marc Bourreau; Marianne Lumeau; Francois Moreau; Jordana Viotto da Cruz
    Abstract: The emergence of online providers aggregating illegal content from streaming platforms is rekindling the debate about online piracy. In the past, the discussion mainly focused on the impact of piracy in content industries and the effect of anti-piracy measures. But little is known about one crucial aspect of piracy: consumers’ motivations to use illegal channels. Yet, understanding consumers’ behavior could help practitioners and policymakers to allocate their resources better to fight online piracy. In this paper, we fill this gap by focusing on two main motives for the illegal consumption of online content: paying lower (zero) prices and having access to content that is not available in legal channels. To disentangle the role of each motivation in consumers’ choice, we ran a laboratory experiment with real consumption, a methodology that provides participants with incentives to reveal their true preferences about consumption while controlling for the choice environment and the consideration set. Our results suggest that consumers turn to illegal channels primarily to save on the price of content, and that they are less sensitive to the availability of content in legal and illegal channels. We discuss the implications of our findings for practitioners and policymakers.
    Keywords: piracy, digitization, movies, free, release windows, experiment
    Date: 2019
  10. By: El Hadi Caoui
    Abstract: This paper studies the decentralized adoption of a technology standard when network effects are present. If the new standard is incompatible with the current installed base, adoption may be inefficiently delayed. I quantify the magnitude of “excess inertia” in the switch of the movie distribution and exhibition industries from 35mm film to digital. I specify and estimate a dynamic game of digital hardware adoption by theaters and digital movies supply by distributors. Counterfactual simulations establish that excess inertia reduces surplus by 19% relative to the first-best adoption path; network externalities explain 29% of the surplus loss.
    Keywords: technology adoption, network effects, movie industry
    JEL: L82 L86 O33
    Date: 2019
  11. 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]); Marius Frunza (Schwarzthal Kapital, Labex ReFi - UP1 - Université Panthéon-Sorbonne)
    Abstract: The aim of this research is to explore the econometric features of Bitcoin-USD rates. Various non-Gaussian models are fitted to daily returns in order to underline the unique characteristics of Bitcoin when compared to other more traditional currencies. Market efficiency hypothesis is tested further, and the main reasons for breaches in efficiency are discussed. The main goal of the paper is to assess the presence of bubble effects in this market with customized tests able to detect the timing of various bubbles. The results show that the Bitcoin prices had two episodes of rapid inflation in 2014 and 2017.
    Keywords: timeseries modeling,market efficiency,bubbles,Bitcoin,crypto-currencies
    Date: 2018–04
  12. By: Paolo Giudici (Università di Pavia); Thomas Leach (Università di Pavia); Paolo Pagnottoni (Università di Pavia)
    Abstract: The paper aims to assess, from an empirical viewpoint, the advantages of a stablecoin whose value is derived from a basket of underlying currencies, against a stablecoin which is pegged to the value of one major currency, such as the dollar. To this aim, we ?rst ?nd the optimal weights of the currencies that can comprise our basket. We then employ volatility spillover decomposition methods to understand which foreign currency mostly drives the others. We then look at how the stability of either stablecoin is affected by currency shocks, by means of VAR models and impulse response functions. Our empirical ?ndings show that our basket based stablecoin is less volatile than all single currencies. This results is fundamental for policy making, and especially for emerging markets with a high level of remittances: a librae (basket based stable coin) can preserve their value during turbolent times better than a libra (single currency based stable coin).
    Keywords: : Cryptocurrencies; Fintech; Stablecoins; Spillover; Variance decomposition.
    JEL: C01 C32 C58 G21 G32
    Date: 2020–02
  13. By: Lopez, Claude; Bendix, Joseph; Servin, Cesar
    Abstract: The launch of the Bahrain FinTech Bay in 2018 was a significant step for Bahrain toward becoming a technology and innovation hub. It continues to develop its infrastructure to enable the developments using Fourth Industrial Revolutionrelevant technology while updating the corporate governance framework in an attempt to curtail investor uncertainty and exposure in the region. Bahrain differentiates itself from its larger neighbors by highlighting its well-trained population and low cost of living and running a business. This report shows that these factors, combined with an innovative regulatory environment, attract a more diversified pool of foreign investors, especially venture capital and other alternative financial investors in sectors such as information and technology or tourism. However, the recent emphasis on startups and technology brings challenges that could threaten the resilience of the new Bahraini economic model. First, most of the firms created have fewer than 10 employees, while Bahrain needs more medium sized companies to reach its economic goals. Second, the size of Bahrain’s labor market will not be able to accommodate the increasing demand for highly skilled workers. Third, the transition to a digitalized economy and its new requirements can be costly for existing firms, especially the smaller ones, which are the majority. Moving forward, these challenges could be alleviated by: - Helping micro firms grow. - Removing the remaining obstacles in hiring foreign workers in sectors where the qualified local labor supply is weak. - Ensuring that wages in the private sector are competitive. - Educating smaller firms on existing services that can help them transition to the digitalization of the economy. Finally, Bahrain’s ambition to become a technology, innovation, and talent hub could play a significant role in the region if the Gulf Cooperation Council (GCC) countries were to strengthen their economic coordination.
    Keywords: Bahrain, Capital flows, Reforms,competitiveness, technology
    JEL: F0 F1 F3 F6 H5
    Date: 2020–01
  14. By: Olga, Kuznetsova; Anna, Zakharkina; Lab, SDAG
    Abstract: Introduction. Taking into account the priorities of the state policy in the field of economic and innovative development of the Perm region, assessment of the regional potential of the digital economy, the strategic importance of economic activities implemented by SMEs for the economy of the region and the country as a whole, the actual impact of the norms on the instruments of development of small and medium-sized enterprises in the Perm region is assessed. The purpose of this study is to improve the regional regulatory platform of tools for the development of small and medium-sized businesses in the Perm region in order to gain the status of an investment-attractive region in the digital economy of the Russian Federation, taking into account the Strategy of the information society in the Russian Federation, which will ultimately contribute to the development of e-business in the Perm region, rehabilitation and competitiveness of the economy of the Perm region in the global market. Methodology. The General methodological basis of the study was the dialectical- materialistic method of cognition of legal reality, which allowed to study the tools of development of small and medium-sized businesses in the Perm region in their development, to consider the problems of tools for the integrated development of small and medium-sized businesses in the Perm region, taking into account the changed socio-economic conditions in inseparable unity with other related tools relevant to the needs of digitalization of society. Such universal scientific methods as analysis and synthesis of doctrinal and normative materials were used in the work. In addition, special legal methods were used: the method of legal modeling, which allows to design possible legal situations using digital tools for the development of small and medium- sized businesses in the Perm region; the method of systematic interpretation used in assessing the actual impact of regional norms on the tools of development of small and medium-sized businesses in the Perm region. Results. The article proposes a new tool for the development of SMEs as a regional electronic platform for the promotion of goods, works and services of SMEs in the Perm region. Attention is paid to the level of digital literacy of SMEs and consumers of their goods, works and services: the conclusion about the lack of digital competence. Conclusion. It is necessary to improve the regional regulatory platform taking into account economic trends: it is important to introduce digital competencies everywhere, including at the professional level in relation to SMEs in the Perm region, in order to increase the business activity of young people and other representatives of the working population. As for the actual introduction of new tools for the development of small and medium-sized businesses in the Perm region, we propose that the regional legislator develop a new electronic information platform at the expense of the regional budget to promote goods, works and services sold by SMEs in the Perm region. We believe that the measures proposed by us to enhance the economic activity of SMEs can be perceived by other regions.
    Date: 2019–12–28
  15. By: J. Christina Wang; Charles B. Perkins
    Abstract: FinTech online lending to consumers has grown rapidly in the post-crisis era. As argued by its advocates, one key advantage of FinTech lending is that lenders can predict loan outcomes more accurately by employing complex analytical tools, such as machine learning (ML) methods. This study applies ML methods, in particular random forests and stochastic gradient boosting, to loan-level data from the largest FinTech lender of personal loans to assess the extent to which those methods can produce more accurate out-of-sample predictions of default on future loans relative to standard regression models. To explain loan outcomes, this analysis accounts for the economic conditions faced by a borrower after origination, which are typically absent from other ML studies of default. For the given data, the ML methods indeed improve prediction accuracy, but more so over the near horizon than beyond a year. This study then shows that having more data up to, but not beyond, a certain quantity enhances the predictive accuracy of the ML methods relative to that of parametric models. The likely explanation is that there has been data or model drift over time, so that methods that fit more complex models with more data can in fact suffer greater out-of-sample misses. Prediction accuracy rises, but only marginally, with additional standard credit variables beyond the core set, suggesting that unconventional data need to be sufficiently informative as a whole to help consumers with little or no credit history. This study further explores whether the greater functional flexibility of ML methods yields unequal benefit to consumers with different attributes or who reside in locales with varying economic conditions. It finds that the ML methods produce more favorable ratings for different groups of consumers, although those already deemed less risky seem to benefit more on balance.
    Keywords: FinTech/marketplace lending; supervised machine learning; default prediction
    JEL: C52 C53 C55 G23
    Date: 2019–10–14
  16. By: Benito Arruñada
    Abstract: Recurrent difficulties are delaying what for the time being are still modest applications of blockchain. This paper identifies what value this new technology adds to the contractual and property processes, exploring its potential and analyzing the main difficulties it is facing. Paying particular attention to the distinction between contract (personal or in personam) rights and property (real or in rem) rights, it first examines the difficulties for trading contract rights through blockchain-based applications, mainly those to complete contracts ex ante without relying on third-party enforcers. Second, it explores the difficulties faced by blockchain to enable trade in property rights.
    Keywords: Property rights, enforcement, transaction costs, impersonal exchange, blockchain, distributed ledgers, smart contracts, registries
    JEL: D23 K11 K12 L85 G38 H41 O17 P48
    Date: 2020–02
  17. By: Miglo, Anton
    Abstract: This paper considers a financing problem for an innovative firm that is considering launching a web-based platform. Our model is the first one that analyzes an entrepreneur's choice between security tokens (via a security token offering (STO)) and utility tokens (via initial coin offering (ICO)). The entrepreneur on one hand faces a large degree of demand uncertainty on his product and on the other hand has to deal with incentive problems of professional blockchain participants who contribute to the development and sales of the product. We argue that utility tokens with profit rights are a better option for the firm compared to straight utility tokens or security tokens because they help the firm better deal with both the moral hazard problems (via profit sharing incentives) and demand uncertainty (they help the firm learn the product demand). This finding is consistent with some recent evidence. The paper also generates new predictions that have not been tested sofar.
    Keywords: Entrepreneurial Finance; Blockchain; Initial Coin Offering; Security Token Offering; Moral Hazard; Demand Uncertainty; FinTech
    JEL: D82 G32 L11 L26 M13
    Date: 2020
  18. By: Jesús Fernández-Villaverde; Daniel Sanches; Linda Schilling; Harald Uhlig
    Abstract: The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.
    JEL: E58 G21
    Date: 2020–02
  19. By: Maylis Avaro (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper provides new evidence on the decline of sterling as an international currency, focusing on its role as foreign exchange reserve asset under the Bretton Woods era. Using a unique new dataset on the composition of foreign exchange reserves of central banks, I show that the shift away from the sterling occurred earlier than conventionally supposed for the countries not belonging to the sterling area. The use of sterling has been described as freely chosen, imposed by the Bank of England or negotiated. I argue that the sterling area was a captive market as the Bank of England used capital controls, commercial threats and economic sanctions against sterling area countries to limit the divestments of their sterling assets. This management of the decline of sterling benefited mostly Britain and the City of London but represented a cost for sterling area countries and the international monetary system.
    Keywords: Monetary and financial history; Foreign exchnage; International monetary system
    JEL: N24 F31 E58
    Date: 2020–02–25
  20. 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
  21. By: Röthke, Konstantin; Klumpe, Johannes; Adam, Martin; Benlian, Alexander
    Date: 2020

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