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on Payment Systems and Financial Technology |
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Issue of 2021‒03‒22
nineteen papers chosen by |
| By: | David Chaum; Christian Grothoff; Thomas Moser |
| Abstract: | With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. We do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. We propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preserve transaction privacy, meet regulatory requirements in a compelling way, and offer a level of quantum-resistant protection against systemic privacy risk. Neither monetary policy nor financial stability would be materially affected because a CBDC with this design would replicate physical cash rather than bank deposits. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.00254&r=all |
| By: | Rodriguez Castelan, Carlos (World Bank); Ochoa, Rogelio Granguillhome (World Bank); Lach, Samantha (World Bank); Masaki, Takaaki (World Bank) |
| Abstract: | Mobile broadband internet is the main technology through which individuals access the internet in developing countries. Understanding the barriers to broadband adoption is thus a priority in designing policies aiming to expand access and close the digital divide across socioeconomic groups and territories. This paper exploits data from harmonized household expenditure surveys in seven countries in West Africa in 2018/19 — a subregion with one of the lowest levels of mobile internet penetration in the world — to identify the main factors that limit mobile broadband internet adoption. Results show that low levels of household consumption and prices of services are two key constraints. One standard deviation increase in household expenditure, about US$65 per capita per month, is associated with a 6.5 percentage point rise in the probability of adoption, while one standard deviation drop in the price of mobile internet services, about US$3.60, increases the probability of adoption by 2.4 percentage points. Other determinants include demographic characteristics (sex, age, language, urban location), socioeconomic features (educational attainment, sector of employment), and other factors linked to policy (access to electricity, ownership of assets, alternative means of internet access). Results are robust to specifications focusing only in areas with mobile internet coverage (3G). |
| Keywords: | internet adoption, mobile broadband, household consumption, West Africa |
| JEL: | C25 C52 D12 L86 O55 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14151&r=all |
| By: | Gregor Dorfleitner; Davide Forcella; Quynh Anh Nguyen |
| Abstract: | While the role of digital solutions to foster financial inclusion and the development of the microfinance sector are widely acknowledged, questions concerning the variation in the ability and willingness of microfinance institutions’ (MFIs) adoption of these tools remain unanswered. This paper studies the determinant of the use of digital support solutions in the microfinance sector by using a global sample of MFIs derived from a survey by YAPU Solutions on rural lending and IT solutions. We discover the evidence that suggests the adoption of these tools is consistent with the social performance of MFIs. Furthermore, the results of the study indicate that the profitability of the institutions is associated with a larger application of digital support solutions. Macroeconomic factors, the development of the country in which the institution is located, also impact MFIs’ decisions regarding integrating digital solutions into their services and internal operational processes. |
| Keywords: | Microfinance institutions; Fintech; Digital solutions; Social performance; Digitization |
| JEL: | G21 O33 |
| Date: | 2021–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/320683&r=all |
| By: | Agostino Capponi; Ruizhe Jia |
| Abstract: | We analyze the market microstructure of Automated Market Maker (AMM) with constant product function, the most prominent type of blockchain-based decentralized crypto exchange. We show that, even without information asymmetries, the order execution mechanism of the blockchain-based exchange induces adverse selection problems for liquidity providers if token prices are volatile. AMM is more likely to be adopted for pairs of coins which are stable or of high personal use for investors. For high volatility tokens, there exists a market breakdown such that rational liquidity providers do not deposit their tokens in the first place. The adoption of AMM leads to a surge of transaction fees on the underlying blockchain if token prices are subject to high fluctuations. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.08842&r=all |
| By: | Siegfried, Nils |
| Abstract: | Digital transactions enable individual consumers and organizations to exchange goods and services in an easy and flexible manner, driving market dynamics and promoting new business models. Increased speed in transactions and volatility in market participants, however, come at the downside of frequent evaluations of transaction partners and the need for deliberate decision-making in the light of growing product and service complexity. Digital environments make it harder to inspect products or services, which may rely on critical platforms or infrastructure that are completely hidden from transaction partners but are substantial to service quality. In consequence, information is distributed unequally between transaction partners and measures have to be adopted to overcome this asymmetry to build trust and foster transactions. Certifications are a means to signal true quality between transaction partners by providing information, to which regard specific requirements are fulfilled. In the certification process, an evaluation against a predefined set of criteria is performed and official documentation by a third-party certification authority is provided. By inspecting this documentation, potential transaction partners are provided with introspection into otherwise unobservable aspects of product or service quality. Hence, certifications can help to bridge information asymmetry prior to transactions. While they have been adopted in various contexts and were subject to prior research, understanding about their inner workings is limited and findings on their effectiveness remain inconclusive. The focus of prior research has been on the effect of mere presence vs. absence of certifications. While the findings of these studies helped to understand the effect of certifications as unitary cues, they did not investigate how the particular design of certificates in terms of their assurances influences their effect. Moreover, the results were ambiguous as some could find significant influences on the formation of trust and the intention to transact, while others could not. Besides, another important aspect was hardly covered: the embedding of certification in its environment. This includes characteristics of the transaction parties that perceive a certification, their prior relationship, and the context, in which the certification is used. To contribute to a better understanding of certification effectiveness, incorporating its internal characteristics and external embedding, four research studies have been conducted. The first study provides a literature review on the theoretical frameworks used in existing research on certifications in Information Systems. Study two focuses in detail on certifications and their content, investigating differences in relative importance of assurances between customers and providers in the context of cloud service certifications. Shifting the focus from its content to characteristics of recipients, the third study analyzes how the effect of certification changes, depending on prior experiences in a customer-provider relationship. An online scenario experiment was conducted, simulating e-commerce purchase decisions at different qualities and quantities of prior shopping experience. The fourth study investigates a particular form of certification in the context of the sharing economy. In an online experiment, the role of certification of users’ identity on the formation of trust and intentions to engage in a transaction was analyzed. The findings of these studies enrich the theoretical understanding of certifications in Information Systems in different aspects. Shifting the focus of investigation from certification as a unitary cue to a bundle of assurances, it becomes apparent that one certification can be perceived differently depending on recipient characteristics and the relative importance of assurances. Moreover, the certification’s environment plays an important role towards its effectiveness. Influencing factors as industry, the prior experiences in a provider-customer relationship or the transaction context were identified. Besides, on a research level, the theoretical lenses used to study certification varied in prior research, which may partly explain for ambiguous findings. Overall, this thesis finds that a more fine-grained, context-aware analysis of certifications in Information Systems is beneficial to understand their influence on market participants and to enable better prediction of their effectiveness in practice. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:125604&r=all |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | The article addresses the role market definition can play for EU competition practice in the platform economy. The focus is on intermediaries that bring together two (or more) groups of users whose decisions are interdependent and which therefore are commonly referred to as “two-sided platforms”. We address challenges to market definition that accompany these cross-group network effects, assess current practice in a number of cases with the European Commission and Member States’ competition authorities, and provide guidance on how practice is to be adapted to properly account for the economic forces shaping markets with two-sided platforms. Owing to the complementarities of services provided to the user groups the platforms cater to, the question arises whether and when a single market can be defined that encompasses both sides. We advocate a multi-markets approach that takes account of cross-market linkages, acknowledges the existence of zero-price markets, and properly accounts for the homing behaviour of market participants. |
| Keywords: | antitrust law, EU competition practice, market definition, market power, Market Definition Notice, two-sided platforms, digital markets, network effects, matching platforms, zero-price markets, homing decisions, SSNIP test |
| JEL: | K21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_259&r=all |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | The article addresses the role market definition can play for EU competition practice in the platform economy. The focus is on intermediaries that bring together two (or more) groups of users whose decisions are interdependent and which therefore are commonly referred to as “two-sided platforms”. We address challenges to market definition that accompany these cross-group network effects, assess current practice in a number of cases with the European Commission and Member States’ competition authorities, and provide guidance on how practice is to be adapted to properly account for the economic forces shaping markets with two-sided platforms. Owing to the complementarities of services provided to the user groups the platforms cater to, the question arises whether and when a single market can be defined that encompasses both sides. We advocate a multi-markets approach that takes account of cross-market linkages, acknowledges the existence of zero-price markets, and properly accounts for the homing behaviour of market participants. |
| Keywords: | antitrust law, EU competition practice, market definition, market power, Market Definition Notice, two-sided platforms, digital markets, network effects, matching platforms, zero-price markets, homing decisions, SSNIP test |
| JEL: | K21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_259v2&r=all |
| By: | Yang, Junhong (Asian Development Bank Institute); Wu, Yu (Asian Development Bank Institute); Huang, Bihong (Asian Development Bank Institute) |
| Abstract: | Using the 2015 and 2017 waves of the China Household Finance Survey, we measured financial literacy and study its relationship to households’ demand for digital finance. We found that a majority of households in the People’s Republic of China possess limited financial literacy. The low level of financial sophistication is responsible for the low usage of digital finance among Chinese households. Further, the positive impact of financial literacy on digital finance is more pronounced for wealthy, high-income, and young households, women, and households in urban and coastal areas. Our results are robust to using a variety of specifications and controlling for endogeneity, peer effects, cognition, and voluntary self-exclusion. |
| Keywords: | financial literacy; digital finance; household finance; CHFS; People’s Republic of China |
| JEL: | D10 D83 D91 G11 |
| Date: | 2020–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1209&r=all |
| By: | Thomas Puschmann (University of Zurich); Christian Hoffmann (University of Zurich - Department of Banking and Finance); Valentyn Khmarskyi (University of Zurich, Department of Banking and Finance, Students) |
| Abstract: | The financial services industry is currently undergoing a major transformation, with digitization and sustainability being the core drivers. While both concepts have been researched in recent years, their intersection, often conceived as “green FinTech,” remains under-determined. Therefore, this paper contributes to this important discussion about green FinTech by, first, synthesizing the relevant literature systematically. Second, it shows the results of an empirical, in-depth analysis of the Swiss FinTech landscape both in terms of green FinTech startups as well as the services offered by the incumbents. The research results show that literature in this new domain has only emerged recently, is mostly characterized by a specific focus on isolated aspects of green FinTech and does not provide a comprehensive perspective on the topic yet. In addition, the results from the literature and the market analysis indicate that green FinTech has an impact along the whole value chain of financial services covering customer-to-customer (c2c), business-to-customer (b2c), and business-to-business (b2b) services. Today the field is predominantly captured by startup companies in contrast to the incumbents whose solutions are still rare. |
| Keywords: | sustainability; FinTech; InsurTech; green FinTech; climate change; digital transformation |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2120&r=all |
| By: | Steve J. Bickley; Alison Macintyre; Benno Torgler |
| Abstract: | The recent acceleration and ongoing development in Artificial Intelligence (AI) and its related (and/or enabling) digital technologies presents new challenges and considerable opportunity on which businesses and individuals may capitalise. In the era of BD – and with increasing societal value being placed on sustainable business to minimise or mitigate the impacts of climate change – customers and regulators alike are turning to organizations to tackle large and complex sustainable development goals. AI and BD can help interpret and monitor the environment, identify which problems need attention, design strategies, generate decisions, and action the tactics. A key challenge in sustainable entrepreneurship is a failure to integrate ‘systems thinking’ beyond a limited number of issues, rather than taking the time to understand the relationship between business processes, macro ecological processes, boundary conditions, and tipping points. The recent and substantial increase in data availability simultaneously advances the potential for AI and BD to enhance ecological sustainability through validation and testing of beliefs and hunches, offering empirical guidance to every stage involved in decision making, and comparing inputs against the outcomes – particularly in fast-changing and highly uncertain environments. To prepare, we must strategize by looking to and engaging with the market, our clients, and our customers for guidance. Only then can we then proceed to develop viable and sustainable business models and plans. To reap the rewards of progress in AI, BD, and related technologies, we need to find ways to race with the emerging technologies while also identifying ways to act in symbiosis with them. The demands of adapting to AI and BD are no different from the situation with past disruptive technologies such as the automobile, radio, and the Internet. |
| Keywords: | Artificial Intelligence; Big Data; Entrepreneurship; Sustainability; Expert Systems |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2021-11&r=all |
| By: | Sharon Chen; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Hyun Song Shin |
| Abstract: | Fintech promises to spur financial inclusion and close the gender gap in access to financial services. Using novel survey data for 28 countries, this paper finds a large 'fintech gender gap': while 29% of men use fintech products and services, only 21% of women do. The gap is present in almost every country in our sample. Country characteristics and several individual-level controls explain about a third of the unconditional gap. Gender differences in the willingness to use new financial technology or fintech entrants if they offer cheaper services account for over half of the remaining gap. The paper concludes by suggesting potential explanations for the gender gap and implications for challenges in fostering financial inclusion with new technology. |
| Keywords: | fintech, gender, financial inclusion, personal data, privacy |
| JEL: | E51 J16 O32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:931&r=all |
| By: | Gürtzgen, Nicole; Lochner, Benjamin; Pohlan, Laura; van den Berg, Gerard J. |
| Abstract: | This paper studies the effects of the high-speed internet expansion on the match quality of new hires. They combine data on internet availability at the local level with German individual register and vacancy data. Results show that internet availability has no major impact on the stability of new matches and their wages. The authors confirm these findings using vacancy data, by explicitly comparing match outcomes of online and non-online recruits. Further results show that online recruiting not only raises the number of applicants and the share of unsuitable candidates per vacancy, but also induces employers to post more vacancies. |
| Keywords: | Matching,online search,information frictions,recruiting channels |
| JEL: | J64 H40 L96 C26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21002&r=all |
| By: | Christensen, Peter (University of Illinois); Osman, Adam (University of Illinois at Urbana-Champaign) |
| Abstract: | Changes in transport costs can affect mobility in ways that differ across the population, affecting the impacts of transport policies. We randomly assign large price reductions on Uber in Egypt over a 3-month period and collect comprehensive data on participant mobility using Google Timeline. A 50% price reduction quadruples Uber usage and induces a 42% increase in total travel. Effects and welfare gains are larger for women, who are less mobile at baseline and perceive public transit as unsafe. The price elasticity of private vehicle kilometers traveled (-1.28) implies that mobility and external costs increase substantially when ride-hailing prices fall. |
| Keywords: | travel demand, travel safety, ride-hailing, mobility on demand |
| JEL: | J16 J28 J61 Q55 R48 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14179&r=all |
| By: | Garriga, Ana Carolina; Meseguer, Covadonga |
| Abstract: | How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the ‘impossible trinity’, increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments’ incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument. |
| Keywords: | Remittances; central bank independence; exchange rate regimes; autocracies; developing countries |
| JEL: | F3 G3 |
| Date: | 2019–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101372&r=all |
| By: | Michael Reiss |
| Abstract: | The question of how a pure fiat currency is enforced and comes to have a non-zero value has been much debated \cite{10.2307/2077948}. What is less often addressed is, in the case where the enforcement is taken for granted and we ask what value (in terms of goods and services) the currency will end up taking. Establishing a decentralised mechanism for price formation has proven a challenge for economists: "Since no decentralized out-of-equilibrium adjustment mechanism has been discovered, we currently have no acceptable dynamical model of the Walrasian system" (Gintis 2006). In his paper, Gintis put forward a model for price discovery based on the evolution of the model's agents, i.e. "poorly performing agents dying and being replaced by copies of the well performing agents." It seems improbable that this mechanism is the driving force behind price discovery in the real world. This paper proposes a more realistic mechanism and presents results from a corresponding agent based model. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.05556&r=all |
| By: | Federica Rossi (Birkbeck, University of London, UK); Ana Colovic (NEOMA Business School, France); Annalisa Caloffi (University of Florence, Italy); Margherita Russo (University of Modena and Reggio Emilia, Italy) |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:img:wpaper:49&r=all |
| By: | Alexandra Valeria Sandor (Doctoral School of Sociology, Hungary) |
| Abstract: | Social media is a diverse and dynamically evolving online space that consists of multiple platforms. These social media platforms have become part of the daily lives of many and have grown into important venues of interaction. The ability to cross geographical and cultural borders and the interchangeable roles of sender and recipient (as opposed to conventional mass communications patterns) are two essential features of social media. This pilot study intends to provide an overview of changes that have occurred in self-representation on social media and their possible connection to mental health among Hungarian users using an online questionnaire conducted during two lockdowns in the first and second waves of the COVID-19 pandemic. The results of this two-step survey indicate that the use of social media and self-representation in social media posts increased during the lockdown periods, with selfies being the most popular type of content shared. In addition, signs of major depression were more prevalent among social media users who shared photos or videos of themselves or their close relations at least once a day on Messenger, the platform on which willingness to share this type of content increased the most during the lockdowns. |
| Keywords: | COVID-19, self-representation, social media, sociology, social psychology |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:smo:conswp:036as&r=all |
| By: | Hong Cheng; Lukasz A. Drozd; Rahul Giri; Mathieu Taschereau-Dumouchel; Junjie Xia |
| Abstract: | We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. We calibrate the model and show that the general equilibrium implications of this elasticity are consistent with the aggregate trends during our sample period. |
| Keywords: | labor share; labor’s share in income; automation; labor demand; industrial robots |
| JEL: | D33 E25 O33 J23 J24 E24 O25 |
| Date: | 2021–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:90188&r=all |
| By: | Sanguinetti, Angela; Amenta, Nina |
| Abstract: | This study explores the potential to promote lower-emissions air travel by providing consumers with information about the carbon emissions of alternative flight choices in the context of online flight search and booking. We surveyed over 450 employees of the University of California, Davis, asking them to choose among hypothetical flight options for university-related business trips. Emissions estimates for flight alternatives were prominently displayed alongside cost, layovers and airport, and the lowest-emissions flight was labeled “Greenest Flight”. We found an impressive rate of willingness to pay for lower-emissions flights: around $200/ton of CO2E saved, a magnitude higher than that seen in carbon offsets programs. In a second step of analysis, we estimated the carbon and cost impacts if the university were to adopt a flight-search interface that prioritizes carbon emissions information and displays alternatives from multiple regional airports in their employee travel-booking portal. We estimated potential annual savings of 79 tons of CO2E, while reducing airfare costs by $56,000, mainly due to an increased willingness of travelers to take advantage of cheaper nonstop (lower-emissions) flights from a more distant airport in the region over indirect flights from their preferred airport for medium-distance flights. Institutionalizing this “nudge” within organizations with large travel budgets could have an industry-wide impact in aviation. |
| Keywords: | Social and Behavioral Sciences, Carbon Emissions, Air Travel, Flight Search, Interface Design, Online Travel Booking |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt70d421zg&r=all |