nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2021‒11‒15
nineteen papers chosen by

  1. The Economic Dependency of the Bitcoin Security By Pavel Ciaian; d'Artis Kancs; Miroslava Rajcaniova
  2. Interdependencies between Mining Costs, Mining Rewards and Blockchain Security By Pavel Ciaian; d'Artis Kancs; Miroslava Rajcaniova
  3. Going Cashless: Evidence from Japan’s Point Reward Program By Toshitaka Sekine; Toshiaki Shoji; Tsutomu Watanabe
  4. Why Did Small Business Fintech Lending Dry Up during March 2020? By Ben-David, Itzhak; Johnson, Mark J.; Stulz, Rene M.
  5. Online Consumption During and After the COVID-19 Pandemic: Evidence from Japan By Tsutomu Watanabe; Yuki Omori
  6. Testing macroecological theories in cryptocurrency market: neutral models can not describe diversity patterns and their variation By Edgardo Brigatti; Estevan Augusto Amazonas Mendes
  7. Lock-In Effects in Online Labor Markets By Fabrizio Ciotti; Lars Hornuf; Eliza Stenzhorn
  8. Promise not Fulfilled: FinTech Data Privacy, and the GDPR By Gregor Dorfleitner; Lars Hornuf; Julia Kreppmeier
  9. A Model for Central Bank Digital Currencies: Implications for Bank Funding and Monetary Policy By Schiller, Jonathan; Gross, Jonas
  10. Merger Review Regimes in the ASEAN Region and Case Analysis of Grab-Uber Merger By Jang, Yungshin; Kang, Gu Sang
  11. Foundations of Transaction Fee Mechanism Design By Hao Chung; Elaine Shi
  12. Forecasting Inflation and Output Growth with Credit-Card-Augmented Divisia Monetary Aggregates By Barnett, William; Park, Sohee
  13. An online sequential test for qualitative treatment effects By Shi, Chengchun; Luo, Shikai; Zhu, Hongtu; Song, Rui
  14. Know Your Customer: Relationship Lending and Bank Trading By Haselmann, Rainer; Leuz, Christian; Schreiber, Sebastian
  15. The Case for a Normatively Charged Approach to Regulating Shadow Banking - Multipolar Regulatory Dialogues as a Means to Detect Tail Risks and Preclude Regulatory Arbitrage By Thiemann, Matthias; Tröger, Tobias
  16. Venture Capital-backed Firms, Unavoidable Value-destroying Trade Sales, and Fair Value Protections By Nigro, Casimiro Antonio; Stahl, Jörg R.
  17. Couples in lockdown, ”La vie en rose” ? Evidence from France By Francesca Marchetta; Hugues Champeaux
  18. Effect of Social Networks and Performance of Young Women Agribusiness Owners in a Developing Country: The Moderating Effect of Business Environment By Dossou, Smith A.R.; Aoudji, Augustin K. N.; Vissoh, Pierre; Zannou, Afio
  19. Mark my words: the transmission of central bank communication to the general public via the print media By Munday, Tim; Brookes, James

  1. By: Pavel Ciaian; d'Artis Kancs; Miroslava Rajcaniova
    Abstract: We study to what extent the Bitcoin blockchain security permanently depends on the underlying distribution of cryptocurrency market outcomes. We use daily blockchain and Bitcoin data for 2014-2019 and employ the ARDL approach. We test three equilibrium hypotheses: (i) sensitivity of the Bitcoin blockchain to mining reward; (ii) security outcomes of the Bitcoin blockchain and the proof-of-work cost; and (iii) the speed of adjustment of the Bitcoin blockchain security to deviations from the equilibrium path. Our results suggest that the Bitcoin price and mining rewards are intrinsically linked to Bitcoin security outcomes. The Bitcoin blockchain security’s dependency on mining costs is geographically differenced – it is more significant for the global mining leader China than for other world regions. After input or output price shocks, the Bitcoin blockchain security reverts to its equilibrium security level.
    Keywords: Bitcoin, blockchain, proof-of-work, ARDL, institutional governance technology
    JEL: D82 G12 G15 G29
    Date: 2021–01–01
  2. By: Pavel Ciaian; d'Artis Kancs; Miroslava Rajcaniova
    Abstract: This paper studies to what extent the cost of operating a proof-of-work blockchain is intrinsically linked to the cost of preventing attacks, and to what extent the underlying digital ledger’s security budgets are correlated with the cryptocurrency market outcomes. We theoretically derive an equilibrium relationship between the cryptocurrency price, mining rewards and mining costs, and blockchain security outcomes. Using daily crypto market data for 2014–2021 and employing the autoregressive distributed lag approach – that allows treating all the relevant moments of the blockchain series as potentially endogenous – we provide empirical evidence of cryptocurrency price and mining rewards indeed being intrinsically linked to blockchain security outcomes.
    Keywords: Cryptocurrency, ARDL, blockchain, proof-of-work, security budget, institutional governance technology, network externalities
    JEL: D82 E42 G12 G15 G18 G29
    Date: 2021–02–02
  3. By: Toshitaka Sekine (Hitotsubashi University); Toshiaki Shoji (Seikei University); Tsutomu Watanabe (University of Tokyo)
    Abstract: In October 2019, the Japanese government started a unique program that offered points (discounts) for cashless payments. Using credit card transaction data, we compare credit card usage at restaurants that participated in this program and those that did not. Our main findings are as follows. First, the number of card users was 9- 12 percent higher in participating than in non-participating restaurants. Second, the positive impact of the program on the number of card users persisted even after the program ended in June 2020, indicating that the program had a lasting effect to promote cashless payments. Third, the impact of the program was significantly larger at restaurants that started accepting credit cards more recently, since the share of cash users at those restaurants was larger just before the program started. Finally, two-thirds of the difference between participating and non-participating restaurants disappeared during the first surge of COVID-19 in April 2020, suggesting that customers switched from cash to cashless payments to reduce the risk of infection both at participating and non-participating restaurants, but the extent to which customers switched was larger at non-participating restaurants with a larger share of cash users just before the pandemic.
    Keywords: Cash and cashless payments, technology adoption, promotion program, COVID-19
    JEL: E42 O33 O38
    Date: 2021–11
  4. By: Ben-David, Itzhak (Ohio State University and NBER); Johnson, Mark J. (Brigham Young University); Stulz, Rene M. (Ohio State University and European Corporate Governance Institute)
    Abstract: With the onset of the COVID-19 crisis in March 2020, small business lending through fintech lenders collapsed. We explore the reasons for the market shutdown using detailed data about loan applications, offers, and take-up from a major small business fintech credit platform. We document that while the number of loan applications increased sharply early in March 2020, the supply of credit collapsed as online lenders dropped from the platform and the likelihood of applicants receiving loan offers fell precipitously. Our analysis shows that the drying up of the loan supply is most consistent with fintech lenders becoming financially constrained and losing their ability to fund new loans.
    JEL: G11 G21 G33
    Date: 2021–08
  5. By: Tsutomu Watanabe (Graduate School of Economics, University of Tokyo); Yuki Omori (Nowcast Inc.)
    Abstract: The spread of COVID-19 infections has led to substantial changes in consumption patterns. While demand for services that involve face-to-face contact has decreased sharply, online consumption of goods and services, such as through e-commerce, is increasing. The aim of this paper is to investigate whether online consumption will continue to increase even after COVID-19 subsides. Online consumption requires upfront costs, which have been regarded as one of the factors inhibiting the diffusion of online consumption. However, if many consumers made such upfront investments due to the pandemic, they would have no reason to return to offline consumption after the pandemic has ended. We examine whether this was actually the case using credit card transaction data. Our main findings are as follows. First, the main group responsible for the increase in online consumption are consumers who were already familiar with it before the pandemic. These consumers increased the share of online spending in their overall spending. Second, some consumers that had never used the internet for purchases before started to do so due to COVID-19. However, the fraction of consumers making this switch was not very different from the trend before the crisis. Third, by age group, the switch to online consumption was more pronounced among youngsters than seniors. These findings suggest that it is not the case that during the pandemic a large number of consumers made the upfront investment necessary to switch to online consumption, so a certain portion of the increase in online consumption is likely to fall away again once COVID-19 subsides.
    Date: 2021–11
  6. By: Edgardo Brigatti; Estevan Augusto Amazonas Mendes
    Abstract: We develop an analysis of the cryptocurrency market borrowing methods and concepts from ecology. This approach makes it possible to identify specific diversity patterns and their variation, in close analogy with ecological systems, and to characterize the cryptocurrency market in an effective way. At the same time, it shows how non-biological systems can have an important role in contrasting different ecological theories and in testing the use of neutral models. The study of the cryptocurrencies abundance distribution and the evolution of the community structure strongly indicates that these statistical patterns are not consistent with neutrality. In particular, the necessity to increase the temporal change in community composition when the number of cryptocurrencies grows, suggests that their interactions are not necessarily weak. The analysis of the intraspecific and interspecific interdependency supports this fact and demonstrates the presence of a market sector influenced by mutualistic relations. These latest findings challenge the hypothesis of weakly interacting symmetric species, the postulate at the heart of neutral models.
    Date: 2021–11
  7. By: Fabrizio Ciotti; Lars Hornuf; Eliza Stenzhorn
    Abstract: This article reports on an investigation of the role of lock-in exploitation and the impact of reputation portability on workers’ switching behaviors in online labor markets. Online platforms using reputation mechanisms typically prevent users from transferring their ratings to other platforms, inducing lock-in effects and high switching costs and leaving users vulnerable to platform exploitation. With a theoretical model, in which workers in online labor markets are locked-in by their reputational data, we test the effects using an online lab-in-the-field decision experiment. In addition to comparing a policy regime with and without reputation portability, we vary lock-in exploitation using platform fees to consider how switching behavior might differ according to monetary motives and fairness preferences. Theoretically, this study reveals how reputational investments can produce switching costs that platforms can exploit. Experimentally, the results suggest that reputation portability mitigates lock-in effects, making users less susceptible to lock-in exploitation. The data further show that switching is driven primarily by monetary motives, but perceiving the fee as unfair also has a significant role.
    Keywords: crowdsourcing, online markets, online labor, reputation portability, switching costs
    JEL: J24 D91 L51
    Date: 2021
  8. By: Gregor Dorfleitner; Lars Hornuf; Julia Kreppmeier
    Abstract: This article analyzes how the General Data Protection Regulation (GDPR) has affected the privacy practices of FinTech firms. We study the content of 308 privacy statements respectively before and after the GDPR became binding. Using textual analysis methods, we find that the readability of the privacy statements has decreased. The texts of privacy statements have become longer and use more standardized language, resulting in worse user comprehension. This calls into question whether the GDPR has achieved its original goal—the protection of natural persons regarding the processing of personal data. We also analyze the content of privacy statements and link it to company- and industry-specific determinants. Before the GDPR became binding, more external investors and a higher legal capital were related to a higher quantity of data processed and more transparency, but not thereafter. Finally, we document mimicking behavior among industry peers with regard to the data processed and transparency.
    Keywords: data privacy, FinTech, General Data Protection Regulation, privacy statement, textual analysis, financial technology
    JEL: K20 L81
    Date: 2021
  9. By: Schiller, Jonathan; Gross, Jonas
    JEL: E42
    Date: 2021
    Abstract: In 2018, the largest yet cross-border M&A deal between digital platforms in Southeast Asia was reached, namely the Grab-Uber M&A case. The local digital platform Grab consolidated the regional operations of San Francisco, California-based Uber, a development which had significant effects on competition and consumer welfares in the Southeast Asia digital market. The competition authorities in the region independently initiated their investigation and started to deliberate the merger case to determine the anti-competitive effects on their domestic market, and to decide whether this transaction should be restricted or approved. Even though the two merging and merged firms completed their transactions, each authority applied different logic and imposed different remedies in deciding the case. Authorities in some member states such as Singapore and the Philippines decided that the Grab-Uber merger was anti-competitive, while others such as Indonesia and Viet Nam considered the merger not anti-competitive. Upon this backdrop, this article reviews the competition policies and laws of four major ASEAN countries – Indonesia, Singapore, Viet Nam, and the Philippines – from institutional and legal perspectives, focusing on M&A review regimes. Then, we briefly introduce how these com-petition authorities decided on the Grab-Uber merger case, also analyzing the competition effects of the case on the ride-hailing market in the countries. Based on the analysis results, we propose overseas competition policies for Korea.
    Keywords: ASEAN; Grab-Uber; merger; M&A; Southeast Asia; Indonesia; Singapore; Viet Nam; the Philippines
    Date: 2021–09–03
  11. By: Hao Chung; Elaine Shi
    Abstract: In blockchains such as Bitcoin and Ethereum, users compete in a transaction fee auction to get their transactions confirmed in the next block. A line of recent works set forth the desiderata for a "dream" transaction fee mechanism (TFM), and explored whether such a mechanism existed. A dream TFM should satisfy 1) user incentive compatibility (UIC), i.e., truthful bidding should be a user's dominant strategy; 2) miner incentive compatibility (MIC), i.e., the miner's dominant strategy is to faithfully implement the prescribed mechanism; and 3) miner-user side contract proofness (SCP), i.e., no coalition of the miner and one or more user(s) can increase their joint utility by deviating from the honest behavior. The weakest form of SCP is called 1-SCP, where we only aim to provide resilience against the collusion of the miner and a single user. Sadly, despite the various attempts, to the best of knowledge, no existing mechanism can satisfy all three properties in all situations. Since the TFM departs from classical mechanism design in modeling and assumptions, to date, our understanding of the design space is relatively little. In this paper, we further unravel the mathematical structure of transaction fee mechanism design by proving the following results: - Can we have a dream TFM? - Rethinking the incentive compatibility notions. - Do the new design elements make a difference?
    Date: 2021–11
  12. By: Barnett, William; Park, Sohee
    Abstract: This paper investigates the performance of the Credit-Card-Augmented Divisia monetary aggregates in forecasting U.S. inflation and output growth at the 12-month horizon. We compute recursive and rolling out-of-sample forecasts using an Autoregressive Distributed Lag (ADL) model based on Divisia monetary aggregates. We use the three available versions of those monetary aggregate indices, including the original Divisia aggregates, the credit card-augmented Divisia, and the credit-card-augmented Divisia inside money aggregates. The source of each is the Center for Financial Stability (CFS). We find that the smallest Root Mean Square Forecast Errors (RMSFE) are attained with the credit-card-augmented Divisia indices used as the forecast indicators. We also consider Bayesian vector autoregression (BVAR) for forecasting annual inflation and output growth.
    Keywords: Divisia, credit-card-augmented Divisia, monetary aggregates, forecasting, Bayesian vector autoregression, inflation, output growth.
    JEL: C32 C53 E31 E47 E51
    Date: 2021–10–19
  13. By: Shi, Chengchun; Luo, Shikai; Zhu, Hongtu; Song, Rui
    Abstract: Tech companies (e.g., Google or Facebook) often use randomized online experiments and/or A/B testing primarily based on the average treatment effects to compare their new product with an old one. However, it is also critically important to detect qualitative treatment effects such that the new one may significantly outperform the existing one only under some specific circumstances. The aim of this paper is to develop a powerful testing procedure to efficiently detect such qualitative treatment effects. We propose a scalable online updating algorithm to implement our test procedure. It has three novelties including adaptive randomization, sequential monitoring, and online updating with guaranteed type-I error control. We also thoroughly examine the theoretical properties of our testing procedure including the limiting distribution of test statistics and the justification of an efficient bootstrap method. Extensive empirical studies are conducted to examine the finite sample performance of our test procedure.
    JEL: C1
    Date: 2021–10–27
  14. By: Haselmann, Rainer; Leuz, Christian; Schreiber, Sebastian
    Abstract: In this study, we analyze the trading behavior of banks with lending relationships. We combine detailed German data on banks' proprietary trading and market making with lending information from the credit register and then examine how banks trade stocks of their borrowers around important corporate events. We find that banks trade more frequently and also profitably ahead of events when they are the main lender (or relationship bank) for the borrower. Specifically, we show that relationship banks are more likely to build up positive (negative) trading positions in the two weeks before positive (negative) news events, and also that they unwind these positions shortly after the event. This trading pattern is more pronounced for unscheduled earnings events, M&A transactions, and after borrower obtain new bank loans. Our results suggest that lending relationships endow banks with important information, highlighting the potential for conflicts of interest in banking, which has been a prominent concern in the regulatory debate.
    Date: 2021
  15. By: Thiemann, Matthias; Tröger, Tobias
    Abstract: This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.
    Keywords: shadow banking,regulatory arbitrage,principles-based regulation,credit funds,prudential supervision,non-bank financial intermediation
    JEL: G21 G28 H77 K22 K23 L22
    Date: 2020
  16. By: Nigro, Casimiro Antonio; Stahl, Jörg R.
    Abstract: This paper investigates the implications of the fair value protections contemplated by the standard corporate contract (i.e., the standard contract form for which corporate law provides) for the entrepreneur-venture capitalist relationship, focusing, in particular, on unavoidable value-destroying trade sales. First, it demonstrates that the typical entrepreneur-venture capitalist contract does institutionalize the venture capitalist's liquidity needs, allowing, under some circumstances, for counterintuitive instances of contractually-compliant value destruction. Unavoidable value-destroying trade sales are the most tangible example. Next, it argues that fair value protections can prevent the entrepreneur and venture capitalist from allocating the value that these transactions generate as they would want. Then, it shows that the reality of venture capital-backed firms calls for a process of adaptation of the standard corporate contract that has one major step in the deactivation or re-shaping of fair value protections. Finally, it argues that a standard corporate contract aiming to promote social welfare through venture capital should feature flexible fair value protections
    Keywords: Private equity,Venture capital,Start-ups,Entrepreneurship,Innovation,Corporate governance,Private ordering,Drag-along rights,Trade sales,Corporate law,Fair value,Appraisal rights,Law and economics,Law and finance
    JEL: K22 M13
    Date: 2020
  17. By: Francesca Marchetta (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Hugues Champeaux
    Date: 2021–10–04
  18. By: Dossou, Smith A.R.; Aoudji, Augustin K. N.; Vissoh, Pierre; Zannou, Afio
    Keywords: Agribusiness, Labor and Human Capital
    Date: 2021–08
  19. By: Munday, Tim (University of Oxford); Brookes, James (Bank of England)
    Abstract: We ask how central banks can change their communication in order to receive greater newspaper coverage. We write down a model of news production and consumption in which news generation is endogenous because the central bank must draft its communication in such a way that newspapers choose to report it, while still retaining the message the central bank wishes to convey to the public. We use our model to show that standard econometric techniques that correlate central bank text with measures of news coverage in order to determine what causes central bank communication to be reported on will likely prove to be biased. We use techniques from computational linguistics combined with an event-study methodology to measure the extent of news coverage a central bank communication receives, and the textual features that might cause a communication to be more (or less) likely to be considered newsworthy. We consider the case of the Bank of England, and estimate the relationship between news coverage and central bank communication implied by our model. We find that the interaction between the state of the economy and the way in which the Bank of England writes its communication is important for determining news coverage. We provide concrete suggestions for ways in which central bank communication can increase its news coverage by improving readability in line with our results.
    Keywords: Central bank communication; print media; high-dimensional estimation; natural language processing
    JEL: C01 C55 C82 E43 E52 E58
    Date: 2021–10–27

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