Bank Competition and Household Privacy in a Digital Payment Monopoly

Bank Competition and Household Privacy in a Digital Payment Monopoly
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Volume/Issue: Volume 2023 Issue 121
Publication date: June 2023
ISBN: 9798400244865
$20.00
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Topics covered in this book

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Economics- Macroeconomics , Money and Monetary Policy , Economics / General , Privacy , Financial intermediation , Big Tech , Data regulation , data contract , payment vehicle , DC issuer , tech monopolist , bank competition , monopolist digital currency issuer , Credit , Digital financial services , Loans , Consumer credit , Data collection

Summary

Lenders can exploit households' payment data to infer their creditworthiness. When households value privacy, they then face a tradeoff between protecting such privacy and credit conditions. We study how the introduction of an informationally more intrusive digital payment vehicle affects households' cash use, credit access, and welfare. A tech monopolist controls the intrusiveness of the new payment method and manipulates information asymmetries among households and oligopolistic banks to extract data contracts that are more lucrative than lending on its own. The laissez-faire equilibrium entails a digital payment vehicle that is more intrusive than socially optimal, providing a rationale for regulation.