IMF Working Papers

Bank Competition and Household Privacy in a Digital Payment Monopoly

By Itai Agur, Anil Ari, Giovanni Dell'Ariccia

June 9, 2023

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Format: Chicago

Itai Agur, Anil Ari, and Giovanni Dell'Ariccia. Bank Competition and Household Privacy in a Digital Payment Monopoly, (USA: International Monetary Fund, 2023) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Consumer credit, Credit, Data collection, Digital financial services, Economic and financial statistics, Financial institutions, Loans, Money, Technology

Keywords: Bank competition, Big Tech, Consumer credit, Credit, Data collection, Data contract, Data regulation, DC issuer, Digital financial services, Financial intermediation, Loans, Monopolist digital currency issuer, Payment vehicle, Privacy, Tech monopolist

Publication Details

  • Pages:

    55

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/121

  • Stock No:

    WPIEA2023121

  • ISBN:

    9798400244865

  • ISSN:

    1018-5941

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