Payment Instruments, Payment Instruments, Payment Instruments, - - PowerPoint PPT Presentation

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Payment Instruments, Payment Instruments, Payment Instruments, Payment Instruments, Financial Financial Financial Financial Privacy Privacy Privacy Privacy and Online Purchases and Online Purchases and Online Purchases and Online Purchases

Balgobin Y., Bounie D., Quinn M. and Waelbroeck P. Telecom ParisTech DNB Conference, April, 21-22 2016

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1993 1993 1993 1993

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2015 2015 2015 2015

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Willingness to share data in France Willingness to share data in France Willingness to share data in France Willingness to share data in France

(2009 (2009 (2009 (2009 – – – – 2015) 2015) 2015) 2015)

The protection of personal data is a major concern in the digital economy. 5% do not want to share any data in 2009 and 21% in 2015.

5 10 15 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 % of respondents Number of information 2009 2011 2013 2015

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Financial privacy Financial privacy Financial privacy Financial privacy

Financial data are also concerned with privacy. Why ? Online purchases are paid with cards that leave traces. Traces are exploited by banks to offer rewards, financial services, etc., but also to grant credits (credit scores). Privacy-minded consumers may refuse to shop online not to disclose data to banks and preserve a high credit score, to avoid to be tracked, or simply not to be targeted. Consequence: privacy-minded consumers may reduce their online purchases as bank payment instruments (PI) are too costly in terms

• f privacy.

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Research questions Research questions Research questions Research questions

Solution: using a payment instrument (PI) that is not related to a banking account: a non-bank PI. PayPal, private label cards, virtual currencies, etc. Questions: Does financial privacy affect online purchases? Does the use of non-bank PI increase the purchases of privacy- minded consumers (with respect to others)?

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Paper (preliminary version) Paper (preliminary version) Paper (preliminary version) Paper (preliminary version)

A simple (IO) model. Two regressions to test a model prediction. Estimation results and preliminary conclusions:

• The use of non-bank PI has a positive impact on the frequency of
• nline purchases
• The use of non-bank PI is driven by financial privacy as we control

for payment convenience, risk, etc.

• The use of non-bank PI by privacy-minded consumers increases

their online purchases compared to others consumers.

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Literature review Literature review Literature review Literature review

Financial privacy and regulation of financial intermediaries. Economics of privacy (Acquisti, 2015; Akther, 2012): privacy concerns affect negatively consumers’ online spending. Economics of payment instruments (von Kalckreuth et al. (2014), Schuh and Shy (2016): anonymity explains adoption and use of instruments. (Information sharing in credit markets). Our paper is the first to directly tackle the issue of financial privacy in relation with payment instruments and online purchases.

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Survey Survey Survey Survey

Conducted in May 2015. 1,000 French Internet users (15+) representative of the online population. Objective: assess the level of trust of the Internet users in several

• nline services (bank, administration, etc.).

Data on:

• Purchases (frequency, average spending) and online activities.
• Use of payment instruments.
• Privacy concerns.
• etc.

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Frequencies of online Frequencies of online Frequencies of online Frequencies of online p p p purchases urchases urchases urchases

39% 49% 9% 4% 0% 10% 20% 30% 40% 50% 60% Less often than once per month (N = 316) More than once per month (N = 394) Once per week (N = 72) Several times per week (N = 29) Percentage of respondents

81% of the respondents (n=811) have made at least 1 purchase during the last 12 months. 61% report to make more than one purchase per month.

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Payment instruments Payment instruments Payment instruments Payment instruments

95% 36% 6% 5% 2% 2% 1% 0% 22% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Payment bank cards (N = 762) PayPal (N = 284) Checks (N = 48) Credit transfer (N = 42) Operator billing (N = 18) Private label cards (N = 14) Prepaid cards (N = 6) Digital currencies (N = 3) Others (N = 178) Percentage of respondents Payment instrument

95% declare using a payment card, and 36% PayPal.

11% gift cards + 11% others (cash ?)

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Bank and non Bank and non Bank and non Bank and non-

• bank instruments

bank instruments bank instruments bank instruments

54% 2% 1% 24% 7% 1% 12% 0% 10% 20% 30% 40% 50% 60% Bank exclusively (N = 432) Non-bank exclusively (N = 15) Others exclusively (N = 5) Bank & Non- bank (N = 188) Bank &

• thers

(N = 59) Non-bank &

• thers (N = 4)

Bank & non- bank &

• thers (N =

96) Percentage of respondents

54% use only bank PI while 26% use bank and non bank PI (24% + 2%)

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The case for financial privacy The case for financial privacy The case for financial privacy The case for financial privacy

PayPal and other PI are not always accepted by retailers (Amazon). But, a retailer who accepts PayPal always accepts a bank PI. Why do consumers decide to use non-bank PI? Convenience, security and person-to-person transfers. We hypothesize that financial privacy is another motivation. People use non-bank PI to protect their financial and personal data from banks, relatives, etc., for numerous reasons.

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Privacy and payment instruments Privacy and payment instruments Privacy and payment instruments Privacy and payment instruments

69% 43% 9% 82% 51% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Cookies deleting (N = 605) Use of ad blockers (N = 382) Use of privacy enhancing web browser extensions (N = 110) Percentage of respondents Exclusive use of bank payment instruments (N = 432) Use of non-bank payment instruments (N = 203)

Respondents who use non-bank PI care more about the exploitation of their personal data than the others.

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Purchases, bank and non Purchases, bank and non Purchases, bank and non Purchases, bank and non-

• bank PI

bank PI bank PI bank PI

The users of non-bank PI purchase more than the exclusive users of PI.

48% 44% 6% 2% 30% 54% 11% 5% 0% 10% 20% 30% 40% 50% 60% Less often than once per month More than once per month Once per week Several times per week Percentage of respondents Exclusive use of bank payment instruments (N = 432) Use of non-bank payment instruments (N = 203)

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Does financial privacy affect online Does financial privacy affect online Does financial privacy affect online Does financial privacy affect online purchases? purchases? purchases? purchases?

Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”. Ordered probit regression model. Six groups of explanatory variables. 1. A binary variable: use of non-bank PI. 2. Convenience : financial info stored on e-commerce websites. 3. Privacy: ad-blockers, web browser extension, cookies deleting. 4. Risk: perceived risk of banking details being hacked or consulted. 5. Online activities: # PI used in purchases, # of passwords, etc. 6. Individual variables (sex, age, etc.).

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Results Results Results Results

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Results Results Results Results

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Does the use of non Does the use of non Does the use of non Does the use of non-

• bank PI increase the

bank PI increase the bank PI increase the bank PI increase the purchases of purchases of purchases of purchases of privacy privacy privacy privacy-

• minded

minded minded minded consumers? consumers? consumers? consumers?

Same regression but on two extreme populations: privacy-minded users versus others. Privacy-minded users = privacy web browser extensions + ad-blockers + delete cookies Others = they do not use extensions, ad-blockers and do not delete cookies. Ordered probit regression model. Six groups of explanatory variables. 1. A binary variable: use of a non-bank payment instrument (Y/N). 2. Convenience : financial info stored on e-commerce websites. 3. Risk: perceived risk of banking details being hacked or consulted. 4. Online activities: # instruments used in purchases, passwords, etc. 5. Individual variables (sex, age, etc.).

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Results Results Results Results

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Results Results Results Results

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Conclusion Conclusion Conclusion Conclusion

Consumers are more and more concerned with their financial data… … and use in reaction more and more alternative payments systems (Bitcoin, etc.). This paper is a first and very imperfect attempt to study and assess financial privacy. Financial privacy should be further investigated by academics as it is a hot topic on the agenda of banks and public authorities.