Publication Type

Conference Proceeding Article

Version

publishedVersion

Publication Date

12-2019

Abstract

In response to the Fintech trend, an ongoing debate in the banking industry is how to design the new-generation interbank retail payment and settlement system. We propose a two-stage analytical model that takes into account the value-risk tradeoff in the new payment system design, as well as banks’ participation incentives and adoption timing decisions. We find that, as the system base value increases, banks tend to synchronize their investment and adoption decisions. When the system base value is low and banks are heterogeneous, bank association ownership maximizes social welfare. When both the system base value and bank heterogeneity are moderate, government mandate leads to the socially optimal solution. When the system base value is high and banks are relatively homogenous, government ownership is socially optimal. We offer important policy implications regarding the optimal system design and the government regulator’s role in shaping the banking industry in future financial innovation.

Discipline

Databases and Information Systems | E-Commerce | Finance and Financial Management

Research Areas

Data Science and Engineering

Publication

ICIS 2019 Proceedings: 40th International Conference on Information Systems, Munich, December 15-18

Publisher

AIS

City or Country

Illinois

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