1. Payment Instruments, Financial Privacy and Online Purchases
Balgobin Y., Bounie D., Quinn M. and Waelbroeck P. Telecom ParisTech
10th Financial Risks International Forum
March 27, 2017

2. 1993

3. 2016

4. Willingness to share data in France (2009 – 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. Financial privacy
Financial data has also raised privacy concerns.

6. Financial privacy Financial data has also raised privacy concerns.
Online purchases paid with cards leave traces (bank statement).

7. Financial privacy Financial data has also raised privacy concerns.
Online purchases paid with cards leave traces (bank statement).
Traces are exploited by banks to offer rewards, financial services, etc., but also to grant credits (credit scoring), to profile clients, etc.

8. Financial privacy Financial data has also raised privacy concerns.
Online purchases paid with cards leave traces (bank statement).
Traces are exploited by banks to offer rewards, financial services, etc., but also to grant credits (credit scoring), to profile clients, etc.
Privacy-minded consumers may refuse to shop online to not disclose data to banks and preserve a high credit score, to avoid to be tracked or targeted, or to hide information from relatives and/or government, etc.

9. Financial privacy Financial data has also raised privacy concerns.
Online purchases paid with cards leave traces (bank statement).
Traces are exploited by banks to offer rewards, financial services, etc., but also to grant credits (credit scoring), to profile clients, etc.
Privacy-minded consumers may refuse to shop online to not disclose data to banks and preserve a high credit score, to avoid to be tracked or targeted, or to hide information from relatives and/or government, etc.
Consequence: privacy-minded consumers may reduce their online purchases as bank payment instruments (PI) are too costly in terms of privacy.

10. Research questions
Solution: using a payment instrument (PI) that is not related to a bank checking account: a non-bank PI.

11. Research questions
Solution: using a payment instrument (PI) that is not related to a bank checking account: a non-bank PI.
PayPal, operator billing, private label cards, virtual currencies, etc.

12. Research questions
Solution: using a payment instrument (PI) that is not related to a bank checking account: a non-bank PI.
PayPal, operator billing, private label cards, virtual currencies, etc.
Questions:
Does financial privacy affect online purchases?

13. Research questions
Solution: using a payment instrument (PI) that is not related to a bank checking account: a non-bank PI.
PayPal, operator billing, 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)?

14. Paper (preliminary version)
A simple (IO) model.
Two regressions to test a model prediction.

15. 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 online 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.

16. Literature review
Financial privacy and regulation of financial intermediaries (information sharing in credit markets).

17. Literature review
Financial privacy and regulation of financial intermediaries (information sharing in credit markets).
Economics of privacy (Acquisti, 2015; Akther, 2012): privacy concerns affect negatively consumers’ online spending.

18. Literature review
Financial privacy and regulation of financial intermediaries (information sharing in credit markets).
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 virtual currencies.

19. Literature review
Financial privacy and regulation of financial intermediaries (information sharing in credit markets).
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 virtual currencies.
Our paper is the first to tackle the issue of financial privacy in relation with payment instruments and online purchases.

20. Survey Conducted in May 2015.
1,000 French Internet users (15+) representative of the online population.

21. 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 online services (bank, administration, etc.).

22. 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 online services (bank, administration, etc.).
Data on:
Purchases (frequency, average spending) and online activities.
Use of payment instruments.
Privacy concerns.
etc.

23. Frequencies of online purchases
81% of the respondents (n=811) have made at least 1 purchase during the last 12 months.
62% report to make more than one purchase per month.

24. The French payment market
A national payment card scheme named “Cartes Bancaires”.
Banks: most debit cards – very few credit cards.
Non-banks : issue credit cards (private label cards).
Less than 2% of all the transactions are paid with a bank or non- bank credit card.
PayPal: a retailer who accepts PayPal always accepts a bank PI.

25. Payment instruments
95% declare using a payment (debit) card, and 36% PayPal.
11% gift cards + 11% others (cash ?)

26. Bank and non-bank instruments
54% use only bank PI while 26% use bank and non bank PI (24% + 2%)

27. The case for financial privacy
As the bank payment instruments (cards, checks, etc.) are always accepted by retailers, why do consumers decide to use non-bank PI?

28. The case for financial privacy
As the bank payment instruments (cards, checks, etc.) are always accepted by retailers, why do consumers decide to use non-bank PI?
Convenience, security, person-to-person transfers, etc.

29. The case for financial privacy
As the bank payment instruments (cards, checks, etc.) are always accepted by retailers, why do consumers decide to use non-bank PI?
Convenience, security, person-to-person transfers, etc.
We hypothesize that financial privacy is another motivation.

30. The case for financial privacy
As the bank payment instruments (cards, checks, etc.) are always accepted by retailers, why do consumers decide to use non-bank PI?
Convenience, security, person-to-person transfers, etc.
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 various reasons.

31. Privacy and payment instruments
Respondents who use non-bank PI care more about the exploitation of their personal data than the others.

32. Purchases, bank and non-bank PI
The users of non-bank PI purchase more than the exclusive users of PI.

33. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.

34. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.
A binary variable: use of non-bank PI (financial privacy).

35. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.
A binary variable: use of non-bank PI (financial privacy).
Convenience : financial info stored on e-commerce websites.

36. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.
A binary variable: use of non-bank PI (financial privacy).
Convenience : financial info stored on e-commerce websites.
Privacy: ad-blockers, web browser extension, cookies deleting.

37. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.
A binary variable: use of non-bank PI (financial privacy).
Convenience : financial info stored on e-commerce websites.
Privacy: ad-blockers, web browser extension, cookies deleting.
Security: perceived risk of banking details being hacked or consulted.

38. Does financial privacy affect online purchases?
Dependent variable: frequency of online purchase: “less often than once per month”, …, to “several times per week”.
Six groups of explanatory variables.
A binary variable: use of non-bank PI (financial privacy).
Convenience : financial info stored on e-commerce websites.
Privacy: ad-blockers, web browser extension, cookies deleting.
Security: perceived risk of banking details being hacked or consulted.
Online activities: # PI used in purchases, # of passwords, etc.

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

40. Results
Methods: 2SLS and MCMC

41. Results Methods: ordered probit and MCMC
Positive effect of using non-bank payment instruments on purchase frequency

42. Results Methods: ordered probit and MCMC
Positive effect of using non-bank payment instruments on purchase frequency
We control for various effects: privacy, security, sociodemographics, and so on.

43. Conclusion
Consumers are more and more concerned with their financial data…

44. Conclusion
Consumers are more and more concerned with their financial data…
… and use in reaction more and more alternative payment systems (Bitcoin, etc.).

45. Conclusion
Consumers are more and more concerned with their financial data…
… and use in reaction more and more alternative payment systems (Bitcoin, etc.).
Offering alternatives and tools that empower consumers can lead to more online purchases.

46. Conclusion
Consumers are more and more concerned with their financial data…
… and use in reaction more and more alternative payment systems (Bitcoin, etc.).
Offering alternatives and tools that empower consumers can lead to more online purchases.
This paper is a first and very imperfect attempt to study and assess the impact of financial privacy on online purchases.