Big techs, credit, and digital money
Summary
Focus
Financial technology (fintech) promises to overcome long-standing frictions that restrict access to the financial system. This may take different forms. For instance, large technology companies (big techs) could operate digital payment ledgers, thus combining trading and payments, which could provide information that lets big techs lend to (previously excluded) borrowers. Alternatively, public agencies such as central banks could offer a payment ledger with different possible design features.
Contribution
This paper explores the implications of different payment ledgers, in particular for rent extraction, the availability of uncollateralised credit (one form of financial inclusion) and user privacy. It discusses several new technologies for information processing and record keeping and how they could transform payment and credit services. Particularly, it compares the "fintech vision" for lending and payments with a system dominated by a single big tech platform, a public option for payment systems and two or more big techs competing in some dimensions and cooperating in others ("coopetition"). It then assesses what all of this means for user privacy and reviews some proposals to preserve privacy. It also considers some geopolitical implications of different choices.
Findings
The key result is that policymakers face a trilemma: no system to date can ensure the needed information for credit enforcement so as to expand credit access, while simultaneously limiting the extraction of rents and ensuring the privacy of users. Monopolistic platforms enforce repayment but compromise privacy and extract rents; public or privacy-respecting ledgers protect users but weaken enforcement; and platform coopetition or programmable public ledgers may balance enforcement and rents but could reduce privacy. Overall, the authors conclude that navigating these challenges requires a careful balancing of objectives and a strategic blend of regulation, innovation and institutional design.
Abstract
This paper examines how digital payment ledgers operated by BigTech platforms and central banks can expand uncollateralized credit. However, policymakers face a trilemma – no system can simultaneously achieve efficient credit enforcement, limit rent extraction, and preserve user privacy. Monopolistic platforms enforce repayment but compromise privacy and extract rents; public or privacy-respecting ledgers protect users but weaken enforcement; platform co-opetition or programmable public ledgers balance enforcement and rents, but only by reducing privacy.
JEL classification: E42, E51, G23, L51, O31
Keywords: ledgers, platform money, CBDC, currency competition, private currencies, industrial organisation of payments, platforms, big tech, trilemma
- Discussion by Maryam Farboodi
- Discussion by Christine Parlour