The Hidden Role of Contract Terms: The Case of Credit Card Minimum Payments in Mexico

2021 ◽  
Author(s):  
Paolina C. Medina ◽  
Jose L. Negrin
Keyword(s):  
Credit Card ◽  
Total Effect ◽  
Regulatory Change ◽  
Financial Contracts ◽  
Point Change ◽  
Whole Number

This paper argues that thresholds in financial contracts act as implicit nudges in consumers’ decisions. Exploiting a regulatory change to credit card minimum payments in Mexico, we find that a 1-percentage point change in minimum payments leads to a 0.87-percentage point change in actual payments, both expressed as a percentage of total balances. We decompose the effect of minimum payments into a constraining effect and a reference effect. The former captures the effect of minimum payments as a binding constraint and accounts for 59% of its total effect. The latter captures any remaining impact of changes in minimum payments beyond their constraining effect and represents 41% of the total. In turn, 67% of the reference effect is explained by the multiple heuristic: the tendency of consumers to pay whole-number multiples of the minimum payment. This paper was accepted by Kay Giesecke, finance.

scholarly journals Credit card cue effect

2019 ◽  
Vol 38 (2) ◽  
pp. 368-383
Author(s):  
King Yin Wong ◽  
Michael Lynn
Keyword(s):  
Credit Card ◽  
Design Methodology ◽  
Credit Cards ◽  
Well Being ◽  
Financial Security ◽  
Consumer Spending ◽  
Content Type ◽  
Moderation Effect ◽  
Show Evidence

Purpose The extant literature has mixed results regarding the credit card cue effect. Some showed that credit card cues stimulate spending, whereas others were unable to replicate the findings or found that cues discourage consumer spending. The purpose of this paper is to investigate how consumers’ sensitivity to the pain of payment affects their mental associations about credit cards and how the differences in credit card associations moderate the credit card cue effect on spending, providing a possible explanation for the mixed results in the literature. Furthermore, this paper examines the role of consumers’ perceived financial well-being, measured by their perceptions of current and future wealth and their sense of financial security, in mediating this moderation effect. Design/methodology/approach An experimental study was conducted with a sample of 337 participants to test the hypothesized model. Findings After being shown credit card cues, spendthrift participants had more spending-related thoughts and less debt-related thoughts, perceived themselves as having better financial well-being and consequently spent more than tightwad participants. Originality/value To the authors’ knowledge, this is the first study to investigate the direct link between an exposure to credit card cues and perceived financial well-being, and one of the few to show evidence of the moderating effect of consumers’ sensitivity to the pain of payment on spending when credit card cues are present. This study suggests that marketers may use credit card cues to promote consumer spending, whereas consumers, especially spendthrifts, should be aware of how credit card cues may inflate their perceived financial well-being and stimulate them to spend more.

Electronic Publishing: The Role of Carrier and Publisher

1986 ◽  
Vol 21 (1) ◽  
pp. 40-47
Author(s):  
Richard M. Neustadt
Keyword(s):  
Los Angeles ◽  
Credit Card ◽  
Electronic Publishing ◽  
Bulletin Board ◽  
Credit Card Number ◽  
Electronic Bulletin Board ◽  
Phone Calls ◽  
Card Number ◽  
Criminal Charge

Since this is a legal seminar, I thought it would be appropriate to begin with a case. There is a person in Los Angeles who has been operating an electronic bulletin board on his personal computer. What that means is that he has memory attached to his computer, and it is possible for anyone else in the country with a computer to dial into that bulletin board and leave a message automatically in the memory. That message can then be accessed by anyone else who dials in.This person does not exercise any control over the messages that are put in. It is open to anyone who wants to put a message in there. Somebody put into that bulletin board the telephone credit card number of a rich person. Subsequently, many other people dialed into the bulletin board, got the telephone credit card number and charged phone calls to that person. No one knows where the number came from. The board operator was prosecuted under a criminal charge. The question is, is he liable?

Kueski: Revolutionizing Consumer Credit in Mexico

2017 ◽  
pp. 1-10
Author(s):  
Sarit Markovich ◽  
Nilima Achwal
Keyword(s):  
Financial Market ◽  
Financial Services ◽  
Scoring System ◽  
Credit Card ◽  
Consumer Credit ◽  
Credit Scoring ◽  
Loan Approval

This case asks students to step into the role of Adalberto Flores, co-founder and CEO of Kueski, one of the first companies to develop a proprietary algorithm for online loan approval in Mexico. Mexico lacks a standardized credit scoring system, making it difficult for many Mexicans to get approved for a loan or credit card. This, together with the fact that Mexicans generally do not trust traditional banks, makes Mexico an attractive opportunity for fintech companies. Growth, however, could require fintech companies to partner with traditional banks. Students assume the role of Flores to think about the benefits and risks associated with a partnership between Kueski and traditional banks. Students are also challenged to compare the structure of U.S. financial services markets with the Mexican structure and consider the implications on the sustainability of fintech companies in the two markets. The teaching note analyzes the Mexican financial market and the benefits and threats it holds for fintech companies, and outlines a framework for evaluating the risk associated with partnerships.

Part II UK Securities Markets, 4 Recognized Investment Exchanges (RIEs) and Recognized Clearing Houses (RCHs)

2021 ◽  
Author(s):  
Penn Bob ◽  
Forzani Alex ◽  
Allen & Overy LLP
Keyword(s):  
European Union ◽  
Financial Services ◽  
Securities Markets ◽  
Financial Instruments ◽  
The European Union ◽  
Financial Contracts ◽  
The Uk ◽  
Final Settlement ◽  
Market Infrastructure

This chapter summarizes and discusses the UK regulatory framework for recognized investment exchanges (RIEs) and recognized clearing houses (RCHs) under the Financial Services and Markets Act 2000 (FSMA). It considers the framework in light of the current and forthcoming European legislation. It also examines the applicability of the framework to RIEs and RCHs in the context of the recast Markets in Financial Instruments Directive II (MiFID II), European Market Infrastructure Regulation (EMIR) and the UK's departure from the European Union (Brexit). This chapter outlines the central role of exchanges and clearing houses in the operation of financial markets. It explains that the exchanges offer marketplaces for the trading of financial instruments, provide market data which facilitates trading, and establish standards for the offering of securities, while clearing houses manage the performance of financial contracts between the point of execution and final settlement and mitigating the risk and consequences of default.

The moderating role of perceived social risk in bank credit card referral programs

2020 ◽  
Vol 38 (7) ◽  
pp. 1601-1616
Author(s):  
Chanho Song ◽  
Tuo Wang ◽  
Hyunjung Lee ◽  
Michael Y. Hu
Keyword(s):  
Credit Card ◽  
Social Risk ◽  
Content Type ◽  
Referral Decisions ◽  
Social Risks ◽  
Risk Balance ◽  
Referral Decision ◽  
Amazon's Mechanical Turk ◽  
Moderating Role

PurposeThe purpose of this paper is to investigate how the effects of referral rewards in referral reward programs (RRPs) are moderated through perceived social risk of a recommender.Design/methodology/approachA total of 717 consumers are accessed through Amazon's Mechanical Turk worker panel. The authors use t-test and analysis of variance to test the proposed hypotheses.FindingsThe findings show that consumers with high perceived social risk balance financial rewards with social risks, while low social risk consumers largely ignore these social risk elements surrounding a referral decision.Originality/valueThe inclusion of perceived social risk provides the opportunity to fully understand how a consumer goes about balancing social risk and referral rewards in making referral decisions. The concept of social risk has not been previously applied to this context.

Surveying Mobile Commerce Environments

2005 ◽  
pp. 2702-2711
Author(s):  
Jari Veijalainen ◽  
Mathias Weske
Keyword(s):  
User Interface ◽  
Credit Card ◽  
Mobile Terminal ◽  
Mobile Commerce ◽  
Public Key ◽  
Mobile Terminals ◽  
The Public ◽  
Authentication And Authorization ◽  
New Phase

During the last five years, the term mobile commerce (m-commerce) has appeared in the vocabulary of business people and researchers. Historically and conceptually, m-commerce can be regarded a new phase in electronic commerce (e-commerce). Although the term was introduced without a clear meaning and it is still lacking a single widely accepted definition, most people would say that the term m-commerce refers to e-commerce activities performed by people while on the move. Thus, m-commerce involves e-commerce transactions where a mobile terminal and a wireless network are used to conduct them. Therefore, m-commerce takes advantage of the e-commerce infrastructure developed for Internet e-commerce. Although in some cases an m-commerce transaction might be an alternative to a regular e-commerce transaction (such as buying a book) performed using a workstation and wired network, in many cases this is not the situation. The limitations of the mobile device - for instance, user interface limitations - are such that it is not attractive to perform typical Internet e-commerce transactions on them. Wireless technologies, combined with so-called ‘Internet-enabled’ terminals, constitute an ideal platform to realize new types of e-commerce transactions that are not possible or reasonable for wired terminals. The small and light, yet powerful, mobile terminals are almost always carried by their owners, just like wallets or watches. They can indeed also store electronic cash, credit card information, tickets, certificates of the Public Key Infrastructure (PKI), and so forth. Thus, they can assume the role of an e-wallet, as well as function as authentication and authorization devices in various contexts.

CVA UNDER ALTERNATIVE SETTLEMENT CONVENTIONS AND WITH SYSTEMIC RISK

2013 ◽  
Vol 16 (07) ◽  
pp. 1350039 ◽  
Author(s):  
CYRIL DURAND ◽  
MAREK RUTKOWSKI
Keyword(s):  
Comparative Analysis ◽  
Systemic Risk ◽  
General Framework ◽  
Practical Importance ◽  
Numerical Results ◽  
Counterparty Risk ◽  
Market Environment ◽  
Financial Contracts

We propose a fairly general framework which allows one to perform Credit Value Adjustment (CVA) computations for a contract with bilateral counterparty risk in the presence of (a) systemic risk and (b) wrong-way or right-way risks. Our methodology focuses on the role of alternative settlement clauses, but it also aims to cover various features of margin agreements. We present a comparative analysis of numerical results that supports our initial conjecture that alternative specifications of settlement values have a nonnegligible impact on CVA computations for contracts with bilateral counterparty risk. Our conclusions emphasize the practical importance of more sophisticated models that are capable of fully reflecting the actual features of financial contracts, as well as the influence of the market environment.

Blockholder Ownership and Corporate Control: The Role of Liquidity

2014 ◽  
Vol 04 (01) ◽  
pp. 1450003 ◽  
Author(s):  
William C. Gerken
Keyword(s):  
Instrumental Variable ◽  
Corporate Control ◽  
Regulatory Change ◽  
Variable Approach ◽  
Large Shareholders ◽  
Block Formation ◽  
Instrumental Variable Approach

Employing an instrumental variable approach based on the regulatory change of tick sizes, I examine the link between the liquidity of a firm's equity and activism by large shareholders. I find that liquidity increases the likelihood of block formation. Blockholders of more liquid securities take smaller stakes that do not precommit them to monitor. I find evidence that the threat of exit from a block can discipline managers and that this threat is more effective when liquidity is higher. While liquidity increases exit from existing blocks, I find no evidence that share illiquidity that forces blockholders to actively monitor.

Macro and micro financial liberalizations, savings and growth

2018 ◽  
Vol 10 (2) ◽  
pp. 290-309 ◽  
Author(s):  
Gonçalo Pina
Keyword(s):  
Financial Crises ◽  
Financial Stability ◽  
Capital Accumulation ◽  
Financial Sector ◽  
Financial Contracts ◽  
Content Type ◽  
Growth Effects ◽  
Savings Rate ◽  
Domestic Savings

Purpose This paper aims to empirically and theoretically study the role of domestic savings behind the financial stability and growth effects of different financial liberalizations, when the government is not able to commit to enforce financial contracts. The following liberalizations are considered. Macro financial liberalizations target capital flow and interest rate liberalization, whereas micro financial liberalizations target competition in the financial sector. Simultaneous liberalizations target both micro and macro dimensions. Design/methodology/approach This study theoretically solves a new simple model of different types of financial liberalizations, micro, macro and simultaneous. The focus is on the crisis and growth effects of countries liberalizing only macro dimensions of financial policy, relative to both micro and macro dimensions together, and on how the level of savings determines these effects. The study empirically uses data on macro and micro financial liberalizations for 91 countries between 1973 and 2005 to provide a taxonomy of liberalization strategies, and empirically tests whether domestic savings are related to the success of different strategies. Capital accumulation, investment profile and the frequency of financial crises are also evaluated. Findings The findings show that, empirically, simultaneous liberalizations are associated with larger growth only if the savings rate is large. If the savings rate is low, growth is larger when liberalizations target macro dimensions. Capital accumulation increases more with macro liberalizations under low savings and simultaneous liberalizations with high savings. Simultaneous liberalizations with low savings increase risks related to contract viability and expropriation, profits repatriation and payment delays. Simultaneous liberalizations with high savings are associated with smaller probabilities of financial crises. These observations are consistent with the theoretical model, where reduced competition in the financial sector can improve financial stability and reduce financial crises when savings are low. Originality/value The contribution of this paper, relative to the vast literature on financial liberalizations, is to document how savings determine the crisis and growth effects of macro and micro liberalizations. It provides and tests empirically a new channel for the role of savings when governments cannot commit to enforce financial contracts. This is informative for policymakers and policy institutions facing different strategies of financial liberalizations.

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