Privacy Provision, Payment Latency and the Role of Collateral

Charles Kahn, Caitlin Long and Manmohan Singh

The new boundary between publicly and privately provided payments systems and the role of collateral may be changing. Fintech – the convergence of technologies including artificial intelligence and big data, distributed computing, cryptography, the internet and mobile access – has led to a variety of applications in the financial industry, prime among them being the development of new payment systems. These technological developments have made it feasible for policymakers to contemplate the possibility of abolishing physical cash, replacing it with electronic alternatives. But these technological developments have also led to an increased awareness of and concern with problems of privacy in payments systems. (Kahn, St Louis Fed, 2018.)

One of the arguments that have been made by regulators attempting to reduce the use of cash has been that the privacy it provides facilitates illegal activity. But there are other legitimate sources of demand for privacy in payments. The first is for protection from the counterparty to the transaction. (Kahn, McAndrews and Roberds, 2005.) There are cases where an individual makes a legitimate transaction with a stranger, but wants to ensure that