DIGITAL INNOVATION AND REGULATION OF FINANCIAL MARKETS IN ARGENTINA

Abstract

This dissertation examines recent developments in the regulation of financial markets facing consumers and small businesses in Argentina, and the introduction of new products which are in part enabled by these policies. In the first chapter, I study the design of policies by the local government which targeted Visa, the largest payment card network in the country, operating through a decentralized collective of banks which exhibited notable concentration and vertical integration in the supply of consumer and merchant services. To address this situation, the government combined interchange fee caps with a mandate to divest the largest bank association in this market. I develop a model of bankcompetition for payment intermediation to argue that interchange fee limits alone would have increased the market share of the leading association, with ambiguous price effects, and show that prior to its divestment it was able to increase consumer charges in excess of local competitors without adverse effects in transaction volume. The second chapter covers the entry of a big tech platform into the financial intermediation market. Its offering combines payment services with an online loan program for affiliated merchants, with which it supplies risky borrowers on the fringe of access to banking products. I show that this product substantially increased borrowing in this population and caused a concurrent increase in revenue of 10 to 25%. I develop a model of retailers with scarce working capital to highlightthe significance of increased access to credit, as well as the possibility of information asymmetries forming around a merchant’s markup, sales volume and balance sheet. Estimated merchant credit demand exhibits a positive latent correlation with revenue, indicating advantageous selection conditional on prior screening by the platform. The third chapter is motivated by a positive correlation between loans formed on this platform and those originating in the banking sector, despite their competition. I show that the platform’s entry causes a significant improvement in the credit history of affected merchants, raising credit bureau scores by up to a quartile of their distribution, which may capture an information spillover to other lenders and result in improved loan terms.