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The Nonlinear Impact of Payment System Innovation on Financial System Stability in the ASEAN-4 Countries

Author

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  • Mahjus Ekananda

    (Department of Economics, Faculty of Economics and Business, Universitas Indonesia)

Abstract

The increasing growth of financial system encourages payment system innovation that can affect financial system stability, particularly in ASEAN countries. This study explored a variety of payment system innovation, i.e. debit cards, credit cards, electronic money, and RTGS. The financial system stability index is measured by calculating the composite indexes of non-performing loans, Z-score from ROA and CAR, share price volatility, and yield bonds. The components of the indexes are structured to reflect risks from the banking, stock, and bond markets. The resulting index value indicates the level of risk in the financial system. A higher index specifies a higher risk and a more vulnerable financial system. Furthermore, it is noted that the effects of the independent variable can change according to economic conditions. The panel threshold model was applied to calculate the effects of various regimes, namely innovation, GDP, credit ratio, and stability index. The panel data were obtained from the ASEAN-4 countries (Indonesia, Malaysia, Thailand, and the Philippines) from 2012 to 2020. The panel threshold analysis shows an increase in the value of debit card, credit card, and RTGS transactions. Specifically, innovation and GDPR negatively affect the stability index. Increasing the value of payment system innovation will decrease the risk to financial system stability in ASEAN countries. The monetary authorities of each country can implement these findings by considering the rapid development of payment system innovation and the danger it may pose to financial system stability.

Suggested Citation

  • Mahjus Ekananda, 2022. "The Nonlinear Impact of Payment System Innovation on Financial System Stability in the ASEAN-4 Countries," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 68, pages 114-131, Desember.
    • Handle: RePEc:lpe:efijnl:202209
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    More about this item

    Keywords

    threshold panel; payment system innovation; financial system stability;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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