Understanding Risk Management in Emerging Retail Payments
23 Pages Posted: 16 Dec 2007
Date Written: September 2008
Abstract
New technologies used in payment methods can reduce risk, but they can also lead to new risks. Emerging retail payments are prone to operational and fraud risks, especially security breaches and potential use in illicit transactions. This article describes an economic framework for understanding risk control in retail payments. Risk control is a special type of good because it can protect one payment participant without diminishing the protection of other participants. As a result, the authors' economic framework emphasizes risk containment, primarily through the establishment and enforcement of risk management policies. Application of the framework to three types of emerging payments suggests that a payments system can successfully manage risk if it quickly recognizes problems, encourages commitment from all participants to control risk, and uses an appropriate mix of market and public policy mechanisms to align risk management incentives. The authors conclude that providers of emerging payment methods must mitigate risk effectively or face rejection in the payment market.
Keywords: risk, payment, instruments, nonrival goods, fraud
JEL Classification: G20, E42, D86
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Performance of Internet-Based Business Models: Evidence from the Banking Industry
-
How the Internet Affects Output and Performance at Community Banks
By Robert Deyoung, William W. Lang, ...
-
Technological Change, Financial Innovation, and Diffusion in Banking
By W. Scott Frame and Lawrence J. White
-
Technological Change, Financial Innovation, and Diffusion in Banking
By W. Scott Frame and Lawrence J. White
-
Technological Change, Financial Innovation, and Diffusion in Banking
By W. Scott Frame and Lawrence J. White
-
Is the Internet Delivery Channel Changing Banks' Performance? The Case of Spanish Banks
By Ignacio Hernando and Maria Nieto
-
The Evolution of Eft Networks from Atms to New On-Line Debit Payment Products
-
Internet Banking: An Exploration in Technology Diffusion and Impact
By Richard J. Sullivan and Zhu Wang