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Liability, Information, and Anti-fraud Investment in a Layered Retail Payment Structure

Author

Listed:
  • Kyoung-Soo Yoon

    (Department of Economics, Daegu University)

  • Jooyong Jun

    (Economic Research Institute, The Bank of Korea)

Abstract

Motivated by recently introduced retail payment schemes using information technology, often called "FinTech," we examine the effects of fraud liability regime and information accessibility on the incentive for the anti-fraud investment in a vertically separated payment scheme. When the payment service providers make their revenue from consumer fee, it is shown that the anti-fraud investment is made more by parties with liability, and the anti-fraud investment is socially sub-optimal. When the FinTech payment service provider (FPP) makes its revenue other than from counsumer fee, the FPP liability regime leads to greater anti-fraud investment and lower accident probability, compared to the case in raising revenue from consumer fees. The effect under the IPP liability regime, however, is inconclusive. Finally, under certain conditions, the FPP's information accessibility to the IPP's transaction data can enhance the anti-fraud investment and welfare.

Suggested Citation

  • Kyoung-Soo Yoon & Jooyong Jun, 2016. "Liability, Information, and Anti-fraud Investment in a Layered Retail Payment Structure," Working Papers 2016-12, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1612
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    References listed on IDEAS

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    More about this item

    Keywords

    Payment system; Fraud; Liability; FinTech;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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