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The impact of fraud on new methods of retail payment


  • William Roberds


Currency fraud (counterfeiting), check fraud, and credit card fraud are serious problems, costing the U.S. economy billions of dollars each year. But with each of these traditional payments methods, the problem of fraud has been kept at a manageable level. To be successful in the marketplace, newer forms of payment such as electronic cash and stored-value cards will need to hold fraud risk to similarly low levels. ; Will fraud hinder development of the new payments media? The natural advantages of electronic systems for storing, copying, and manipulating data can be a drawback when it comes to the risk of fraud. This article considers how certain features of new forms of payment differ from more traditional forms and whether these features will detract from marketplace acceptance of the new media. The author concludes that successful payments systems will have to confront various trade-offs posed by the risk of fraud. They will need to balance the costs and benefits of fraud abatement, balance security of payments systems with consumers' desire for privacy, and encourage development of new, more efficient payments systems while ensuring equitable treatment of participants.

Suggested Citation

  • William Roberds, 1998. "The impact of fraud on new methods of retail payment," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 42-52.
  • Handle: RePEc:fip:fedaer:y:1998:i:q1:p:42-52:n:v.83no.1

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    References listed on IDEAS

    1. John A. Weinberg, 1997. "The organization of private payment networks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 25-44.
    2. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-397, April.
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    Cited by:

    1. Malte Krueger & Charles Goodhart, 2001. "The Impact of Technology on Cash Usage," FMG Discussion Papers dp374, Financial Markets Group.
    2. Joanna Stavins, 2002. "Effect of consumer characteristics on the use of payment instruments," New England Economic Review, Federal Reserve Bank of Boston, issue Q 3, pages 19-31.
    3. Joanna Stavins, 2003. "Network externalities in the market for electronic check payments," New England Economic Review, Federal Reserve Bank of Boston, pages 19-30.
    4. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
    5. Loretta J. Mester, 2000. "The changing nature of the payments system: should new players mean new rules?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-26.
    6. Catharine Lemieux, 2003. "Network vulnerabilities and risks in the retail payment system," Emerging Issues, Federal Reserve Bank of Chicago.
    7. Paul Kellogg, 2003. "Evolving operational risk management for retail payments," Emerging Issues, Federal Reserve Bank of Chicago.

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    Checks ; Money ; Payment systems;


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