IDEAS home Printed from https://ideas.repec.org/a/fip/fednep/y2008isepp137-159nv.14no.2.html
   My bibliography  Save this article

Understanding risk management in emerging retail payments

Author

Listed:
  • Michele Braun
  • James J. McAndrews
  • William Roberds
  • Richard J. Sullivan

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.

Suggested Citation

  • Michele Braun & James J. McAndrews & William Roberds & Richard J. Sullivan, 2008. "Understanding risk management in emerging retail payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 137-159.
    • Handle: RePEc:fip:fednep:y:2008:i:sep:p:137-159:n:v.14no.2
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/epr/08v14n2/0809brau.html
    Download Restriction: no
    File URL: https://www.newyorkfed.org/medialibrary/media/research/epr/08v14n2/0809brau.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James C. McGrath, 2007. "General-use prepaid cards: the path to gaining mainstream acceptance," Consumer Finance Institute discussion papers 07-03, Federal Reserve Bank of Philadelphia.
    2. Kenneth N. Kuttner & James J. McAndrews, 2001. "Personal on-line payments," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 35-50.
    3. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
    4. Benjamin Hermalin & Michael Katz, 2006. "Privacy, property rights and efficiency: The economics of privacy as secrecy," Quantitative Marketing and Economics (QME), Springer, vol. 4(3), pages 209-239, September.
    5. Richard J. Sullivan, 2007. "Risk management and nonbank participation in the U.S. retail payments system," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q II), pages 5-40.
    6. Jack Hirshleifer, 1983. "From weakest-link to best-shot: The voluntary provision of public goods," Public Choice, Springer, vol. 41(3), pages 371-386, January.
    7. Stigler, George J., 1980. "An Introduction to Privacy in Economics and Politics," Working Papers 10, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mr. Tanai Khiaonarong, 2014. "Oversight Issues in Mobile Payments," IMF Working Papers 2014/123, International Monetary Fund.
    2. Richard J. Sullivan, 2014. "Controlling security risk and fraud in payment systems," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-36.
    3. Richard J. Sullivan, 2010. "The changing nature of U.S. card payment fraud: industry and public policy options," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q II), pages 101-133.
    4. William Roberds & Stacey L. Schreft, 2009. "Data security, privacy, and identity theft: The economics behind the policy debates," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 33(Q I), pages 22-30.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    2. Simeon Schudy & Verena Utikal, 2015. "Does imperfect data privacy stop people from collecting personal health data?," TWI Research Paper Series 98, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    3. Jean-Marc Zogheib & Marc Bourreau, 2021. "Privacy, Competition, and Multi-Homing," EconomiX Working Papers 2021-15, University of Paris Nanterre, EconomiX.
    4. Dengler, Sebastian & Prüfer, Jens, 2021. "Consumers' privacy choices in the era of big data," Games and Economic Behavior, Elsevier, vol. 130(C), pages 499-520.
    5. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    6. Zike Cao & Kai-Lung Hui & Hong Xu, 2018. "An Economic Analysis of Peer Disclosure in Online Social Communities," Information Systems Research, INFORMS, vol. 29(3), pages 546-566, September.
    7. Jeremy M. Burke & Curtis R. Taylor & Liad Wagman, 2012. "Information Acquisition in Competitive Markets: An Application to the US Mortgage Market," American Economic Journal: Microeconomics, American Economic Association, vol. 4(4), pages 65-106, November.
    8. Oliver Budzinski & Annika Stöhr, 2019. "Competition policy reform in Europe and Germany – institutional change in the light of digitization," European Competition Journal, Taylor & Francis Journals, vol. 15(1), pages 15-54, January.
    9. Lagerlöf, Johan N.M., 2023. "Surfing incognito: Welfare effects of anonymous shopping," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    10. Jin-Hyuk Kim & Liad Wagman, 2015. "Screening incentives and privacy protection in financial markets: a theoretical and empirical analysis," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 1-22, March.
    11. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    12. Budzinski, Oliver, 2016. "Aktuelle Herausforderungen der Wettbewerbspolitik durch Marktplätze im Internet," Ilmenau Economics Discussion Papers 103, Ilmenau University of Technology, Institute of Economics.
    13. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    14. Budzinski, Oliver, 2017. "Wettbewerbsregeln für das Digitale Zeitalter - Die Ökonomik personalisierter Daten, Verbraucherschutz und die 9. GWB-Novelle," Ilmenau Economics Discussion Papers 108, Ilmenau University of Technology, Institute of Economics.
    15. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2020. "Persuasion Through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation," Management Science, INFORMS, vol. 66(11), pages 4958-4979, November.
    16. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2015. "Competing with Privacy," Management Science, INFORMS, vol. 61(1), pages 229-246, January.
    17. Paul Heidhues & Botond Kőszegi, 2017. "Naïveté-Based Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 1019-1054.
    18. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    19. Andrew F. Daughety & Jennifer F. Reinganum, 2010. "Public Goods, Social Pressure, and the Choice between Privacy and Publicity," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 191-221, May.
    20. Fabrice Rochelandet & Silvio H. T. Tai, 2016. "Do privacy laws affect the location decisions of internet firms? Evidence for privacy havens," European Journal of Law and Economics, Springer, vol. 42(2), pages 339-368, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednep:y:2008:i:sep:p:137-159:n:v.14no.2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.