Instant Payments, Fraud, and Optimal Consumer Protection

Real-time payment systems increase fraud risks by compressing the detection window. We develop a framework to study two institutional levers: centralized versus decentralized fraud control, and the allocation of fraud losses through liability and reimbursement rules. Centralized governance does not by itself implement the planner’s allocation, because user fees can inefficiently exclude small payments. In a decentralized regime, a simple liability split generally does not implement the first best, but the optimal split can be characterized by the relative adjusted curvature of sender- and receiver-side prevention technologies. Liability is generally shared, but becomes sender-heavy when receiver-side monitoring is sufficiently less flexible. With access and cap mandates, centralized governance dominates; without them, decentralization can yield higher welfare.