Risk and Electronic Payment Systems
One important challenge of e-commerce is risk management. The working of the payment systems incurs three major risks; mistake, privacy problems and credit risk.
Risks from Mistake and Disputes
Consumer Protection
Virtually all electronic payment systems require some ability to keep automatic records. Once information has been electronically caught , it is easy and not expensive to keep.
The intangible nature of electronic transactions and resolution of the disputes relying alone on records, a general law of payment dynamics and banking technology might be : No data should be discarded. Features of these automatic records are :
- Permanent storage
- Accessibility and traceability
- A payment system database and
- Data transfer to payment maker, bank or monetary authorities.
The need of keeping of records for the purposes of risk management conflicts with the transaction anonymity of cash. An unknown payment system without automatic record keeping facility will be difficult for bankers and government to accept. However, customers might feel that all this record keeping is an invasion of privacy.
Managing Information Privacy
The electronic payment system must provide and maintain privacy. Every time one purchases goods using a credit card, subscribes to a magazine or accesses a server that information goes into a database somewhere. This violates one the unspoken laws of doing business; that the privacy of customers should be protected as possible.
All details of a consumer’s payments can be easily be aggregated : Where, when and sometimes what the customer buys is stored. This data collection tells much about the person and as such can conflict with the individual’s privacy.
Privacy must be maintained against eavesdroppers on the network and against unauthorized insiders. The users must be given assurance that they cannot be easily duped or falsely implicated in a fraudulent transaction. This protection has to be applied on the whole transaction protocol.
Managing Credit Risk
Credit risk is an important concern in systems of net settlement because a bank’s inability to settle its net position could give rise to a chain reaction of failures of the banks. The digital central bank must prepare policies to handle this possibility. Various alternatives exist, each with advantages and disadvantages.
A digital central bank guarantee on settlement issues eradicates the insolvency test from the system because banks will more easily assume credit risks from other banks,
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