TY - JOUR
T1 - LIABILITY AND ANTIFRAUD INVESTMENT IN FINTECH RETAIL PAYMENT SERVICES
AU - Yoon, Kyoung Soo
AU - Jun, Jooyong
N1 - Publisher Copyright:
© 2018 Western Economic Association International
PY - 2019/1
Y1 - 2019/1
N2 - Motivated by recently introduced retail payment schemes using information technology, often called “FinTech,” we examine the effect of fraud liability regime on antifraud investment in a FinTech payment scheme, where the front-end and back-end services are vertically separated. In an environment where a FinTech payment service provider (FPP) covers only the front-end services, delegating the back-end services to an integrated payment service provider (IPP) such as banks and credit card companies, we show that under the IPP liability regime, the IPP invests more in general, while the respective investment depends on the range of the access fee under the FPP liability regime. Specifically, given a sufficiently great loss from accident, if the access fee is in a certain range, the FPP liability regime is superior in terms of antifraud investment. When the FPP makes its indirect revenue from its user base in addition to the revenue from user fees, we can observe greater antifraud investment under both liability regimes, but the overall decrease in fraud probability is higher under the IPP liability regime. Our results suggest that it might be desirable to induce FPP liability regime, which might necessitate regulating the access fee to achieve such an outcome. (JEL G23, G28, D43, L22).
AB - Motivated by recently introduced retail payment schemes using information technology, often called “FinTech,” we examine the effect of fraud liability regime on antifraud investment in a FinTech payment scheme, where the front-end and back-end services are vertically separated. In an environment where a FinTech payment service provider (FPP) covers only the front-end services, delegating the back-end services to an integrated payment service provider (IPP) such as banks and credit card companies, we show that under the IPP liability regime, the IPP invests more in general, while the respective investment depends on the range of the access fee under the FPP liability regime. Specifically, given a sufficiently great loss from accident, if the access fee is in a certain range, the FPP liability regime is superior in terms of antifraud investment. When the FPP makes its indirect revenue from its user base in addition to the revenue from user fees, we can observe greater antifraud investment under both liability regimes, but the overall decrease in fraud probability is higher under the IPP liability regime. Our results suggest that it might be desirable to induce FPP liability regime, which might necessitate regulating the access fee to achieve such an outcome. (JEL G23, G28, D43, L22).
UR - http://www.scopus.com/inward/record.url?scp=85042602719&partnerID=8YFLogxK
U2 - 10.1111/coep.12281
DO - 10.1111/coep.12281
M3 - Article
AN - SCOPUS:85042602719
SN - 1074-3529
VL - 37
SP - 181
EP - 194
JO - Contemporary Economic Policy
JF - Contemporary Economic Policy
IS - 1
ER -