Friday, July 11, 2014

Insurance for Electronic Transactions

The Federal Reserve created Regulation E (Reg. E) to enforce the Electronic Funds Transfer Act. Card issuers assumed liability for failed or disputed transactions and pulling money from consumer accounts became the norm. I discussed small value gross real time payment systems (SVGRTP) (Ad nauseam perhaps patient reader(s)) and why a push from consumer accounts lowers risk. However with any payment system, and particularly retail payment systems, disputes, theft, and failed transactions create the potential for unreimbursed liability.

I believe there is a relationship between transaction value; distance between payer and payee; and time to strongly authenticate a payer, and that we can quantify that relationship with a scalar value. Further we can use the resultant scalar value to quantify relative risk of any particular electronic payment.  We can count on people getting together to bet on the outcome of human endeavor regardless of its speed or periodicity.

Is there a market for funds transfer liability? Are we on the verge of seeing traders see a blinking light setting a price for a 100,000 PIN transactions under $100 from store x, or consumers purchasing goods and services in region Y, or passengers paying for a flight? Will insurers sell policy covering payment system losses to individual consumers? Will my signed purchase of a liter of soda from a regional chain within 1 mile of my home address promote multiple zero sum bets?

Will retailers buy or sell these policies because it costs less than paying payment system networks exorbitant prices for artificially created risk?  

Perhaps dear reader(s), perhaps

Next Blog: Knitting concepts together, or, response to comments, or do you want to get geeky with me?

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