The payment industry has been characterized by a small number of players that operate the schemes for the facilitation of credit and debit card payments. Over the years, various initiatives have been taken in order to increase competition and hence cost efficiency within the industry. One of the latest efforts is the introduction of Payment Service Directive II (PSDII) within the European Union. PSDII requires banks to open up their services to Third Party Payment (TPP) networks. TPP networks make use of banks’ payment initiation services for e-commerce transactions, creating an alternative next to credit and debit card payments. However, just like in the card networks, payment fraud is not absent in TPP networks. Fraud manifests itself in non-payments: authorized payments that do not get settled. In this paper we first analyze the ecosystem dynamics of the TPP network by examining the role of each actor involved. By leveraging one year of transaction data from the TPP network, we estimate the prevalence of non-payments. Finally, we evaluate a preventive and reactive risk management strategy. The latter strategy comprises of a non-payment recovery process — sending the consumer a reminder of the due amount—and proves to be surprisingly effective. Additionally, we have evidence that combining both strategies into a continuous risk management process can yield even better results. As non-payment in the TPP network has similarities with chargebacks in the card network, we believe that our approach can also enhance risk management in the card network.
|Title of host publication||Proceedings of Workshop of Economics of Information Security 2016|
|Publication status||Published - 2016|
|Event||Workshop of Economics of Information Security - |
Duration: 13 Jun 2016 → …
Conference number: 2016
|Conference||Workshop of Economics of Information Security|
|Period||13/06/16 → …|