People Minding Other People’s Business

by on July 3, 2007 · 16 comments

This very fine Ars story on the emergence of contactless payments is a terrific opportunity to spot examples of people minding other people’s business.

Example 1, Federal Reserve minding consumers’ business: “The Federal Reserve sets rules for receipts, and last week the Feds said that purchases of $15 or less don’t even require a receipt now, let alone a signature.”

I’m sure the Federal Reserve cares, and I’m sure they’ve done a careful job, but I really think that the need for, and content of, receipts can be hashed out among buyers and sellers. I now wonder how many billions of receipts are handed out each year because of this “protection.” (If it’s one billion more than consumers actually want and need, think paper, ink, print mechanism, and a second or two of people’s time x 1,000,000,000 – costs all borne by consumers directly, or indirectly in the form of higher prices, without a commensurate benefit.)

Example 2, Security researchers minding credit card companies’ business: “Security researchers independent from credit card companies are sounding alarms, while the credit card companies themselves believe that they have the right balance of security and functionality.”

The researchers care, and they want the best possible system, but they’re security researchers. Almost by definition, they are going to overweight security.

Payment systems are actually supposed to balance many competing interests, security being just one. Others include convenience, level of repudiability, privacy, and so on. So long as the credit card associations bear the risk of loss (and in these low-dollar transacations, they do), security is the credit card associations’ problem.

(Yes, the costs of insecurity are also passed to merchants and consumers. The solution that will keep these costs in check, yet in balance with other demands on the system, is competition among credit card associations and among payment systems for both kinds of customers. The job of each credit card association is then to constantly tweak the mix of interests its products serve. With each tweak, it aims to bring more customers on board than it loses.)

If the researchers convince the Fed to hold up experimentation with RF payments, that’s two busy-bodies getting together to run transactions for which consumers, merchants, and credit card associations are supposed to be responsible.

When lines of authority break down, results suffer. No one is better positioned to balance risks than self-interested parties.

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