Legal Seminar, Denver, CO

071018 Discussion Draft

violate U.S. antitrust laws. See Ohio v. American Express Co, 585 U.S. __ (June 25, 2018). c. Security and reliability. o While cash presents risks of theft and loss, data security breaches present significant risks to businesses. The cost of breaches has been growing over time; accepting electronic payments potentially entails security costs, o Accepting cash involves only the risk of losing what is on hand at the time. Accepting an electronic payment potentially subjects the merchant to a larger contingent liability in the form of data security breach notification and remediation costs, including costs that may be imposed by the card network in the form of fines for PCIDSS noncompliance or damages that may be awarded to issuing banks for the costs of issuing new cards to their customers. This is a serious problem (and one which I understand that others speaking at this conference will be covering in greater detail.) o If payment networks go down, you cannot do business. Cash avoids that risk. (However, note the problems experienced in Puerto Rico after hurricanes shut down ATM networks – access to cash can also be affected by network outages. d. Speed and convenience. o Traditional cards involve friction. For example, websites lose sales from customers who abandon their cards without paying. Stores with long lines may lose customers to online alternatives. Friction in payment processes contributes to these losses. o Do we really need to carry a card as a token in order to make a payment? Can we validate ownership effectively in other ways, which may even be more robust? e. Social policy questions also lurk here: do those making electronic payments with higher benefits (and higher merchant costs) receive subsidies from those who pay in cash or with low-cost alternatives? Does a decision to accept only electronic payments leave out the poor, immigrants, or other disadvantaged groups? Innovators: Conventional “Rails”. Innovators and “disruptors” involve two approaches: those that seek to use existing rails and those that try to build their own systems based on the Internet. Generally speaking, they attempt to address what the marketplace does not like about current options. A. Cost Innovators . Cost advantages tend to attract merchants. But as long as merchants are bearing the costs (directly), the incentives for consumers to change buying patterns are limited. 1. ACH Systems. Innovators have offered ACH based system that allows businesses (and others) to make (and receive) payments electronically. Some examples are discussed below. Although which vary based on the platform adopted. Query how these costs compare with the security/accounting costs of handling cash. IV.

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