The Risks and Regulation of New Payment Methods in Retail - Coursework Example

NEW PAYMENT METHODS Name of student Name and Number of Course Name of Professor Date Introduction The world is facing a sharp twist towards the new payment methods. Payments are shifting from paper to electronic therefore making non-cash mode of payment growing. The new payment of products, services, and rules are changing rapidly with the technology making these new payment methods more susceptible to fraud, illicit use, and breaches of security data. The service providers of the new payment methods are experiencing more challenges and are at risk of rejection in the market. Through limitation of access to payments through certain networks, monitoring for compliance is difficult. In addition to this, enforcing penalties for noncompliance is risky due to cases associated with fraud, illicit use, and data security breaches. People engage in business with a motive of making profits (HANSELL, 2008). Payment systems have different valuation in exchange. This is also affecting business transactions. This paper is going to discuss in details the negative implications that the new retail payment systems are causing. The paper also discusses the impact of regulating the ne payment methods and its overall effect on domestic and international trade. Fraud Fraud has become so intense through the new retail payment methods. People are no longer safe with their credit cards as most people engage in business online. The concept of trading is always involving not less than three parties. The first party is the consumer or the buyer while the second one is the seller. The third party is always the service provider, which accepts payments. Such services include PayPal, Payoneer, Moneybookers, western union amongst others. The process of transacting business online has made purchasing of services and products through online as expensive as the consumer has to pay additional payments for the service provider. Cases of fraud occur in different ways. One of them is when the buyer offering a fraudulent claim. The buyer may also offer expired credit cards or may be having insufficient amounts in their accounts at the time of transaction. A buyer may also write a cheque yet has insufficient funds in the account. Currency fraud, cheque fraud, and credit cards frauds are costing the U.S government billions of dollars every year hence affecting its economy. Payments systems store information and data, which are very valuable. Hacking of such information, which is normally stored in computers, poses a serious threat for these new payment methods. Due to the rising cases of fraud through the new payment methods, most of the federal governments have resorted to regulating these payment methods. (sidel, 2006) Despite the negative publicity of the new payment methods, these methods have had a positive effect on business transactions. They are first and very efficient especially since they can be done online through the computers. They also have the advantage of wider geographical access. Someone anywhere in the world who has an access to the computer can use the new payment methods. The cost of transacting business activities through the new payment methods is cheaper hence encouraging many people to engage in them. (Cox, 2001) Challenges facing regulation of new payment systems Every government requires a good payment system since this is an important developmental factor in the financial sector. Most federal governments have ensured that there is continuity in function and promotion of stable reliable payment systems through supervision. Public regulation of the payment systems has turned into monopoly with most governments determining the extent to which through customers can have access to certain payment information. However, this is a positive approach since the supervision has encouraged adherence to regulations.(KEENAN, 2001) Internationally it is a challenge to control payment systems due to the difference in currency value. However, as a sign of relief central banks, IMF, World Bank, G10, and European Commission have drawn up significant principles, which may help in supervisions and regulation. Regulation of the payment methods means a shift in the market value of some of the products and service. This will also cause a time lag before most business activities adapt to the new changes. Rapid changes in technology may not allow these regulations to take place. The idea to regulate the payment systems may also lead to a fall in demand of various commodities in the world therefore ruining the bilateral relationship that most countries enjoy. Payment system risks affect both the customer and the service provider. There is a clear risk of clarification; staff risks realization probabilities and the prior quantification of possible losses. It is difficult to avoid overlapping and borderline cases since payments systems are classified into various perspectives. Risks change with time and they can shift from one area to another. (RUTLEDGE, 1996)Reserve banks are exposed to risk of credit when the regulation of the payment system is done. Strategic Risk Most financial institutions have mission and future for their business plans. The pans include ways of payment and entering into new business lines by expanding their services through mergers. The Enterprise Resource Planning (ERP) system design is to fulfill the goals of the companies using it. Companies using this system are able to integrate, solve, and handle manufacturing and production with a lot of ease. Due to most companies engaging in mergers and acquisition, there is need for them to integrate their payment systems. This is amongst the priorities of company’s management. Regulation of the payments systems poses a risk for such companies. It is a challenge for most companies since through the regulations efficiency associated with new payment systems. The risk and alpha factors are misaligned due to the variation in the methods used to develop expected returns forecasts and risk models. These constraints have a significant effect the misalignment challenge and cause another area of complexity. Utilization of optimization to create the optimum on strong holds has the unexpected impact of increasing the sources of misalignment. It underestimates the risk of the expected output part that is misaligned with the model of risk. Actually, it puts pressure on this part, which is not correlated with all the other consumer risk factors. Researchers have been structuring evaluation on correlation when businesses are choosing securities to create different payment systems. They agree that changes can occur on the correlation between investments. The quantitative analysis can be unbiased on its portfolio analysis and reveal the unclear portfolio concentration hence leading to unexpected and non-compensated risks. (SCHREFT, 1997) Positive Effects on Pay Wave on BRIC Countries New Zeeland has a good foreign relationship with the BRIC countries and this is why these countries offer a wide range of opportunities and challenges for this country thanks to its well-established payment systems. According to statistical data and information provided, it shows that new Zeeland has direct foreign investments flowing directly to the BRIC countries. The first foreign earner for New Zeeland is Japan with over 180 million NZ$ as per the year ending 31st March 2011. United States follows suit with 17 million NZ$ as per the same year ending 31st March 2011. Amongst the top 20 export countries, United States is the first country with 4,048 million NZ$ as per the year ending 29th February 2012. Another BRIC giant is India which has a total of 919 million NZ$ trades as per the year ending 29th February 2012. The data shows that New Zeeland depends on these countries in order to boost and improve their economy. This is only important through proper payment systems. The financial and economic crisis that has grounded America has played a big role in reducing the economic growth of this country. (MCANDREWS, 1997) BRIC countries are some of the economic giants in the world. These countries have an average economic growth of 5% annually. The countries have good infrastructure and communication network. These countries have 70% of the middle class people working with good educational background. BRIC countries also enjoy good political stability, which attracts foreign investors. Larger population in the world also characterizes BRIC countries. Brazil is emerging as one of the economic giants reporting a steady average growth rate of 4.5% over the last 5 years. Brazil has seen its imports reducing considerably and exports increasing at the same time, which is a positive sign of economic growth. The decline in unemployment was rated at 6-7% by December 2011. Brazil is planning to host the FIFA world cup 2014 and Olympic 2016. For Juliet and Holbrook, this is the best investment opportunity for them to export their products. Brazil is set to invest so much money in infrastructure, water, and good sanitation and this is an investment opportunity for NZ. New Zeeland has a long trading relationship with India. The relationship stems from the spoken language, sports, and democratic traditions. India and New Zeeland have been in negotiation free trade agreements. By 2010, the discussions were over and an agreement passed free trade between the two countries (Bano, 2010). The free trade agreement is an opportunity for New Zeeland since India is one of the economic giants in the world not forgetting its population, which is the second highest in the world. With India recording a steady average growth income of 7.3% in the last 8 years, this investment opportunity with free trade means that New Zeeland exporters have an opportunity to exploit this economy. India has been on a close look on tapping into the precious metals found in New Zeeland. Russia one of the BRIC, s has also been in negotiations for free trade agreement with New Zeeland since 2009. (Saarinen, 1998)There have been 9 rounds of the discussion with the recent one being held in July 2102 with high and lots of expectations in it. With the positive trend, it is believed that the negotiations will be completed by the end of the year. New Zeeland has an opportunity to prove its relationship with the largest country in the world and the 9th largest in the economy. This means that New Zeeland exporters will exploit the population and the economic sections available. For Juliet and Holbrook investing in the BRIC countries will be an opportunity to capture due to the good economic trend experienced in Russia. This is also reflected in the in Sports especially in rugby. The South African country is the largest in Africa, which means its population is also an export target for NZ exporters. New Zeeland has not exploited this opportunity especially with its low investment participation during the FIFA world cup 2010 in the Southern African country. However, with good relationship ties New Zeeland has an opportunity to export most of its agricultural produce to South Africa. Trading between the two countries would be much easier because South Africa is a developed country with good infrastructure, stable economy, and political environment. The country is one of the best tourist destination points in Africa. There are many analytical research that have been conducted on the validity of using discounted cash flow as a means of decision making during a company project. Business professionals do not have tools to approximate the specific input factors. However, the discounted cash flow analysis is an effective tool to examine the assumptions and conditions that must be considered so that the company (which is the major interest of the company’s investors) value can be attained. This is important to counter the company’s monetary budgeting and development of feasibility plans The BRIC, s poses a great economic challenge to New Zeeland ranging from inflation to competition. Brazil is one of the agricultural giants in terms of production and it has most of its exports in within the BRIC, s. This poses a threat to New Zeeland’s expansion opportunities. China, India, Russia, and South Africa are some of the most populous countries in the world. With New Zeeland opening its financial links to these countries through free trade, most of its industries are exposed to risks due to competition from foreign industries. The exporters will also be at risk since their products will be facing a lot of competition in foreign countries mostly due to the free trade agreements. New Zeeland will only have a fraction or smaller portion of its investment in these countries therefore not enjoying the comparative advantage expected. However for Juliet and Holbrook their advantage lies in the population the New Zeeland will be exposed to. Therefore, it would be of great significance and of essence that they establish their business branches within the BRIC, s. The recent world financial crisis affected Japan, America and Russia economies and the countries have been trying to regain their financial stability. New Zeeland’s trade partnership with these countries means that there will be a significant impact in its economy incase these countries face economic crisis. All derivatives are not high-risk investments as viewed by many. However, if not properly understood, they can be misappropriated thus leading to negative results. The potentiality of securities is very essential and needs to be considered by management. It is important to collaborate with experienced professionals in opportunities, resources, returns, and risk analysis. Investors should know that any investments involve risks and therefore failure can occur leading to losses. Most of the time, companies in arising markets have international portfolios. On the other hand, there are some business characteristics such as optimum accounting practices, corporate governance and liquidity, that are not seriously considered by investors even though they are not found in the arising markets. (OCC, 2006) (David Hench, 2007) Utilizing discounted cash flow to validate the company’s project is very appropriate so long as the assumptions are considered. The technique actually relies on the validity and quality of the utilized input data. If the method is applied with care and accuracy, then it will act as a significant tool to examine the asset values and even the impacts that various economic endeavors have on the company’s value. The ranges in discounting and growth rates differ between companies. However, according to the arbitrage theory the growth rate is same for all companies. Discounting can effectively be used to attain a good number of company values when used together with other methods such as precedent transaction analysis. Presently, most companies and banks apply the combination and are proving economically successful.This method ensures that the major company goal is the target and not concentrations on the individual shortcomings hence a valid company value. Australia is country with good reputations when it comes to payment of salaries to its workers. It is important to know how much salary you expect to earn while applying for a job. It is for this purpose that the Australian government demands that anyone posting or advertising a job should specify the amount of salary offered. The forces of demand and supply depending on the sector and professional skills determine wage earning in Australia. In most cases, the wage rate should not be above the equilibrium forces of supply and demand, unemployment sets in. The law is also very categorical in terms of the amount of salary earned depending on the level of education and qualification. The incorporation of decision trees will allow many decisions and outputs to be identified and appropriately examined based on the expected monetary value results. The company will know that the future uncertain. Therefore, flexibility in planning and investment is core achieved by the variety of decisions presented through the trees e.g. breaking of clauses during leases and options to increase operations. Partnership in business is effective because the company will share the risks and returns of the project hence reduction of losses. Therefore, it is economically efficient for the company’s proposal to focus on the discounting, expected monetary value, and partnership. Challenges facing regulation of new payment systems include the education level, level of income, employment levels, personal preferences, transaction-specific factors, and marketing campaigns.(BLOOM, 1997) Challenges facing regulation of new payment systems include the education level, level of income, employment levels, personal preferences, transaction-specific factors, and marketing campaigns Educational Level The level of education affects the demand for electronic banking system; it plays a significant role in determining the household use of e-money products. The customers education level determine whether consumers will agree to electronic payment or He or she will not. Recent Studies have shown that people who are highly educated support electronic payment products than those people who are less educated. The procedures involved in operating some electronic payment transactions dispirit the customers who are less educated to utilize its use. Customers’ Wealth/Levels of Income Wealth has a significant role in terms of consumer’s decisions on the choice of payment and the availability of payment instruments. Consumers who experience brief financial shortfalls in most cases they may not find electronic bill payment as a desirable payment instrument, while consumers who are wealthy finds the electronic payment desirable and may be able to fund their obligations in general. In this situation, the considerations of the risk factor make some consumers to keep away from using pre-authorized electronic payment of bill Employment Levels The employees who receive their pay via the banks are the ones who are more likely to use the electronic means of paying bills, their constant associates with banks makes them more exposed to this kind of electronic payment of products hence they are, likely to patronize these products. Most employees receive their payment through a direct deposit through the Automated Clearing House (ACH) and. Some receive through other means like cash in hand hence they are not accessible to electronic payment system. References Bano, S. (2010). Background to India -New Zeeland Trade. India-New Zeeland trade and trade potential, 2 of 35. BLOOM, J. K. (1997). “Visa and MasterCard Publish SET Protocol for Internet.”. American Banker, 10-15. Cox, P. (2001). PayPal and FBI Team Up,”. Wall Street Journal,, 10-20. David Hench. (2007). Savvy Thieves Use Gift-Card Scam to Fool the System. Portland Press Herald/Maine Sunday Telegram, 50-62. HANSELL, S. (2008). New Breed of Check Forgers Exploits. New York Times, 15, sec. A. KEENAN, C. (2001). Visa One-Ups Rival on Consumer Card Liability.”. American Banker, 111-185. MCANDREWS, J. J. (1997). Making Payments on the internet. Federal Reserve Bank of Philadelphia Business review, 3-14. OCC. (2006). Automated Clearing House Activities: Risk Management Guidance,”. OCC Bulletin, 39. RUTLEDGE, G. (1996). “Taming the Fraud Monster.”. Credit world, 10. Saarinen, H. L.–V. (1998). Payment system risks in Finland and the need for regulation and supervision. (Finnish version – A:100), 686-577. SCHREFT, S. (1997). “Looking Forward: The Role for Government in Regulating Electronic Cash.”. Federal Reserve Bank of Kansas City Economic Review 82, 59-84. sidel, R. (2006). “Credit Firms Push to Thwart Fraud: Merchants Face a Penalty If Steps Aren’t Taken to Curb Identity Theft; Visa Misses Own Security. Wall Street Journal, 54-78. Read More