Payment Card Industry Security Standards - Essay Example

The paper carefully examined the impact of various acts and laws such as PCI (Payment Card Industry Security Standards) on the various players in the industry. The author has quantified the costs associated with security breaches according to cardholders, merchants, financial institutions, cost of breaches, and compliance. In addition to that, it has discussed compliance issues and identified significant data breaches that have occurred in the US Retail Payment Industry. More importantly, it has recognized and discussed critical public policy-related issues with an emphasis on data notification laws and the role of the Federal Trade Commission in tightening security risks.

The paper has also proposed a framework to upgrade the current system with the potential Chip and PIN-based dynamic network procedure which will mitigate the risks associated with security matters. The author stated that information security can be guaranteed if the private sector assumes a leading role since it has the expertise to protect security risks inherent in the sector. However, he also believes that coordination problems and unequal distribution of the benefits and burdens of the system can be efficiently managed if the government heads in its footstep toward the industry. Hence, the author concludes that information security in the Retail Payment Industry can be strengthened by involving the federal government as an active partnership between public and private groups to establish security standards and frameworks which will protect the interests of stakeholders.

The second paper authored by Sullivan (2010) titled “The changing nature of US card payment fraud: Issues for industry and public policy” highlights the reasons for fraud and breaches of data in the US card payment industry and it identifies how to combat those issues in general. This paper is different from the first paper in the sense as it does not take into account social costs and benefits (externalities) associated with the payment system. However, it has investigated the reasons behind security lapses in the payment process, and after a thorough review of vulnerabilities in the system it inferred that they were tied to the information-intensive approval system. The paper also revealed that the major sources of data breaches by criminals emanated from nonbank payment processors, retailers, and government entities. Furthermore, it reviewed the monetary damages resulting to the participants in the payment system. This paper also differed from the previous paper in the fact that it made an assessment of fraudulent activities within the United States with that of other countries such as Australia, France, Spain, and the United Kingdom. The data analysis revealed that the United States had the highest rate of card fraud as compared to other countries and the reasons were cited as conflict of interests, lack of coordination among the public and private sector, and inadequate incentives. Finally, the paper stressed that policymakers should play a pivotal role in assisting the payment industry to eliminate the barriers to effective coordination of security development.

The nature of the public as opposed to normal goods
Normal goods in economic terms can be defined as goods that fulfill the fundamental assumptions of demand and supply and their price is determined by market equilibrium. Secondly, normal goods are demanded more when income increases. But this paper emphasizes more on the aspect of public goods. Public goods are considered to be non-excludable and non-rival in consumption.

The term non-rival implies that the consumption of one person does not reduce the consumption of any other person which also means that the marginal cost to another person is zero. The property of non-excludable implies that once the good is produced you cannot prevent consumption of the good by anyone. An example of a public good is the national defense of a country. Public good issues are more related to externalities which is costs or benefits transmitted to another entity outside the context of the market. In the Card Payment industry, there are externalities in information security as they have profound consequences on individuals external to the company. A credit cardholder party needs to be protected his information from unauthorized eyes while at the same time, he needs to establish the authenticity of a transmission to the intended counterparty.