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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: GOVERNANCE
Governance Good system governance is perhaps not a characteristic of the perfect payment method, but rather a basic pre-condition to ensure all four other characteristics can be fulfilled. Payment methods such as four-party cards are naturally two-sided markets. This inevitably means that zero-sum-game elements of the system such as fees and fraud liability will create challenges between the participants on either side of the market. In order to ensure incentives are balanced and the system is fair, good governance is essential. For the perfect payment method, this would involve balanced representation from all stakeholders within the system, including (but not limited to) consumers, merchants, networks, processors and banks. It makes sense that a two-sided market payment method with network effects has a centralized governance structure, but this body should have a board of directors from across the stakeholder group, even voting structures and veto rights over controversial changes. There are several clear benefits to this structure. Firstly, fees should be competitively negotiated and therefore should end up reflecting underlying costs and avoid rent seeking. Secondly, fraud should be minimized as a priority and fraud liability should fairly reflect actual accountability. Thirdly, the user experience will be paramount, with authentication decisions being driven by end user rather than commercial considerations. Ironically, these guidelines should encourage rather than inhibit innovation, by removing commercial barriers to entry and ensuring market participants focus on end user value propositions rather than locking in wealth. As with ubiquitous acceptance, effective regulation may be seen as a pre-requisite to achieve good system governance.
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