On Fri, Jul 08, 2005 at 12:19:38PM -0400, Perry E. Metzger wrote: [...] > Actually, the people who would have to pay the investment -- the banks > and merchants -- have an excellent incentive. The loss because of > fraud is stunningly large. The real issue is that *consumers* have > little incentive to cooperate with such a system, because thanks to > the regulations, they suffer virtually no losses if their accounts are > hijacked.
As I understand it, the merchants bear the entire cost of fraud - the banks bear almost none - and thus the consumers end up paying for it indirectly through higher prices. The merchants, however, have very little control over the infrastructure, which is provided by the banks, who have little incentive to actually control fraud because they would bear all of the costs of such, and none of the risk is theirs. So the assertion is that consumers and banks have little incentive to cooperate with such a system, but (some of***) the merchants REALLY WANT it. However, the system is useless if the consumers don't have it, and the banks have no incentive to give something to consumers that's better, because it would cost them money and save them money that they can currently simply charge the merchants for (fraud). *** The merchants can be divided into two groups - most of them who have not been bitten by fraud and will continue to try to pay as little as possible for credit processing services regardless of the risk because every little bit eats more into their profit, and those who have been bitten by fraud, understand the risks, and will go for paying for for a service that frees them from additional liability. Consumers, on the other hand, still have limited incentive to participate. I'd suspect the NewBanks(TM) would simply have to lure them with lower interest rates, which they'd find hard to do because it would cut into their profits, making it difficult to pay for all of the additional infrastructure they'd need to build. The system is, of course, pretty much worthless if it's not in the hands of the vast majority of consumers. As I said, any sea change like this has to either replace the traditional credit granting/honoring agencies, or take away enough of their business that they have no choice but to go along with it. Assuming that they don't use their considerable existing wealth and influence to simply make the new products illegal from the get go. -- - Adam ** I can fix your database problems: http://www.everylastounce.com/mysql.html ** Blog............... [ http://www.aquick.org/blog ] Links.............. [ http://del.icio.us/fields ] Photos............. [ http://www.aquick.org/photoblog ] Experience......... [ http://www.adamfields.com/resume.html ] Product Reviews: .. [ http://www.buyadam.com/blog ] --------------------------------------------------------------------- The Cryptography Mailing List Unsubscribe by sending "unsubscribe cryptography" to [EMAIL PROTECTED]