A survey and risk analysis of selected non-bank retail payments systems

Payment services offered by non-banks have flourished in recent years. The author provides an overview of the different kinds of non-bank retail payments schemes currently available in Canada, illustrating each by focusing on a specific example. Current players in the Canadian marketplace include electronic bill consolidators, such as epost; online payment providers, like PayPal; and pre-funded schemes, such as retailers' gift cards. The author also discusses the main risks associated with each of the schemes, such as bankruptcy, banker, security, market, and liquidity risks. While the author does not undertake a complete analysis of the market failures that may justify regulation of non-bank retail payment services, he does set out a broad framework for considering whether users and providers of these services have the incentives to manage the associated risks. Since any regulatory response, if deemed to be justifiable after a more complete analysis, must be balanced in its approach, some of the costs of regulation in this area are also considered.