Data Breaches and Risk Management in Emerging Payments: An Economist's View
Advances in technology have enabled companies to collect and share massive amounts of personal data from individuals and companies. While this practice certainly offers important benefits, such as allowing companies to offer credit more efficiently, it also imposes potential costs.
Originally posted in the most recent edition of the Federal Reserve Bank of Atlanta's Payments Spotlight podcast series, Financial Update Focus also features this podcast, which explores this dilemma from an economist's perspective. The podcast, "Data Breaches and Risk Management in Emerging Payments," features Atlanta Fed research economist and senior policy adviser Will Roberds, who in 2008 coauthored "Data Security, Privacy and Identity Theft: The Economics behind the Policy Debates," a working paper on the topic. (The topic will be explored further in the third-quarter issue of the Atlanta Fed's EconSouth, in print and online.)
More data, more problems
Further, electronic payments data follow what economists refer to as a "weakest link rule," meaning that the system is only as secure as its weakest point of access. So if one participant is not matching the effort of all the others, it puts the entire system at risk.
The carrot or the stick?
July 27, 2011