Implications of Banking Regulations on Online Payment Failures

Aditi Chawla, Ganesh Manjhi () and Gaurav Bhattacharya

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the `latent economy' of online transaction failure that prevails in the digital payment system. A two-variant model of profit, with a different cost function in each variant, has been proposed to examine the profit of commercial banks. The model considers that when an online transaction fails, banks use the money held in the Unified Payment System to earn revenue in the form of interest income by investing the same. The theoretical exposition of the model has been corroborated by simulation by assuming feasible parametric restrictions and exogenous values. The paper finds that commercial banks make profit by using the held amount at the existing cost. As the proportion of the held money used by the banks increases, their profits increase and the commercial banks incur losses when an `alternative cost' with stricter penalties is imposed.

Keywords: Digital Payments; Transaction Failure; UPI Payment Failure (search for similar items in EconPapers)
JEL-codes: E58 G18 G28 L51 (search for similar items in EconPapers)
Date: 2021-01-16
New Economics Papers: this item is included in nep-ban, nep-cba and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:105285

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