How to Enable Future Faster Payments? An Evaluation of a Hybrid Payments Settlement Mechanism

GUO, Zhiling and Huang, Yuanzhi (2017) How to Enable Future Faster Payments? An Evaluation of a Hybrid Payments Settlement Mechanism. Pacific Asia Conference on Information Systems (PACIS).

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In the era of Fintech innovation and e-commerce, faster settlement of massive retail transactions is crucial for business growth and financial system stability. However, speeding up payments settlement can create periodic liquidity shortfalls to banks which would incur high cost of funds in the settlement process. We propose a new hybrid settlement mechanism design that integrates features of real-time gross settlement, deferred net settlement, and central queue management structure. The hybrid mechanism is managed by an intermediary and is particularly suitable to settle large volume of small-value retail payments. We evaluate the mechanism using computer experiments and simulation. We find that central-queue netting is an effective means to achieve high system performance. Our results also show that the intermediary plays an important role in coordinating multilateral central-queue netting and supplying liquidity as needed to banks. We offer some policy insights into future faster payments settlement mechanism design and implementation.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Industrial Engineering and Informatics > Information System
Depositing User: staff repository 1
Date Deposited: 21 Aug 2018 16:11
Last Modified: 21 Aug 2018 16:11

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