Publication Type

Conference Proceeding Article

Version

submittedVersion

Publication Date

7-2017

Abstract

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.

Keywords

Liquidity, mechanism design, payment system, queue management, simulation

Discipline

Databases and Information Systems | E-Commerce | Finance and Financial Management | Technology and Innovation

Research Areas

Information Systems and Management

Publication

PACIS 2017: Proceedings of the 21st Pacific Asia Conference on Information Systems: Langkawi, Malaysia, July 16-20

First Page

1

Last Page

11

Publisher

AIS

City or Country

Atlanta

Additional URL

https://aisel.aisnet.org/pacis2017/231/

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