[Economic Term] Payment Risk

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Today's economic term is payment risk.

Payment risk can be defined as the possibility that payment will not be made as scheduled due to unexpected circumstances or the possibility of loss resulting therefrom. Although this payment risk has a low probability of occurrence, it has the characteristic that it can result in large losses if it actually occurs. As the scale of payments continues to increase, interest in payment risk is increasing due to changes in the payment environment, such as the development of information and communication technology, and the impact of the global financial crisis.

In particular, the provision of various payment services using the Internet and mobile devices is improving the efficiency of the payment system, but on the other hand, it is also affecting the increase in payment risk. Settlement risk can occur due to various factors such as the difference between the transaction time and clearing/settlement time, clearing/settlement method, and financial soundness of institutions participating in the financial market infrastructure. Types of payment risk include credit risk, liquidity risk, operational risk, legal risk, and systemic risk.

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