DECENTRALIZED RISK-SHARING POOLS FOR FRAUD LIABILITY AMONG ISSUERS AND ACQUIRERS

The rapid growth of digital payments and card-not-present transactions has intensified fraud exposure for both
issuers and acquirers, creating rising operational losses and growing pressure on existing liability-allocation
mechanisms. Traditional centralized risk-management frameworks—such as insurance agreements, bilateral
indemnities, and chargeback rules—are increasingly inadequate due to limited transparency, slow claims
processing, and significant administrative overhead. This study introduces a decentralized risk-sharing model
based on blockchain-enabled smart contracts, designed to distribute fraud liability more equitably through
collaborative liquidity pools funded by participating issuers and acquirers. The proposed architecture leverages
decentralized ledger technology to automate contribution calculation, fraud verification, and payout execution
while ensuring immutability, auditability, and trust minimization across all participating entities. By integrating
real-time fraud-detection oracles and configurable governance mechanisms, the risk pool enhances both security
and compliance within multi-stakeholder financial ecosystems. The findings suggest that decentralized risksharing pools can reduce systemic exposure, accelerate claim settlement, and improve capital efficiency compared
with conventional models. The paper concludes by discussing implementation challenges—including oracle
reliability, liquidity sufficiency, and regulatory constraints—and highlights future opportunities for AI-driven risk
modeling and interoperable multi-network insurance pools.