Legal Problems Arising From Consumer Related Online Payment
By 何放 He Fang
Transactions over the Internet have grown at a tremendous rate in the recent years. By the end of 2001, the total eCommerce sales have reached $48.6 billion by the end of 2002 and are expected to hit $269.2 billion (including $238.6 billion credit card orders placed online) before the end of 2003. According to the Nilson Report, the volume of the electronic payment has reached $200 billion by the end of 1999 and is expected to reach $700 billion by the end of 2005. Online shopping and transaction have become convenient alternative methods for the consumers to buy some “low-cost” or “even-quality” products from merchants (B2C) or other consumers (C2C). The advantages of online transactions are obvious: First, it makes possible for a merchant attract any potential consumers in the world theoretically without regional limitation. The communications between the buyer and the seller are almost instantaneous. Second, the transaction costs of online business are normally lower than that of traditional ones. Third, it is easy and convenient for a potential consumer to choose from a wide range of choices by simple “click and buy”. However, the current situations are that those advantages have not been fully realized and the online transactions have not substantially expanded to the arenas of many high-cost products or even cross-border low-cost transactions. Although one explanation may be that consumers are feel more comfortable to buy personalized products in “real life” because of consumers’ habit, one big problem which have baffled the eCommerce since it began is the online payment in B2C and C2C transactions. The development of online payment technology has prima facie secured feasible eCommerce transaction to a certain extent. However, still many problems, especially legal problems remain to be solved. In this article the author will focus on discussing the problems arising from the online payment in B2C and C2C transactions from a legal prospect.
There are dozens of electronic payment systems proposed or already in practice over the Internet during the peak time of so-called dot-com economy in late 1990s. But they can be grouped into three types based on what information is being transferred online. The first type uses a trusted third party who maintains all sensitive information (such as bank account and credit card numbers) for its clients, which include both buyers and sellers. Such trusted third party actually acts as a trusted intermediary between the transaction parties. When there is a transaction, order information is transmitted along with information about payment confirmation and clearing, all of which do not include sensitive information. In effect, no real financial transaction is done online between the two direct transaction parties but the trusted intermediary makes separate transaction with the two parties. The primary example of this type is Paypal. This type of payment is widely used in C2C transactions and online auctions (e.g. eBay).
The second type is an extension of the conventional notational fund transfer. In credit card or check transactions, sensitive information is being exchanged. The information being transmitted online in this case is encrypted for security. The primary example is the use of digital credit cards (e.g. the VISA/Mastercard's SET-based transactions). Normally such kind of payment is used in B2C transactions (e.g. “card not present” transaction). This type is becoming the mainstream of online payment methods because consumers are more familiar with this system and current players have vested interest in extending that system to the Internet.
The third type includes variations of digital cash, electronic money and coins (e.g. egold/ecoin). What distinguishes these systems from the other two is not simply the anonymity they afford, but the fact that what is being transferred is "value" or "money" itself. This type works just like real paper cash. Once anonymous digital cash/e-money is withdrawn from an account, it can be spent or given away without leaving a transaction trail.
Legal Problems to be solved related to online payment
The booming market over the Internet has demanded an efficient, economic, and reliable method of payment. However, the current practices of online payment have not faultlessly fulfilled such demand. The following problems have arose in the current legal framework:
Liquidity is commonly defined as the ease with which an asset can be bought or sold for money. Online payment systems are not themselves money, but represent a private substitute for money that is acceptable to the transaction parties.
Formally money was originally a physical substance like gold and silver. It could even be alive, as livestock were one of the oldest forms of money. Today although much of the money used by individuals in their everyday transactions is still in the form of notes and coins, its quantity is small in comparison with the intangible money that exists only as entries in bank records. But the substantial character of money is that the money is legal tender, which means it is guaranteed by the sovereignty of a state and the power of collecting taxes of a competent government authority. In the current legal frames of many states, only the legal tender has the ultimate capacity to fulfill a payment. In the United Kingdom, legal tender is defined by statute and is essentially limited to coins and Bank of England notes.
Online payment system, which is designed to substitute for legal tender, may have liquidity if other types of assets can be converted into and out of that payment medium without causing significant distortions in the market value of the asset solely attributable to the choice of payment device. This type of payment device liquidity can be achieved when there is a sufficiently large number of transactors in the market and transactors can settle transactions in the payment device without making major modifications in other terms of the transaction in order to do so.
The liquidity problem has not laid much pressure on the first and second type of online payment discussed above, which seems to be compatible with the current legal tender framework because they actually are online extension of traditional physical card transaction. Nevertheless, the high commission charge of credit card transaction is notoriously regarded as a discouragement of micropayment. A micropayment system is needed for pricing microproducts and microbundles. Fees for bundled products often are large enough to be paid by credit cards and checks, and some economists argue that microproducts and micropayments discussed in connection with electronic currency will become largely unimportant. If transaction costs can be made low enough to handle even sub-dollar/sub-pound payments, why should digital product sellers be limited to accepting credit card payments and other large-scale payment methods? To justify a large bill, consumers are often required to purchase multiple products or a bundle with unwanted products. Thus, micropayments are as essential to electronic commerce as product customization. Furthermore, Electronic checks or digital credit cards become useless if their sensitive payment information is erased, or become costly if that information is hidden and calls for an elaborate process of verification.
Apparently the third type of online payment is very suitable to the demand of micropayment. Moreover, “digital cash” of such online payment is a kind of ultimately anonymous money and it is necessary if we are to operate fully in the digital marketplace. Non-currency electronic payment systems discussed above will be sufficient for some transactions; for others, digital currency will be more efficient in the said micro and anonymous trades. Furthermore, digital currency is very flexible since it can be made to behave like electronic checks or anonymous cash as situation warrants.
But the truth is such “digital cash” has not been recognized as legal tender in UK and other states. Therefore, this type of online payment lacks legal certainty on liquidity. How to regulate this kind of “non legal tender” payment? An important consideration is whether e-money fits within traditional product categories and hence is covered by existing product regulations. For example, if it is decided that e-money balances are a form of deposit, any existing regulations concerning deposits are likely to apply. However, even in this case there may be a need to review the regulatory approach, for it does not necessarily follow that the existing regulations will be the most appropriate for e-money schemes.
Who issues the e-money/e-cash becomes the key question to determine whether this method of payment is reliable and lawful. There are several possible types of issuer: banks (credit or deposit-taking institutions, defined differently in different jurisdictions), other regulated non-bank financial institutions and non-financial institutions. The latter two categories of institution are typically subject to less regulatory oversight than banks and have to rely exclusively on a contractual basis for their operations.
Liquidity of e-money will probably substantially affect the stability of the whole financial system. Thus, different opinions are adopted in different jurisdictions on this point.
In the European Union, the European Commission’s stated aim was to ensure the stability and soundness of issuers of e-money on the one hand, while on the other hand ensuring that the failure of one individual issuer does not materially impact on the development of such a means of payment. The proposed framework was thus tailored to the specific nature of e-money services, and to some extent designed to encourage new players to enter the market. The 1994 Report of the European Monetary Institution (EMI) on EU Payment Systems first concerned pre-paid cards such as Mondex and Visa Cash, it concluded that e-money issuance should be restricted only to credit institutions as defined by the First and Second Banking Directives with the resultant effect of precluding non-banks. Its conclusions were almost mirrored by the further opinion of the EMI Council on the issuance of e-money published in its 1997 annual report, which also concerned software-based e-money systems. In the 1997 report, it stated that: "The funds collected in exchange for electronic money are redeemable by nature, and [such] issuers should be subject to minimum requirements regardless of their status as credit institutions."
The European Commission published the Proposed Electronic Money Directive in 1998. One of the most important parts of the proposal concerns the plan to amend the definition of credit institution in the First Banking Directive to allow non-banking institutions to issue e-money. Article 4 of the proposed directive sets down limits as to what investments e-money issuers can make with the funds they hold in the "float", all of which are all highly liquid ultra low risk rated. However, the European Council Economic and Social Committee obviously took the view that it was more important to protect consumers and maintain prudential standards, than to open the market place to the largest number of participants possible.
In the United States, it appears that under current state and federal laws, entities other than depository institutions may issue e-money. On May 2, 1996, the Board of Governors of the Federal Reserve published proposed amendments to modify Regulation E’s requirements on stored value cards. However, Congress, in an amendment to the 1997 appropriations bill, directed the Federal Reserve to hold off regulating stored value cards under Regulation E for at least nine months, while it studies the impact regulation could have on development. And on August 2, 1996, the FDIC issued a legal opinion indicating that most stored value cards do not qualify for deposit insurance.
Hong Kong is one of the jurisdictions around the world that has chosen to put in place a specific legal framework to deal with the issuance of e-money. This is contained in the Banking Ordinance. The thinking behind the legislation was that the issuance of multi-purpose stored value cards such as Mondex and Visa Cash is an activity akin to the taking of deposits or the issuance of bank notes, and should be confined to licensed banks. On the other hand, non-banks are allowed to issue limited purpose cards which would have a distinct core use, such as payment for transport services, but could also be used for a restricted range of ancillary or incidental purposes. There is provision for the issuers of such cards to be licensed as a special type of deposit-taking company under the Banking Ordinance. If the range of non-core uses is very limited, it can be exempted altogether.
Most of other governments do not generally allow anyone but governmental entities to create money. However, it should also bear in mind that the Internet market integrates the globe as a whole, which includes a lot of important developing countries (also the fastest growing countries in e-Commerce!) such as China and India. In some of these developing countries, prepaid vouchers or electronic cards issued by non-government or non-bank entities which can be substitute to money are prohibited by the local applicable laws. This type of online payment by e-money is somehow similar to the traditional prepaid vouchers or electronic cards in nature and the issuer may take the risk in breaking the legal regulations of local currency administration. While private entities are able to create and distribute substitute money products such as traveller’s checks, generally, they are viewed as special purpose instruments and are not used in the same frequency, volume or scale as traditional money.
It seems that it is a controversial issue. It is difficult and premature to conclude that which model is more appreciated to the development of e-money. In any jurisdiction, if issuance of e-money is limited to banks, the regulatory framework already in place can be extended to cover the new products but competition and innovation might be more limited. In contrast, if a greater variety of institutions can be issuers, a greater degree of competition could yield commensurate benefits but a number of regulatory issues may be left unresolved. For regulators one key danger is a failure to understand changing risk profiles and vulnerability of individual firms and also changes to market structures and interactions. Regulators must identify, assess, control and monitor the risks associated with e-money. A key issue for central banks is the degree of risk that might be acceptable. This would partly depend on the risk that it would be appropriate for an individual institution to bear. Another consideration would be whether the failure of one participant was likely to threaten the viability of the whole scheme or whether the failure of one scheme could threaten the viability of other schemes or the reputation of electronic payment systems more generally. The speed of the Internet considerably cuts the optimal response times for both banks and regulators to any incident.
It seems that no definitive decision has been reached as to the issuance of e-money. As a result, potential private e-money issuers will have to face the tasks to consult with the lawyers in different jurisdictions to sort it out. Moreover, Not doubtfully, the transaction costs of the third type of online payment, which is the strongpoint compared with the first and second type will increase. Actually, it is not very important whether issuance of e-money should be limited to banks, it is important that issuance of e-money should be regulated, and issuers must have a comprehensive risk management process which is subject to oversight by central bank. It is essential to regulate not just who can issue e-money but also the types of e-money product that can be offered. For example, restrictions might be placed on the maximum value that consumers and retailers are allowed to hold or on user-to-user transactions, or scheme operators might be required to monitor transactions.
If experiments with various forms of digital cash succeed then perhaps coins and banknotes will become as obsolete as livestock. If that happens the change in the nature of money will surely have significant effects on society. It took hundreds of years before people accepted paper money as payment. Digital currency will become dominant when paper-based economy finally turns into the digital economy. In the near future, one possible solution of the liquidity problem is that the issuer of e-money shall attach the value of this kind of e-money to trusted bank, say, issuing e-money guarantee by a commercial bank. In the long run, e-money may be created on its own if users accept it on its face value, which will be determined by how dependable its issuers are. All monies are only as good as their issuers. However, this should have to be proved by the history.
Is online payment secure? A similar question will probably be: Is the Internet secure enough for commercial uses? Despite the reliable encryption and other technologies, which are sometimes superior to telephone and other communications networks, non-digital media are full of hypercritical view of the Internet security. While it is unwise to play down known security risks, it is also unnecessary to imagine a doomsday scenario for every occasion. In most cases, chances of releasing personal financial information are much slimmer for shopping online through encryption payment site (unless defrauded sites) than handing one’s credit card over a waitress wearing uniform alongside. But why security is still a concern for online payment? Probably because the electronic marketplace lacks some elemental safeguards available in physical markets. For example, buyers have certain assurance about a seller with a retail store although that seller might be operating a bogus shop that particular moment. But bogus operations are more difficult to recognize on the Internet. Indeed, any online trading partner cannot be sure about the identity of the other person. Technologies and legal frameworks are needed to address such problems, depending on different type of online payment.
As discussed above, the first and second types of online payment relies heavily on the traditional credit/debit card transactions. Credit and debit cards came into common use in the United States in the late 1950s, and were introduced in the UK by Barclays Bank in 1966. Their use expanded very rapidly in the 1980s, perhaps stimulated by the growing disparity between the amounts for which cards could be used and the more modest amounts covered by cheque guarantee cards. However, most online transactions are nearly all so-called “card not present” transactions. These “card not present’ transactions of credit/debit have long been used to make payment for purchases made at a distance (e.g. in mail order or telephone order purchases). Considering that the Internet is simply another means of facilitating communication over a distance, it is not surprising that credit/debit cards have proved to be the most common method of paying for on-line purchase. It is also not surprising that the first and second types of online payment de facto dominate the current online payment world.
Although the content of the law on card payments is identical in the real and virtual worlds, it is still worth examining how law operates when applied to online purchases to reduce the security problem. It cannot be denied that Internet e-commerce has, in expanding the commercial market place, also increased the opportunities for credit card fraud. In the virtual commercial world, some one can commit fraud by lifting the message (credit card number) by running up the charge on other’s account. Visa stated in April 1999 that 47 per cent of Visa credit card fraud in the European Union was Internet-related. This figure is significant (perhaps even remarkable) given that only 1 per cent of Visa’s European Union turnover is Internet-related.
In a remote card transaction, the customer provides the merchant with information apparent from the face of the card: its type (typically Visa or MasterCard), its number, its expiry date and the name of the cardholder. The ability of the customer to provide the card information does not depend on possession of the card: it is available to anyone through whose hands the card has passed in the course of earlier transactions, perhaps to the cardholder's family and friends, and to anyone who may have received or intercepted the information as it was transmitted by telephone or through the Internet. Thus, it would not be difficult to establish a website purely for the purpose of obtaining cardholder information, by offering transactions at favorable prices which the site owner has no intention of concluding, which is much easier than “intercepting” credit card information from the encryption web transfer.
The UK law shows concern on this transaction security problem. As Brownsford and Howells have observed, if the government, financial institutions and merchants want consumers to have flourish, then it is axiomatic that consumers need to be protected from card fraud. The statutes have already intervened in real life, which also have extended to the cyberspace.
The statutes intervening are Section 83, 84 and 75(will be discussed in Finality in this article) of the Consumer Credit Act 1974(here after CCA).
Section 83(1) of the CCA 1974 safeguards consumers from liability from fraudulent use of their credit cards. This section states in effect that the consumer (a credit card holder) is not liable to his bank (the card issuer) for “any loss” arising as a result of unauthorized use of the card.This protection, however, is subject to section 84(1) which provides that cardholders can be made liable for the first 50 pounds of such loss if the credit card was misused while out of their possession. Such use of the card depends on physical possession of the card, however, and the customer can reduce the risk by taking good care of the card and by promptly reporting its loss. Taking care of articles like cards or keys is largely a matter of common sense (to be contrasted with the precautions required to protect electronic systems). The £50 exposure can be seen as providing an incentive to the customer to take care of the card and report its loss promptly.
However, it is very unlikely that section 84(1) will be triggered in online payment situation because consumers generally remain in possession of their credit cards when shopping online. Card issuing banks will usually not suffer “any loss” in these circumstances as charge-back clauses effectively place the risk of such fraudulent transactions on merchants. In any event most merchants provide their customers with a contractual shield against liability for the 50 pound.
Similar regulations to Section 83 and 84 CCA 1974 apply on debit card as a result of the voluntary code of practice (The Banking Code) to which most leading banks have subscribed. As debit cards generally do not involve extending credit to a cardholder, the consumer using a debit card does not gain the protection from the CCA 1974. But a similar result is achieved via the Banking Code. The code sets out the minimum standards of good banking practice for all subscribing banks in their dealings with personal consumers. In respect of debit cards, the code contains provisions almost identical to Section 83 and 84 of the CCA 1974.
In the United States, similar regulation is Regulation Z, which represents a high water mark in U.S. consumer protection law. Regulation Z prohibits the mailing out of unsolicited credit cards, limits cardholder liability for unauthorized transactions that occur before the card issuer is notified of the problem to a flat $50, requires the issuer to send periodic statements to the cardholder and requires the issuer to provide certain dispute and error resolution services.
So from a legal point of view consumers in fact have little to fear from giving their credit card details over the Internet. Of course, some one is absorbing the loss caused by online fraud and here by virtue of the charge-back clause, it is in general the merchant, sometimes the bank. The security of online transactions involved credit card payment has reached the acceptable safe standard unless the transaction itself turns out to be a sham or defective, in which the payment finality problem arises, as discussed in later paragraph.
The subject of the third type of online payment, digital currency, is totally different from the credit/debit card. Should intercepting a message is an outright "theft" of owner’s property, not just information. Apparently the digital currency has some advantages over the online card payment on privacy and independence. First, the payment by digital currency will not require any personal financial information, thus avoid the unauthorized release of such information. Second, the electronic currency is independent from any credit record---it is money and has value in itself. But as digital currency is nothing more than encrypted information, the possibility exists that it could be lost or intercepted en route to a merchant. If such matters happen, its privacy and independence advantages over the credit card may turn out to be disadvantages of the transaction securities: The payment may be repudiated by either party. Who bears the loss in these cases? On the one hand, sending a banknote in the post will not constitute payment if it is lost or stolen. On the other, there is also authority for the view that a transferee, who impliedly or expressly authorizes transmission of payment in a certain way, takes the risk of the payment not arriving if the transferor complies with the guidelines of the transmission. It have been concluded that these authorities that a web merchant who allows payment by digital currency takes the risk of its non-arrival. However, merchants can shield themselves by a properly drafted contract clause indicating that the merchant’s obligation to perform is subject to the digital cash actually arriving. The development of the technology in this field will further help to increase the transaction security of electronic currency.
To sum up, the problem with transactional security has been overly played on the traditional media, with proper caution, encryption and statute background, the online payment over the Internet may be more secure than traditional methods and can fulfill most consumer level demands.
Another concern of both parties of online transactions will probably be the finality of the online payment. Final payment is the moment when the payment may no longer be revoked. The rules governing finality of a particular payment device must be clear and universally applied in order to minimize the transaction costs associated with the choice of the payment device. The above online payment systems differ greatly in the degree of finality associated with their use. Certainty about the degree of finality, whether great or small, is an essential element of established payment systems. Although the importance of finality of payments is obvious when payment transactions are viewed in aggregate as a payment system, rules governing finality may be difficult to enforce in practice because of competing concerns at the level of individual transactions.
The following two questions may be very important to a payer. Is underlying obligation suspended when payment is tendered? When is payer released from liability for the underlying obligation? A payer will normally prefer less finality because it can enjoy the float while the payment is processed, and it can reverse payment in the event of a dispute with the payee. To a payee, the similar questions will be: Does the payee continue to have recourse against Payer after payment is tendered? When does payee's payment become final? Merchants obviously prefer a system with more finality, as it gives the merchant the benefit of the float and reduces the risk that settlement will be revoked once made. In addition, the party providing the payment service may wish to make exceptions to finality rules for established clients or in other hard cases. Thus, unless supported by clear legal rules that leave parties little room for discretion, finality of payment will be difficult to enforce consistently and fairly.
Traditional payment by cash in any respects sets the standard for finality, since once cash has been exchanged for another asset; the purchaser has no power other than persuasion to recover the cash. As to the three types of online payment discussed above, the third type of online payment (electronic money scheme) has the same high degree of finality, but credit card/debit card transactions can be unwound weeks or even months after the transaction has taken place due to the statutory right of the cardholder to contest charges that appear on periodic statements.
It has been discussed that the statutes intervening in UK (Section 83, 84 CCA 1974) gave the consumer (payer) to reverse the online payment after the payment transaction under certain circumstances by request their card issuer to “charge back”. The Section 75 CCA 1974 even empowers a credit card holder to sue the card issuer who normally will be a bank although the dispute is between the cardholder (payer) and the merchant (payee). This section makes it possible for the cardholder to choose to sue his bank for any misrepresentation or breach of contract by the merchant although the bank is not a direct party in the selling contract. The card issuer then will recourse the losses incurred to the merchant with card issuer’s financial resources. Not all transactions, however, fall within the ambit of Section 75. Four requirements must be stratified to trigger the section: (i) the purchase price of the goods is greater than 100 pound and less than 30,000 pound, and (ii) the credit card agreement is used to finance a particular transaction between a debtor (card holder) and a supplier (merchant), and (iii) the credit card purchase is made under pre-existing arrangements, or in contemplation of future arrangements, between the card issuer and the merchant.
The finality has not been secured even after several months of the online payment if it is made with a credit card. If the credit card holder succeeds in the claims against the card issuer, the merchant will probably be “charged back” by the card issuer if the merchant is within the same banking network to the card issuer. There is one particular controversial aspect of Section 75 CCA 1974, at least in the context of online payment. The card-issuing banks in the UK have argued in the past that a credit card holder cannot use section 75 to make a claim against his bank where the goods/services were purchased from a merchant recruited to the card network by a bank other than the card holder’s bank (particularly where the merchant is located overseas). The UK bank’s argument is that in these circumstances the credit card transaction has not taken place under ‘pre-existing arrangement’, or in ‘contemplation of future arrangements’ between themselves and the merchant as required by 75. The thrust of the bank’s argument (which originated before the Internet had significantly impacted) is that allowing consumers to sue the bank for a merchant’s misrepresentation or breach of contract ( including consequential loss ) reflects neither the extent of the bank’s involvement with the remote merchant nor the profit made from the transaction. However, the matter is probably now academic as the Department of Trade and Industry has stated that if Section 75 is interpreted by the courts as not applying to contracts entered into with overseas merchants, then it will ‘speedily bring forward legislation to fill the gap’. The clear point of view of the UK government is to foster e-commerce and protect consumers. The finality of the payment is affected because it seems far more important to bolster consumer confidence required for the growth of e-commerce than to worry about the finality of online payment at the shoes of profit-maker such as banks and merchants although the consumer will generally have to file an action if he has already paid the card issuer or wants to claim for consequential losses.
It is recommended that all payment methods prima facie should be final (all “as final as possible”) as the real world cash. All claims on the validity of the transaction or attempts to reverse the payment should not be a matter of concern of the payment method itself and they should be only decided on the specific rules and regulations on related transactions. The electronic money scheme is in a position to meet the real world cash standard on finality. In the credit/debit card online transaction situation, the finality is not certain because of the legal protection tendency in favor of the cardholder (consumer) which is justified by the arguments that the consumers are weaker party compared to the card issuers and merchants. Considering the card transactions currently dominate the online payment which are used in the above the first and second type of payment, the finality problem will continue to be affiliated to the future development of traditional card rules.
Improper use of online payment
An electronic money payment scheme should be designed and implemented so as to protect against criminal abuse, particularly the threat of money laundering. Many electronic cash systems (such as Mondex and e-cash) enable person-to-person transfers, that is to say a transaction between a consumer and another consumer without the requirement to use a bank or a merchant as intermediary. Using a telephone line, it is possible to transfer sums of money anywhere in the world. The essential attributes of such payment systems (namely the speed and the potential for privacy) make electronic payment systems similarly attractive to those who seek to use them for illegal purposes. If it is possible to transfer significant funds without using a financial intermediary, law enforcement agencies will face extreme difficulty in identifying and deterring money laundering.
With such wide spread of usage of the online payment systems, those improper uses of cash which likewise can be replicated in an electronic environment. These include illicit uses, such as transactions in black markets and illegal transactions. Thus, time, attention, and resources may need to be committed to the control and prevention of such serious threats as deception, fraud, embezzlement, and money laundering. Moreover, many of the features relevant to the security of online payment may increase its attractiveness for money laundering and other criminal activities. Its use for such purposes would depend upon the extent to which electronic asset balances can be transferred without interaction with the system operator, the maximum amount that can be held on an e-account and its record-keeping capacity, and the ease with which electronic asset can be moved across borders. Some argue that the interest and activities of governments in fighting money laundering is directly contrary to the interest and activities of those seeking to develop anonymous digital commerce and e-money. The UN, G7, EU and a host of supra-national bodies have called for co-ordinated action on stamping out dirty money, and there are over 100 states that either have or are considering the criminalisation of money laundering. These include the tax havens of Europe, the Carribbean and the South Pacific. It is required that financial institutions should "know your customer" (which includes an explicit prohibition of anonymous accounts) and to report "suspicious" transactions. The European Council Economic and Social Committee felt that card-based online payment and software-based online payment (e.g.e-money) should be regulated separately. This was justified principally by the greater implications for money laundering and fraud presented by the software-based e-money that can be used to transfer any amount, compared to the small transactions carried out using prepaid cards. The Committee proposed that much more stringent regulations be applied to electronic money issuers.
Therefore, governments should review the basic legal concepts that define banking and their methods for preventing fraud and unlicensed banking activity. It has been reported that Paypal have been under investigation by several state govenments of the United States on unlicensed banking. Moreover, because electronic information that is transacted on the Internet shows little respect for national borders, these issues likely will require the coordinated attention of authorities in various countries.
As mentioned above, online payment methods are based on technology that by its nature is designed to extend the geographic reach of banks and customers. When online payments are made across borders (particularly with electronic money schemes that operate over computer networks), it may be difficult to establish to what extent e-money schemes fall within the scope of particular jurisdictions. Supervision in today’s global environment can only ever be effective if it has an international dimension. Of course, regulators have already had to deal with the regulatory problems of international banking for a long time. They had set up mechanisms for cross-border supervision; agreements over home/host responsibilities, bilateral agreement for information sharing and general standards by which they expect all banks, including those offshore territories, to abide. However, it is dangerous to expect that this general mechanism for international supervision will be robust enough to work just as well in the e-banking as the physical environment. They should do more.
The Basel Committee E-Banking Group believes that Basel should provide the international supervisory community with a broad set of advisory guidance with respect to e-banking, thereby providing a basis for domestic regulation and supporting consumer and industry education. Globally, such guidance would assist international co-operation and act as a foundation for a coherent approach to supervising e-banking and e-money. It could facilitate international e-banking and e-money by creating consumer confidence in sound banks based in different, possibly less satisfactory, regimes and might dissuade host supervisors from imposing additional, potentially draconian, regulation on such banks. The Group identified authorisation, prudential standards, transparency, privacy, money laundering, and cross border supervision as issues on which they felt that there is need for further work, both at the analytical and policy level before any such guidance could be developed.
The development of the online payment is, however, not decided by the legal frameworks although the current legal frameworks can effectively affect the evolution of the online payment. To certain extent the soaring progress of computer technology dominates the form and function of the online payment. Some problems discussed above may probably be solved with the radical changes in the related field of technology of payment, just like that the invention of paper make note money possible in the middle age. Meanwhile, the consumer’s habit of sticking to familiar methods of payment also plays an important role in the current online payment structure. It is not surprise that the card-based online payment is still occupying the largest market share for some reason because consumers have shown a high degree of rationality in their choice of electronic payment systems, and have stayed away from more risky or less favorable innovations such as “non legal tender” electronic money. Regulated electronic payment systems offer incidental attributes such as float, or reversibility in the event of dispute. Consumers may migrate toward regulated systems because they provide these incidental benefits without regard to how well systemic risk issues are managed .
The development of legal regulations traditionally lags behind the change of situations. However, it has been proved effective for the legislature and judicial authorities to make appropriate analogy on new factors to the traditional legal definition and framework. Currently there is no radical change to regulate the booming online payment systems. Traditional laws and regulations which was once to regulate the distance selling also seem to be in a good position to regulate the new online payment systems.
There is no simple answer on how to solve all the above problems only from the current laws. Furthermore, the extended application of the traditional rules may have some adverse effect in discouraging, or even snuffing the radical innovation which cannot even be foreseen at this stage. While trying to solve the above problems, legal regulations should be in a position to leave more space to the innovation of the online payment system. Meanwhile, global cooperation on this field of law may be helpful to set up model standards of efficient, economic, and reliable online payment under different consumer demands.
 Source: ActiveMedia, Total eCommerce Sales includes both B2C (online shopping) and B2B sales figures.
 "Electronic" refers to all online credit cards transactions, B2C, B2B, and other electronic formats.
 http://www.visaeu.com/iusevisa/onlineshoppingtips.html; http://www.mastercard.com
 http://www.ecoin.net/; http://www.e-gold.com
 See ROBERT A. SCHWARTZ, EQUITY MARKETS: STRUCTURE, TRADING, AND PERFORMANCE 523 (1988).
 Coinage Act 1971 as amended by s. 1 (3) of the Currency Act 1983 and s.1(2) of the Currency and Bank Notes Act 1954.
 SeeJane Kaufman Winn: CLASH OF THE TITANS: REGULATING THE COMPETITION BETWEEN STABLISHED AND EMERGING ELECTRONIC PAYMENT SYSTEMS
 e.g. The Administration Regulations of Renminbi (Chinese Legal Tender)
 e.g. Mondex: http://www.mondex.com
 Electronic Commerce, Tenth Report by the Select Committee on Trade and Industry, para 67 http://www.parliament.the-stationery-office.co.uk/pa/cm199899/cmselect/cmtrdind/648/64802.htm
 National Criminal Intelligence Service, ‘Project Trawler: Crime on the Information Highways” para 49. http://www.nics.co.uk/newspage1,htm
 Brownsford and Howells, “When Surfers Start to Shop: Internet Commerce and Contract Law’ (1999) 19 Legal Studies 307
 CCA 1974 s 83: Liability for misuse of credit facilities
 CCA 1974 s 84: Misuse of credit-tokens
 CCA 1974 s 75: Liability of creditor for breaches by supplier
 Subject to the definition of “consumer credit agreement” in s 8, CCA 1974
 Where, however, the merchant has gone insolvent in the interim, the loss will fall on the merchant’s bank
 e.g. http://www.amazon.co.uk, http://www.pcworld.co.uk
 Luttges v Sherwood (1895) 11 TLR 233
 Norman v. Ricketts (1886) 3 TLR 182; Thorey v. Wylie and Lockhead (1890) 6 sh. Ct. Rep. 201
 C. Gringras, The Law of the Internet (1997) 31-2
 See LARY LAWRENCE, AN INTRODUCTION TO PAYMENT SYSTEMS 336 (1997).
 See Jane Kaufman Winn, CLASH OF THE TITANS: REGULATING THE COMPETITION BETWEEN ESTABLISHED AND EMERGING ELECTRONIC PAYMENT SYSTEMS
 See Banque Worms v. BankAmerica Int'l, 570 N.E.2d 189 (N.Y. Ct. App. 1991)
 Jane Kaufman Winn: CLASH OF THE TITANS: REGULATING THE COMPETITION BETWEEN ESTABLISHED AND EMERGING ELECTRONIC PAYMENT SYSTEMS
 See RONALD J. MANN, PAYMENT SYSTEMS AND OTHER FINANCIAL TRANSACTIONS: CASES, MATERIALS AND PROBLEMS 117 (1999).
 Jane Kaufman Winn: CLASH OF THE TITANS: REGULATING THE COMPETITION BETWEEN ESTABLISHED AND EMERGING ELECTRONIC PAYMENT SYSTEMS
 s 75 (3)(b) CCA 1974
 s 12(b) CCA 1974
 See Brindle and Cox (eds.), Law of Bank Payments (2nd edition, 1999) 242-6
 See Connected Lender Liability: A Second Report by the Director General of Fair Trading of Section 75 of the Consumer Credit Act 1974, May 1995, 6.
 See Electronic Commerce, Tenth Report by the Select Committee on Trade and Industry.
 See http://www.businessweek.com/magazine/content/02_05/b3768117.htm
 Jane Kaufman Winn: CLASH OF THE TITANS: REGULATING THE COMPETITION BETWEEN ESTABLISHED AND EMERGING ELECTRONIC PAYMENT SYSTEMS