One area of payment systems is
developing within electronic commerce that does present some challenging
jurisdictional issues. The Internet does
pose the possibility that alternatives to the existing global payment
system may arise. Indeed, electronic
bartering and various forms of “e-currency” and “e-payments” are currently in
use in some Internet transactions. These alternatives raise a number of issues
with jurisdictional consequences because of their essentially closed nature.
Within these company towns, using these tokens as an alternative currency had its advantages. In a practical sense, there was no need to issue “real” money since these isolated communities were wholly self-sufficient. The company that owned the enterprise providing employment, which generated wages to the workers in exchange for their labor, also owned or controlled all of the reasonable outlets for those wages. This closed economic system allowed for the development of a closed currency. To the company’s advantage, so long as its workers
Currently, alternative payment systems are essentially retail systems rather than wholesale systems. To the extent that they arise at all, jurisdiction issues arise almost exclusively on the retail level. Wholesale systems are still the province of the traditional players, and as a practical matter, the alternative payment systems are just short-cuts to the larger players. Fundamentally, at some point the alternative payment system must “convert” its accumulated value to something “real” by transferring to a recognized and accepted form of currency outside of the closed environment. This is a necessary and sufficient consequence, since no economic system is capable of isolated self-sustenance in the modern world, especially no system built on the world-wide platform of the Internet.
In the Internet environment, those cash and checks can be replaced by any token of value that the other participants in that system agree to accept. But unless and until those alternative systems become sufficiently pervasive and diverse enough for the participants to be self-sufficient in their economy (if, indeed, attaining such a goal is possible in the context of our current global economy), they must at some point rely on the traditional payment systems and the agreements and structures that underpin it.
The whole notion of “electronic
commerce” presupposes that payments must and will be exchanged between the
parties. After all, what’s commerce
without money? Currently, payments are
made to both traditional and Internet providers of goods and services through
three principal means: credit cards, debit instruments, and “Digital Currency.” The first two options are currently
components of the traditional payment systems and, as explained above, disputes
regarding their processing that have jurisdictional significance are rare. Credit card and debit card transactions work
somewhat differently in the physical world than in the Internet world. However, the differences are without
jurisdictional significance.
It is important to distinguish
between credit card transaction disputes generally and credit card transaction
disputes with jurisdictional significance.
Disputes involving credit card transactions are relatively common,
usually involving unauthorized transactions (e.g. stolen cards), account
statement errors, and dissatisfaction regarding goods and services. These disputes are dealt with in the context
of the system operator agreements. The
merchant’s bank, the card-issuing bank, the system operator, the merchant and
the cardholder are all parties to various agreements with specific applicable
laws and regulations, such as (in the United States) the Electronic Funds Transfer
Act and Truth-in-Lending Act. Normally,
these disputes are resolved by a “charge-back” against the merchant by the
merchant’s bank.
Disputes regarding debit instruments
are similarly resolved. These items
usually constitute an order from the customer to their financial institution to
pay an amount certain to the merchant.
Conceptually, this process operates the same as the paper-based
check. Instead of a piece of paper that
contains these instructions changing hands from customer to merchant to the
paying bank, the transaction is handled wholly by electronic messages. As a practical matter, even paper-based
checks are usually truncated quickly into
electronic information to speed the flow of funds and significantly reduce
processing costs. As the debit
instrument mirrors, in all practical respects, the traditional check, again all
the parties’ rights and obligations have long been established through the
traditional payment system.
Digital
currency represents the newest wrinkle within Internet payment systems. At its base, digital currency represents a
mutual agreement among that system’s participants to attribute a defined value
to the modes of exchange designated by that system. Perhaps the concept is best illustrated by
looking at its historical precedents.
Throughout the history of payment
systems, alternative methods have developed to transfer value among that
systems’ participants. One appropriate
analogy to today’s emerging markets in digital currency is to review the use of
alternative currencies in what were referred to in American history as “Company
Towns.” As remote areas of the United
States were industrialized, the advancement of commerce and trade could not be
held back by the relatively slow expansion of the availability of financial
services and the relative immaturity of the official currency system financial
services. An alternative financial
services system was needed. Local,
isolated communities were often structured around a single employer, such as a
coal mine or lumber camp. Workers for
that employer were not paid in traditional, commonly recognized currencies, but
instead were issued tokens or other forms of tangible representations of value. These tokens were often referred to as
“script.” Those tokens were then used as
the medium of exchange within that community.
They could be used to purchase goods at the company-owned store or other
services within the company’s town.
accumulated
value only in a form recognized solely within that community, its workers were
tied to that area and that enterprise interminably. The company set the wages and concomitantly
the prices for the goods and services purchased with those wages. All profits at every level of commerce within
that closed system inured to the benefit of that company.
The alternative systems being
developed to facilitate electronic commerce share many of the characteristics
with these company towns and their tokens.
The “currency” issued within these systems may be exchanged only among
participants within that system. It has
value only to the other participants and has no recognized value outside of the
system. For all practical purposes, any
value built through the accumulation or exchange of this alternative currency
can be used only within the context of that system.
Consequently, these alternative
payment systems may be thought of as being, in varying degrees, independent of
the traditional system and but still connected to it at some point. Alternatives are being used or under
development because some of the inherent limitations within the traditional
system constrict or inhibit facets of electronic commerce. Credit card payments take several weeks to
process before the merchant receives credit.
Each participant on that payment chain shaves some percentage off the
transfer, leaving the merchant to actually receive less than the full value
originally exchanged. Both debit
instruments and credit card payments bring exhaustive consumer protections that
ultimately work against the interest of the merchant and its correspondent
bank. Security concerns make some
consumers reluctant to provide the information necessary to effect either type
of transaction. Unless these limitations
can be overcome, alternative payment systems may evolve into the development of
an entirely new construct that is a “super-set” of the traditional system and
the emerging alternative systems.
The US data is instructive in this regard. Nearly all wholesale payments in the United
States are conducted electronically via governmental and non-governmental
payment system networks. Measured in
terms of dollar value, approximately 90 percent of all non-cash payments in the
United States are made by electronic transfer.
Currently, retail transactions conducted electronically through the
Internet are only a small fraction of the whole. Further, in the US, cash and checks are used
for payment in more than 80 percent of the number of retail transactions and
about 30 percent of the dollar value of such transactions.
