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The Law and Application of Electronic Commerce in Relation to Banking and Finance Alan Davidson University of Queensland - TC Beirne School of Law Solicitor and Barrister Introduction The management of international business is nothing more or less than the management of international risk

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The Law and Application of Electronic Commerce in Relation to Banking and Finance

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The Law and Application of Electronic Commerce in Relation to Banking and Finance

  • Alan Davidson

  • University of Queensland -

    • TC Beirne School of Law

  • Solicitor and Barrister

Alan Davidson


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Introduction

  • The management of international business is nothing more or less than the management of international risk

Alan Davidson


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Payments System

  • Cash

  • Non Cash

  • Payments Clearing

  • Role of the Central Bank

Alan Davidson


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Money and the 21st Century

  • Trade involves permutations of time mode place and currency of payment

  • Relative certainty and security - risk

  • To minimise the risk - international trade merchants typically use financial institutions as intermediaries

Alan Davidson


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Payment Systems

  • 1. 'objects-as-money' group

  • first generation

    • (trade by barter)

  • second generation

    • (trade with valuable objects)

Alan Davidson


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Payment Systems

  • 2. 'currency-as-money' group

  • third generation

    • (coins) and

  • fourth generation

    • (paper notes)

Alan Davidson


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Payment Systems

  • 3. 'claims-as-money' group

  • fifth generation

    • (deposit accounts)

  • sixth generation

    • (plastic money)

  • seventh generation

    • (electronic payments (EPs) and electronic fund transfers (EFTs))

Alan Davidson


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Payment Systems

  • 4. 'electronic-impulses-as-money' group

  • eighth generation

    • (smart cards)

  • ninth generation

    • (digital coins)

Alan Davidson


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Electronic Transactions

  • Completion of electronic transactions may involve purely electronic record keeping

  • May be no paper record or follow up.

  • Veracity of transactions typically involves digital signatures

  • Time - reduced to seconds rather than hours or even days

Alan Davidson


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Electronic Transactions

  • Flexibility of instruments or devices- less constrained

  • Purpose and use often overlapproviding customer service and satisfaction

Alan Davidson


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Pay Pal

  • eBay company

  • 50 million acounts

  • Regulation?

Alan Davidson


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Smart Cards

  • Secure storage of copious amounts of digital data

  • May be utilised as a debit card or credit card in account transfer systems- replacing magnetically stripped technology

  • Secure counter of value

Alan Davidson


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SVC

  • Where smart card stores electronic prepaid value- it functions as a stored value card (SVC)

Alan Davidson


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Electronic Purse System

  • Electronic purse systems are hardware related, while digital cash systems tend to be software based

Alan Davidson


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Electronic Purse Systems

  • System incorporates previously agreed arrangements between the card issuer and participating retailers

  • Reimbursement generally involves the retailer downloading or resubmitting to the card issuer the value data received from the card holder

Alan Davidson


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  • The transaction will create a debt that is owed by the card issuer to the merchant because the merchant in effect grants credit to cardholder based as previously arranged with the card issuer

  • The balance may be accessed, on-line or off-line

  • Closed system

  • Open systems

  • Mondex and Digicash

Alan Davidson


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Digital Cash

  • Electronic money - digital currency - cybermoney

  • Payment methods in which electronic impulses are dealt with as money

Alan Davidson


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Digital Cash

  • More than:

    • instructions for subsequent debiting/crediting of an account

    • evidence bringing pre-agreed credit agreements into operation

  • Exchange of electric impulses as the end - not merely the means of a transaction

  • Digital data may be treated as value rather than instructions about value

Alan Davidson


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Digital Cash

  • Protocols incorporating multiple use tokens permits peer-to-peer transactions

  • Freely circulating value

  • Risk of double spending

Alan Davidson


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Digital Cash - Risk of Double Spending

  • Single use tokens and on-line verification

  • Anonymous or pseudonymous by the use of “blinding” technology

Alan Davidson


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Digital Cash

  • 1. Withdrawal request forwarded to the customer's financial institution

  • 2. Financial institution validates by affixing its digital signature to the coin

  • 3. The coin is returned to the customer - may be stored in a purse program

  • 4. To spend - the coin is transmitted to a merchant

Alan Davidson


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  • 5. Merchant verifies the digital signature of the bank

  • 6. Merchant checks coin not already spent referring - on-line register

  • 7. Merchant delivers the commodity

  • 8. (a) Single use token system

    • merchant returns the coin to the financial institution in exchange for a new coin or credit

  • (b) Multiple use system

    • merchant may store the coin until required

Alan Davidson


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Digital Cash

  • Credit worthiness

  • Compare to the letter of credit

  • Cryptography (digital signature technology) plays a crucial role

Alan Davidson


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Features of Money and Money and Money Substitutes

  • means of exchange

  • physical possession

  • physical transfer

  • negotiability

  • intrinsic value

  • excellent store of value

  • unit of account

  • extinguishes obligation

  • standard of deferred payment

Alan Davidson


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Negotiable Instruments and Plastic Money

  • means of exchange

  • physical possession

  • physical /abstract transfer of instructions

  • instructions evidence of rights to value

  • (limited) negotiability (plastic money)

  • face value/variable value

  • indivisible

  • deferred payment

  • extinguished debt on settlement

  • conditional/final payment

Alan Davidson


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EFTs, SVCs and Digital Coins

  • means of exchange

  • limited de facto negotiability(SVCs and digital coins only)

  • instructions evidence of rights to value

  • abstract instructions for transfer = value

  • variable/restricted value

  • limited fungibility (digital coins only)

  • final payment

Alan Davidson


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Cheques

  • Written instruction to a financial institution by a customer to pay a third party

  • Electronic Cheques

  • Compare to digital cash and other electronic instruments

Alan Davidson


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Direct Entry (DE)

  • For businesses/organisations for making payments to or receiving payments from employees/clients

  • Pre-authorised payments arrangements

Alan Davidson


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  • For example

    • employees' accounts

    • payment of interest and dividends, rent and commissions

    • insurance premiums, utility bills, repayments of debt

  • Credits to accounts are irrevocable in nature and cannot be reversed. Debits, on the other hand, are provisional and can be dishonoured in somewhat similar fashion to cheques.

Alan Davidson


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Electronic Data Interchange (EDI)

  • Computer-to-computer transfer of business information (messages) between trading partners

  • Established standards are ANSI X12 and EDIFACT

  • The UN standard is progressively being accepted as the worldwide standard

Alan Davidson


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Financial EDI

  • Contains both the remittance advice relating to a purchase of goods or services and the corresponding payment message.

  • No common industry standard

  • The predominant use of cheques in settling business transactions points towards the potential for financial EDI in the future

Alan Davidson


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Automated Teller Machines (ATMs)

Alan Davidson


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Credit/Debit Cards

  • Financial institutions issue such cards

  • Charge cards (American Express and Diners' Club) are issued directly by the card companies - closed system - no cross-financial institution clearing obligations

  • Some recorded on paper - but most are processed electronically from

Alan Davidson


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Electronic Funds at Point of Sale (EFTPOS)

  • On-line debit of the customer's savings or cheque account - with credit to the merchant's account

  • Substitute for cash and cheque payments

  • Cash services

Alan Davidson


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Stored Value Cards

  • Rechargeable" value (and other information) in a computer chip - "rechargeable stored value", "smart cards" or "electronic purses"

  • Non-rechargeable" stored value cards built around magnetic stripe technology

Alan Davidson


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Recommendations

  • Functional equivalence

    • paper based commerce and electronic commerce should be treated equally

  • Technology neutrality

    • the law should not discriminate between forms of technology.

Alan Davidson


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Approaches

  • Encourage parties to resolve the issues by contract

  • Take no action at this stage and leave it up to the courts to determine how existing law will apply to new technologies

  • Enact legislation to update the law

Alan Davidson


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The Law and Application of Electronic Commerce in Relation to Banking and Finance

  • Alan Davidson

  • University of Queensland -

    • TC Beirne School of Law

  • Solicitor and Barrister

Alan Davidson


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