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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
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

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

Alan Davidson

payments system
Payments System
  • Cash
  • Non Cash
  • Payments Clearing
  • Role of the Central Bank

Alan Davidson

money and the 21st century
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

payment systems
Payment Systems
  • 1. 'objects-as-money' group
  • first generation
    • (trade by barter)
  • second generation
    • (trade with valuable objects)

Alan Davidson

payment systems6
Payment Systems
  • 2. 'currency-as-money' group
  • third generation
    • (coins) and
  • fourth generation
    • (paper notes)

Alan Davidson

payment systems7
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

payment systems8
Payment Systems
  • 4. 'electronic-impulses-as-money' group
  • eighth generation
    • (smart cards)
  • ninth generation
    • (digital coins)

Alan Davidson

electronic transactions
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

electronic transactions10
Electronic Transactions
  • Flexibility of instruments or devices- less constrained
  • Purpose and use often overlapproviding customer service and satisfaction

Alan Davidson

pay pal
Pay Pal
  • eBay company
  • 50 million acounts
  • Regulation?

Alan Davidson

smart cards
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

slide13
SVC
  • Where smart card stores electronic prepaid value- it functions as a stored value card (SVC)

Alan Davidson

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

Alan Davidson

electronic purse systems
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

slide16
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

digital cash
Digital Cash
  • Electronic money - digital currency - cybermoney
  • Payment methods in which electronic impulses are dealt with as money

Alan Davidson

digital cash18
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

digital cash19
Digital Cash
  • Protocols incorporating multiple use tokens permits peer-to-peer transactions
  • Freely circulating value
  • Risk of double spending

Alan Davidson

digital cash risk of double spending
Digital Cash - Risk of Double Spending
  • Single use tokens and on-line verification
  • Anonymous or pseudonymous by the use of “blinding” technology

Alan Davidson

digital cash21
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

slide22
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

digital cash23
Digital Cash
  • Credit worthiness
  • Compare to the letter of credit
  • Cryptography (digital signature technology) plays a crucial role

Alan Davidson

features of money and money and money substitutes
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

negotiable instruments and plastic money
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

efts svcs and digital coins
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

cheques
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

direct entry de
Direct Entry (DE)
  • For businesses/organisations for making payments to or receiving payments from employees/clients
  • Pre-authorised payments arrangements

Alan Davidson

slide29
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

electronic data interchange edi
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

financial edi
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

credit debit cards
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

electronic funds at point of sale eftpos
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

stored value cards
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

recommendations
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

approaches
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

the law and application of electronic commerce in relation to banking and finance38
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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