In the 1990's academic commentators, central banks and
government agencies were convinced that by the year 2000 new cyberpayment
products would carry a very considerable volume and dollar value of payments.(1) However, these predictions have not been much
more than wishful thinking. While numerous companies claim to offer complete and
working payment processing solutions, most of these applications are not more
than unsuccessful attempts to develop an originally online-based payment system.(2)
This paper describes the fundamental characteristics of existing and new
payment schemes, reviews existing legislation and gives a perspective on coming
developments. It is based on the presumption that, with only a few exceptions,
existing payment schemes are technically and legally ready for payments over the
Internet and that consequently there is no pressing need for new payment
systems.
The term cyberpayments is not officially defined, although it
is already widely employed. For that reason it is necessary to give a definition
of cyberpayments as used throughout this paper. Generally a payment is the
satisfaction of a debt by some means of exchange. According to this two-prong
analysis, cyberpayments can be defined as payment systems, which can be employed
to pay a debt emanating from cyberspace through the electronic transfer of
funds. Even though this definition focuses on obligations that have their origin
in cyberspace it does not per se exclude existing real world payment schemes.
As long as there has been some exchange of goods, there has
always been some sort of payment. Cyberpayments are a new payment method,
applied to new forms of commerce. To assess the legal relevancy of cyberpayments
it is necessary to precisely identify transactions, which call for the use of
these payment schemes and to analyze how they differ from conventional
transactions. This will be done by differentiating several categories of
purchases and the respective payments that are used to satisfy the debts.
In cyberspace three different types of contractual
relationships can be distinguished: business-to-business contracts (b2b),
business-to-consumer contracts (b2c) and consumer-to-consumer contracts (c2c).
1. B2b contracts
According to a study by Forrester Research, U.S. b2b e-commerce
will rise $2.7 trillion in 2004.(3) However,
b2b users employ the Web more as a convenient medium of communication and for
digital order processing than as a new storefront. With regard to these
transactions the delivery of goods will in most cases be facilitated outside the
Net and most payments are conventional real space payments.
This is mostly due to accepted commercial practices. Although § 2-511
of the Uniform Commercial Code(4) calls for
payment against delivery, it has no application to most commercial sales, which
normally carry credit terms.(5) Most commercial
sales contracts give certain grace periods for payments or call for
installments. Payments are still made using the traditional banking channels or
by debiting or crediting against the respective accounts that most of the
companies have with each other. While these transactions may be made via
electronic fund transfer, these are not consumer funds and consequently they
will not be regarded in this paper.
2. B2c contracts
B2c relations describe a commercial relationship between a
selling business and a buying private individual. Unlike in the aforementioned
b2b relations, one party in this scenario is not a merchant in the specific kind
of goods or services he is dealing for. In b2c relations there are two general
categories of online purchases. The first category is the purchase of hardware
that is ordered in virtual space for delivery in real space.(6) The second category consists of digital goods
that are online for delivery either by direct online download or by allowing
online access to information and databases. Each of these purchase categories
poses different questions with regard to cyberpayments.
a) Hardware Transactions
Most of the e-commerce revenue is generated by transactions
using the Internet as an order medium. In a typical hardware sales setting, the
consumer accesses the retailer's web page and browses through the various
products by following the respective links just, as he would browse through a
catalogue or walk though the aisles of a store.(7) The essential point of the transaction is reached, when the buyer has to select
his payment method. Most e-tailers allow their customer to choose between
different payment systems, such as check, credit card or other payment schemes.
These options clearly include electronic fund transfer. Therefore, hardware
transactions are an issue with regard to cyberpayments.
b) Software Transactions
Software transactions take two different forms. It can be
distinguished between the download of a software program from the Internet or
the access to a database for a fee.
The sale of software for immediate download is similar to the sale of
hardware up to the point of formation of the contract and the entering of the
payment information. If the customer wishes to download the software
immediately, payments by check is not an acceptable method due to the extended
processing time. The customer he has to pay by either by credit card or by some
other instantaneous payment device, such as some form of cyberpayment.
c) Micropurchases
In real space, many products cannot be sold profitably except
by cash or coin transactions, such as soda from a vending machine, a single pack
of chewing gum, or a single photocopy. The cost of processing such transactions
via the credit card or check system would destroy any profit margin on these
items.(8)
In cyberspace there are similar opportunities for such small purchases. For
example customers can access databases where the payment by the customer serves
as an entrance fee. The amount of payment can depend either of the duration of
access or on the amount of information accessed. While some of these databases
operate on a subscription membership basis with monthly billing(9), many business models call for a single per-use
fee. In many cases, such as for the download of single magazine or newspaper
articles, this fee will only be a fraction of a dollar. With respect to
payments, these models require the instantaneous handling of small sums or
micropayments. As it will be shown later, electronic fund transfer appears to be
the only promising approach to facilitate these transactions and therefore the
suitability for micropayments should be regarded as a highly important feature
of cyberpayments.
3. C2c Contracts
The final relevant category of purchases consists of c2c
transactions. More and more private individuals discover the web as a convenient
place to sell and buy goods from other non-merchants. Among the most popular
sales models are professionally organized private online auctions and online
yard sales featured by privately owned web pages. The striking difference
between b2c and c2c purchases results from the differences of the business
infrastructure.
Unlike professional enterprises, private sellers are not set up efficiently
to process payments. Where professionally organized auction pages can offer
escrow services for their clientele, independent private sellers and buyers
still encounter problems of getting paid. Electronic fund transfer could help to
solve at least some of these problems.
Since sales cannot go forward without payment, the next step is
to analyze whether existing payment schemes provide technically and legally
sufficient means to make these payment or whether there is any need for new
payment systems. Accordingly, the predominant methods to satisfy debts and their
suitability for cyberpayments will be analyzed.
1. Credit cards
Credit cards are payment devices that allow the consumer to
make purchases within certain guaranteed limits as defined by the issuer of the
card. The law of credit cards is well regulated. The use of credit cards is
federally controlled by the consumer protection provisions of the Federal Truth
in Lending Act(10) (TILA) and the Federal
Reserve Board Regulation Z(11) (Reg. Z).
Issuing institutions are also subject to the federal Financial Privacy Act(12) (FPA).
a) Technical aspects of credit card online use
To use a credit card in most cases it is sufficient to present
the merchant with the card number and the cardholder's name and expiration date
of the card. These data can be conveniently transmitted over the Internet.
Furthermore, credit cards process funds by electronic means. Therefore, they
technically qualify as cyberpayments under the definition of this paper. Yet,
credit cards are subject to certain percentage or flat fees, which have to be
paid by the merchant accepting the card.(13)These "discount rates" range from one half to seven percent of the
transaction value, depending on the contractual relations between the bank and
the merchant.(14) Discount rates and the
general transaction cost make credit cards generally unsuitable for
micropayments. Additionally, the need to establish a merchant account with
credit card issuer prevents c2c users from accepting credit cards. Yet, the
success of c2c sites such as ebay(15) or
amazon.com auctions(16) shows that c2c
e-commerce can be easily facilitated without credit cards.
b) Consumer protection and security
Most purchasers still prefer credit cards to other electronic
payment systems that are currently on the market.(17) This is due to three factors.
aa) Familiarity
Many customers still don't feel confident with e-commerce(18) and prefer a familiar payment method.(19) Credit card payment is one of the most
accepted and most utilized payment schemes in real space. Therefore, it is not
surprising that many customers do also rely on credit cards for their Internet
purchases.
bb) Finality
A payment is final when it no longer can be revoked.(20) Among all traditional payment methods,
credit cards enjoy the lowest degree of finality.(21) Even months after their use, a user can contest a charge on his credit card
bill. The mere fact that a merchant accepts credit cards gives the user a
guarantee of recourse in the event of a dispute regarding the underlying
transaction.(22)
Despite these facts, some purchasers believe the use of credit cards for
online purchases is dangerous.(23) A look at
the rules of Reg. Z proves that there is no basis for this assumption. Reg. Z
requires that before a card issuer may charge a cardholder for a transaction,
the consumer must present the card for identification.(24) Since identification methods are not yet
readily available for use over the Internet, the cardholder can easily and
successfully contest a charge on his card. This may change with the adoption of
the SET Standard, which requires the use of digital signatures in connection
with online credit card transactions. However, the development of the SET
standard came to a halt in early 1999 and work has not been resumed in a large
scale.
Even if a consumer is found to be liable for an unauthorized use of his
card, the TILA and Reg. Z cap the liability amount. Under these provisions,
consumers are only liable for the first $50.00 of losses incurred by the
unauthorized use of the card.(25) For the
online use of credit card, this means that even if a card is illegally
intercepted by an unauthorized third party, the card issuer cannot charge the
consumer's account for more than $50.00. Any sum exceeding this amount will
either be charged back to the merchant bringing the charge or it remains on the
respective issuer of the credit card.
cc) Float
The float of credit cards is substantial, in view of the fact
that they give customers access to an instant line of credit.(26) For customers, this feature means that they
can buy more than they actually can spend at that specific time. If customers
pay their monthly dues in time, the credit is even interest free. While this is
not an original online feature of credit cards, it is another element that
contributes to their user friendliness.
c) Privacy
One point that seems to operate against the use of credit cards
online is a privacy concern. Use of the card requires the customer to give
sensitive private data to the merchant who later transfers it to the card issuer
in exchange for payment. The transaction is stored in the issuer's database and
later appears on the customer's invoice. Every transaction is fully traceable.
While the FPA prohibits issuing institutions from disclosing personal financial
information, this law does not apply to merchants. However, most professional
Internet commerce sites already apply certain privacy policies and it is up to
the consumer to review these policies before he decides to deal with a merchant.
d) Preliminary result with respect to credit cards
As seen above, the use of credit cards online is convenient and
secure. Also, the acceptance rate among consumers is very high since credit
cards are a familiar payment method in real space. The large number of credit
card users results in a high bargaining power of these customers and therefore
most online merchants accept these cards. The only real negative factor is that
credit cards can't be economically used for micropayments.
2. New payment methods
The field of competitors that try to win the race to be the one
and only electronic payment scheme is growing constantly. Naturally, every
player claims that his method is the soon to be accepted standard for such
payments. Despite these marketing efforts, most systems are based on similar
basic technologies. There are several technical setups that can be
differentiated: stored value smart cards, stored value software, wallet and
credit card based schemes and direct billing solutions. Since it is not possible
to analyze all the different schemes, this paper focuses on the most prominent
solutions.
a) Smart cards
Smart cards, such as the Mondex Card(27) or the German Geldkarte(28), are credit card sized plastic cards with a
computer chip embedded in the card. Payment information in the form of currency
value is stored on this chip and can be retrieved with specially designed card
readers. This feature makes smart cards independent from central servers and
allows potentially anonymous transactions. Moreover, smart cards allow the
performance of complex operations, such as cryptography.(29) Smart cards can store up to 80 times more
information than magnetic stripe cards(30)
and their "smart" nature allows utilization for multifarious tasks,
from payments to door access.(31)
With respect to their use for online payments, smart cards seem to offer
certain advantages to customers and merchants. Smart cards can store complete
sets of customer account data, including name and shipping address, buying
preferences, previous purchases, etc.(32)
Since these data are stored in the card's memory, the customer does not have to
fill out order forms. Furthermore, by utilizing the card's encryption abilities,
the information can be transferred securely from the buyer to the seller.(33)
An advantage of smart cards is that they allow the transfer of fractions of
their stored value and therefore are suitable for micropayments. Moreover money
can easily be transferred from one card to another. Finally, smart cards allow
for easy real space interaction with cell phones employing the GSM standard.(34) This could make them interesting for
m-commerce transactions.
b) Software based solutions
Software based solutions are payment schemes that operate by
utilizing some software program and the user's PC.
aa) Stored value systems
Stored value systems operate on the basis of prepaid electronic
tokens, which the consumer obtains from a bank and later spends at a merchant's
web page. The most promising attempts to establish such a unique cyberpayment
scheme was the Netherlands based DigiCash, which also had co-operations with the
Deutsche Bank in Germany and the Mark Twain Bank in the US. Although already
bankrupt and now named eCash, DigiCash / eCash is still a noteworthy project due
to the effort that went into the development of its system and the prototypical
technical setup. Likewise, DigiCash has been reengineered several times and many
electronic payment systems still use it as a point of orientation for
developers.
DigiCash developed a blind signature cryptographic protocol, which permits
the creation of electronic tokens that can circulate as a anonymous money
substitutes in an electronic environment.(35)
The advantage of a DigiCash like system lies in the fact that the customer can
generate tokens for any given value. Consequently the system is suitable for
micropayments. Other stored value systems are Compaq's Millicent(36), the IBM Micro Payments(37), the "gift solution" flooz.com(38) or beenz.com(39).
A rather eccentric scheme is the e-gold(40) system, a truly gold-backed Internet currency.(41)Quite appealing sounds a system called Paypal(42),
which allows beaming money via electronic mail, cell phones and web enabled
pocket organizers, such as 3com's Palm Pilot family.(43)
bb) Wallet and credit card based systems
Wallet systems such as Instabuy(44) or the Microsoft Passport Wallet(45)
centrally store consumer credit card information and release it on a mouse click
of the consumer to the buyer. The advantage of these systems is that they are
time saving applications since the user does not have to fill out long order and
shipping information for his web purchases. The software automatically provides
the respective data and lets the use choose between several previously entered
credit cards. Since these systems are credit card based, they are not suitable
for micropayments.
cc) Direct billing
Some systems use software that allows the user to make
purchases, which are later billed trough the ISP or phone bill. Most prominently
are Echarge Phone(46), which is a web front
end to the 800/900-premium rate telephone billing network, and iPIN that bills
charges on the monthly ISP bill.(47)
c) Legal analysis of original cyberpayment systems
With exception of credit cards, there exists no specific
legislation with respect to cyberpayments. Therefore it is necessary to analyze
existing legislation to determine its applicability and to detect gaps.
aa) Banking regulation
New payment methods raise the question whether they should be
subject to banking regulation. An answer can be derived from analyzing what
services the respective company offers. For example, when a customer "purchases"
a certain amount of electronic tokens from a stored value system issuer(48), this transaction is very similar to
depositing that same amount of money at a bank with the right to withdraw those
funds upon demand. If companies are performing functions similar to that of a
bank, they should be subject to similar regulations. Some countries are already
making a step in this direction, e.g. Germany places smart card issuers under
banking law supervision.(49) This may also
bring about a solution to the question of who guarantees the payment of stored
value systems.(50) So far the value on these
systems is only backed by the promise of the issuing company to guarantee
payment. To prevent the collapse of an electronic cash issuer and losses for its
users, it would be favorable to require certain reserve requirements and some
form of insurance through insurance companies such as the Federal Deposit
Insurance Corporation(51) (FDIC). In the event
of a bank failure, the FDIC protects deposits that are payable in the United
States. Nevertheless, this would not effect international cyberpayments, since
deposits that are only payable overseas, and not in the United States, are not
insured.
A different question is, whether a company that issues electronic tokens,
should be required to maintain all or some of the received funds as a reserve.
While there exists no law on this issue, some orientation may be found in credit
card regulations, which mandate that non bank credit card issuers have to keep
certain amounts of the consumer funds as a reserve, and that allow only limited
investments of these funds.
An important issue with regard to stored value systems is the escheat or
slippage. This is the stored value that is never retrieved by the user due to
loss of a smart card or other circumstances. With any stored value system, there
will unavoidably be funds remaining that have not been used and have not been
redeemed by the customer. While most states have some form of legislation
requiring that unclaimed property be turned over to the state(52) it is less than clear whether this applies
to stored value systems.
bb) Liability
It is not clear how liability issues are solved between the
user of a new payment method and the issuer, such as what happens if the user
loses his smart card or accidentally erases his hard drive. How is he protected
against false claims and double charging? A possible solution may be found in
the Electronic Fund Transfer Act(53) (EFTA)
and the Federal Reserve Regulation E(54) (Reg.
E). The aim of this legislation is to "establish the basic rights,
liabilities, and responsibilities of consumers who use electronic fund services
and of financial institutions that offer these services" and to guarantee "the
protection of individual consumers engaging in electronic fund transfers."(55) Reg. E requires the issuing institution of
an ATM or debit card to provide the customer with periodic written statements,
which allow keeping track of every transaction. Moreover, these provisions limit
the liability of consumers for unauthorized use and loss to a maximum amount of
$500.00. Since the new payment methods use electronic fund transfer it may be
favorable to subject them to these regulations.(56) In March 1996 the Federal Reserve Board proposed changes to Regulation E to
make it more suitable for stored value transactions over the Internet.(57)
cc) Privacy issues
Another area of concern relates to privacy issues. If a
customer enters a shop, selects a good and pays for it with cash, his
transaction can be completely anonymous. This is not true for Internet
purchases. Most e-commerce purchases operate like mail-order transactions. The
customer has to give his delivery address to the merchant and in most cases
additional data such as his credit card information. Even in the case of an
online delivery of software combined with a 100% anonymous payment scheme the IP
address from which the request was made could eventually lead to an
identification of the user.
From a privacy point of view there are minimum requirements. There have to
be limits on the amount and nature of data a merchant is requesting and
collecting. Generally he should only be allowed to collect the core data
necessary to perform a transaction and to secure the merchant against fraud.
Additional data collection should only be allowed with the explicit consent of
the customer. Moreover, there should be a time limit for the storage of data.
Additionally customers must have the ability to request the destruction of their
personal data, stored at a merchant's site. The combination of data in order to
develop customer profiles has also to be controlled. Many of these provisions
are already part of the FPA.
dd) Policy issues
With respect to their economical relevance, it is not quite
clear, whether the new payment schemes are just new forms of existing payments
or whether they have at least some influence on the monetary value by generating
a new currency.(58) While some legal scholars
strongly support the development of cyberpayments as independent global
currencies on the Internet(59), these
proposals do not give sufficient consideration to economical concerns.
To understand this issue, one has to look at the relevance of money for the
economy. Traditionally the national treasuries control the amount of money.
However, when new payment schemes are no longer controlled by this system, there
is the latent danger that national economies will be harmed. Central banks
generate their revenue from the seniorage, by putting out notes and coins.(60) These represent non-interest bearing central
bank liabilities. As cash money is replaced by virtual currency the asset
holdings and interest on those assets decline.
So far central banks still have control over the total amount of money in
circulation and on reserve. Some electronic payment systems however seem to
substitute money by generating a new currency that is not bound by monetary
controls and is only controlled by the profit interests of privately held
entities.(61) While these might have no
influence yet, with a steadily growing market for cyberpayments there grows the
chance that private currencies will replace the old cash system. The monetary
stability could depend on the private interests of large companies that thereby
can control national economies at will.
To prevent such a scenario national- and supra-national legislation has to
be enforced that vests control in the governments despite the physical form of
the currency.(62) Safeguards are necessary
that prevent single interest groups from taking influence over national
economical interests with unforeseeable results. However, amendments to existing
legislation should be postponed to avoid obstructions of the technical
development.
ee) Criminal Law
While cyberpayments will definitely boost e-commerce, they also
will have criminal relevance. The easier it is to move large sums of money
online, the likelier is a misuse for criminal activities. While especially drug
dealers relied in the past on cash money, this form of payment has major
disadvantages, especially due to its weight. Cyberpayments do not have to be
smuggled but can be transferred in milliseconds around the world. Money
laundering becomes a major concern related to new payment schemes.(63)
New payment schemes may be attractive to money launderers for different
reasons. Electronic transactions can become untraceable and are extremely
mobile. They can easily be anonymous and may not leave a traditional audit
trail. Moreover, these systems offer instantaneous transfer of funds with
effectively no restrictions.
Given these issues, new legislative and regulatory action, investigative
and enforcement techniques, and most important, enhanced international
cooperation will be needed to detect and prevent money laundering. The Financial
Crimes Enforcement Network(64) (FinCEN) was
set up in April 1990 to track money laundering. FinCEN currently develops
artificial intelligence programs and databases to control money flows. FinCEN
also proposed a "Deposit Tracking System" that tracks large deposits
to, or withdrawals from, U.S. banks accounts..
Another criminal law concern is counterfeiting. While tangible currency is
relatively protected with various safety features such as special paper and
special printing ink, electronic cash, might be easily duplicated. Some products
such as DigiCash / Ecash claim to have effective counterfeiting and double
spending protections build in the company's product. These products also operate
in a closed system where allegedly the digital cash can only be spent once.
Apart from these obvious concerns, criminal law can also hinder the
development of certain cyberpayments. 18 U.S.C.A. § 336 provides in its
1994 amended version that "whoever makes, circulates, or pays out any note,
check, memorandum, token, or other obligation for a less sum than $1, intended
to circulate as money or to be received or used in lieu if lawful money of the
United States, shall be fined not more than $500 or imprisoned not more than six
month, or both." Every micropayment for a sum of $1 or less is
theoretically subject to the fine as proscribed by this statute and legislative
changes are necessary in order to deregulate this important commerce sector.
While electronic commerce is booming, the available new payment
systems still operate more than unsatisfying. No company has so far managed to
establish a product that allows the user to conveniently conduct his
transactions online. Moreover, the legal basis for these products is very
unstable.
Yet, there already exists a product that operates reliable and
consumer friendly in the online environment. As seen above credit cards are a
very favorable payment scheme for almost any online transaction. Moreover, they
are already widely spread and accepted by the consumers. And in combination with
electronic wallet software, their use is of uncompared ease.
The only
missing peace of the puzzle is micropayments, which can't be facilitated with
credit cards in a cost efficient manner. Smart cards may prove to be the
application of choice for micropayments, since they fulfill the essential
requirements of security, ease of use, and familiarity to customers.
For
these reasons global electronic commerce does not need electronic payment
systems other than credit cards and micropayments in the form of smart cards.
Moreover, this means that so far there is no need for extensive legislative
action. Existing legislation is capable of dealing with most of the products
that are currently on the market and it would not be wise to try supporting or
impeding the development of any product by any kind of additional regulation.
The law has to follow the technology and not vice versa.
(10) 15 U.S.C. §§
1601 et seq.
(11) 12 C.F.R. §226.
(12) 12 U.S.C.A. §§ 3401
et seq.
(13) Barkley Clark &
Barbara Clark, The Law of bank deposits, Collections, and Credit Cards, P 15.02.
(14) Clark & Clark, supra at
15.02.
(15) According to the
company, ebay lists about four million articles in over four thousand categories
and has 1.5 million page views per month. http://www.ebay.com,
visited 05/05/00.
(16)http://www.amazon.com, visited 05/05/00.
(17) Peter Wayner, Electronic Cash
for the Net Fails to Catch On, N.Y. Times on the Web, Nov. 28, 1998,
http://search.nytimes.com/search/daily/homepage/bin/fastweb?getdoc+cyber-lib+cyber-lib+2960+0+wAAA+Electronic%7ECash%7Efor%7Ethe%7ENet,
visited 05/05/00.
(18) Sarah Jane
Hughes, A Case for Regulating Cyberpayments, 51 Admin. L. Rev. 809, 820.
(19) Kerry Lynn Macintosh, The New Money, 14
BerkeleyTech.L.J. 659, 661.
(20) 5 Hawkland UCC Series §
4-109:01 (1999).
(21) Jane Kaufmann Winn, Clash of
the Titans: Regulating the Competition Between Established and Emerging
Electronic Payment Systems, 14 Berkeley Tech L.J. 675, 679.
(22) However, credit card issuers tend to
penalize merchants that exceed a certain amount of charge-backs. This move is
currently presenting a tremendous threat to cyber-porn sites, which
traditionally have a high charge-back rate.
(23) Brian W. Jones, The Risk of Paying Over the
Net, 12-DEC Utah B.J. 8.
(24) 12
C.F.R. § 226.12(b)(2)(iii)-1.
(25)15 U.S.C. § 1643; 12 C.F.R. § 226.12(b).
(26) Under 15 USCA § 1666 a credit card
issuers extend "credit" to an individual or an organization when it
opens or renews an account, as well as when a cardholder actually uses his
credit card to make purchases. American Exp. Co. v. Koerner, U.S.La.1981, 101
S.Ct. 2281, 452 U.S. 233, 68 L.Ed.2d 803, on remand 655 F.2d 672.
(27) http://www.mondex.com/,
visited 05/05/00.
(28)http://www.sparkasse.de/ecommerce/gk/gk.htm,
visited 05/05/00.
(29) The first
smart cards have been introduced in Europe in the mid 80's as memory cards for
payphones. The worldwide smart card market is estimated to be 4.7 billion units,
amounting to $6.8 billion within the next two years
http://www.smartcardbasics.com/overview.html,
visited 05/05/00.
(30)http://www.mastercard.com/ourcards/smartcard/faq.html,
visited 05/05/00.
(31) Smart cards
can perform miscellaneous tasks. They can serve as entrance cards and loyalty
cards that can keep track of customers and reward them. Other uses can be found
in telecommunication, campus payments, and in healthcare. In Germany the health
insurers issued smart cards to their members that store insurance data.
(32) Imagine a hotel where the guest booked the
room over the Internet and paid with his smart card. The card can be encoded to
serve as the key to the room, the payment method for the restaurant, the access
to the parking garage and even payment for vending machines, and to store wins
in the hotel casino.
(33) However,
there in no 100% security as a French example shows where the secret access code
of thousands of smart cards was posted on the Internet. The total level of fraud
is nevertheless very low with 0.02% of all transactions per year. France Getting
Smart Over Cards,
http://wired.com/news/politics/0,1283,34974,00.html,
visited 05/05/00.
(34) In Finland
it is already possible to pay soda machines by pushing a button on the widely
spread cell phones. The latest development in smart card technology is
biometrically enhanced smart cards. While the up to date models require the user
to remember and enter a PIN, these cards authorize the user by scanning
fingerprints or his retina.
(35) The DigiCash system operates
with three different accounts. The customer needs a checking account and a
DigiCash account and the bank needs one anonymous pool account for all customers
that participate in the system. If a customer wants to make a payment with
DigiCash, he transfers a certain dollar amount from his checking account into
his DigiCash account. By utilizing the DigiCash software he then creates an
electronic token in the form of a binary file on his home PC. After sending the
file to his bank, the bank certifies the token with an encrypted serial number,
debits the DigiCash account in the amount of the token value, resends the
certified token to the customer, and credits the pool account for the value of
the token. If the customer wants to spend his tokens he send them to a merchant
who transfers them to the bank for verification. If the bank verifies the
signature of the token, the account a merchant keeps with the bank is credited
for the token value and the serial number of the token is taken out of
circulation in order to avoid double spending. It is important to notice that
the bank only keeps record of the serial numbers in circulation but not of the
respective customers that received the certified tokens. Therefore, DigiCash
allows anonymous spending of the tokens.
(36) http://www.millicent.digital.com/,
visited 05/05/00.
(37)http://www-4.ibm.com/software/webservers/commerce/payment/mpay/index.htm,
visited 05/05/00.
(38) Flooz
http://www.flooz.com/ is accepted by 60
websites so far, among these are Barnes & Noble
http://www.bn.com/, ToysRUs
http://toysrus.com, and Martha Stewart
http://www.marthastewart.com, all
visited 04/15/00.
(39)http://www.beenz.com/splash.html,
visited 05/02/00.
(40)http://www.e-gold.com/, visited 04/15/00.
(41) Users have to buy gold in
order to fund their accounts. They can transfer weight units to other customers
that also maintain accounts with e-gold by entering the recipients account
number and a password.
(42)http://www.paypal.com/cgi-bin/webscr?cmd=index,
visited 05/04/00.
(43) With the
widely acceptance of the Bluetooth technology this system could be a big step in
direction m-commerce.
(44)http://www.instabuy.com/, visited
05/05/00.
(45)http://www.passport.com/Consumer/default.asp?PPlcid=1033,
visited 05/05/00.
(46)http://www.echarge.com, visited 04/10/00.
Consumers utilizing this system are billed through their telephone bill.
(47) http://www.ipin.com/,
visited 04/10/00.
(48) This could
be a smart card or some software system.
(49) The example of traveler check seems to
indicate that a self regulated system can work without major problems.
(50) Compare Julian S.
Millstein, Jeffery D. Neuburger, and Jeffrey P. Weingart, Doing Business on the
Internet: Forms and Analysis, 12.03.
(51)http://www.fdic.gov/, visited 05/05/00.
(52) Ellen D'Alelio, "Smart
Cards and Escheat" Electronic Commerce and Banking Law Report, Vol. 1,
No. 1, p. 15 (May, 1996).
(53) 15
U.S.C. § 1693 et seq.
(54) 12
C.F.R. § 205.1 (1999).
(55)12 C.F.R. § 205.1(b) (1999).
(56)E.g. the Clinton administration's Consumer Electronic Payments Task Force favors
this solution. Compare The Report of The Consumer Electronic Payments Task
Force, April 1998, p. 50.
(57) See
12 C.F.R. Part 205.
(58) 31 C.F.R.
§ 103.11(h). reads: "Currency. The coin and paper money of the United
States or of any other country that is designated as legal tender ant that
circulates and is customarily used an accepted as a medium of exchange in the
country of issuance. Currency includes U.S. silver certificates, U.S. notes, and
Federal Reserve notes. Currency also includes official foreign bank notes that
are customarily used an accepted as a medium of exchange in a foreign country."
(59) Macintosh, supra at 664.
(60) Paul Mizen and Eric
Pentecost, eds., The Macroeconomics of International Currencies, 1996, 77 et
seq.
(61) In small scale such
private currencies do already circulate, for instance as air miles. Beginning
this May the over 38 million members of the American Airlines frequent flyer
program can earn additional miles by purchasing goods on AOL. Ecash 2.0, The
Economist 02/21/00.
(62) E.g.
Germany applies the Banking Act to electronic payment systems.
(63) There are various definitions, which
describe the term 'Money Laundering'. According to Article 1 of the draft
European Communities (EC) Directive of March 1990 money laundering is the
conversion or transfer of property, knowing that such property is derived from
serious crime, for the purpose of concealing or disguising the illicit origin of
the property or of assisting any person who is involved in committing such an
offence or offences to evade the legal consequences of his action, and the
concealment or disguise of the true nature, source, location, disposition,
movement, rights with respect to, or ownership of property, knowing that such
property is derived from serious crime. Therefore money laundering is the
process by which illegally obtained money is given the cover of having
originated from some legitimate source. It allows the launderer to maintain
control over the proceeds and to provide a seemingly lawful facade that places
the proceeds out of the reach of prosecution.
(64) http://www.treas.gov/fincen/,
visited 04/10/00.
* Nils Behling hat die erste
juristische Staatsprüfung im November 1998 abgelegt und hat von 1999 bis
2000 ein LL.M-Studium an der Saint Louis University School of Law (USA) mit dem
Abschluß Magister Legum absolviert. Seit 1999 ist Nils Behling Doktorand
am Institut für Rechtsinformatik der Universität des Saarlandes mit
dem Dissertationsthema "Medienrecht - Konzeption eines Universitären
Curriculums". Daneben arbeitet er im Juristischen Internetprojekt Saarbrücken
mit. Seit August 2000 ist Nils Behling Rechtsreferendar in Düsseldorf.
