XML AND THE LEGAL FOUNDATIONS FOR ELECTRONIC COMMERCE: Making XML Pay: Revising Existing Electronic Payments

Law to Accommodate Innovation

Copyright (c) 2000 Southern Methodist University

SMU Law Review

Fall, 2000

53 SMU L. Rev. 1477

Article by Jane K. Winn

Integrating E-Commerce

• One of the largest barriers to E-Commerce is electronic payment.

• XML is a markup language for financial data.

• XML makes comparing data easier.

• EDI - not as big as predicted. Cost of implementing EDI is high.

Why is Electronic Payment Hard?

• Automated Clearing House, ATM and Credit Card systems are old and many use COBOL and mainframes.

• So Web sites take credit cards or credit formatted debit cards and not payments based on ACH or the ATM network.

Consumer Payments

• Wholesale Funds Transfer Network

• Credit Card - float

• ACH - difficult to understand and access

• ATM Network - lose the benefit of dispute resolution provided by the credit card process.

Cumulative Costs• Training for Staff

• Loss of Security in known payment systems

• Broad changes to business process may be required to adopt a new payment process.

• Consider the changes that will need to occur to handle disputes related to billing. Currently you adjust your payment from the invoice amount if the quantity or price is not what you agreed to. If you already paid you will need a new system to get a credit.

EFT and UCC• UCC is the law the governs electronic payments.• Who is Liable for Fraud

– Bank or Customer - Your employee - Your loss• Commercially Reasonable Security - Customer not

liable for withdrawals they did not authorize unless the Bank can prove they did authorize it and the system used is Commercially Reasonable.

• Bank can also avoid risk if they offered a reasonable system but were turned down for an unreasonable system selected by the customer.

• Agreement that customer will accept loss of unauthorized transfers may not be enforceable if it is found to be an attempt to avoid loss for failure to provide help is selecting a commercially reasonable security system.

• XML really does not involve the process of transferring funds but the way information is shared. Implementing XML should not effect security unless integration creates vulnerabilities during implementation.

• Interactive Financial Exchange is an open XML standard being worked on by the IFX Forum might help address risk due to implementation of XML standards.

Consumers, XML and EFT• Laws protect consumers from loss but result in higher

transaction costs.• Disclosure can be made electronically and XML might

enhance that ability.• Advocates are concerned that consumers might opt for

electronic disclosure for a lower fee but not have the means to access the disclosures, find the accessing and storing the disclosures burdensome or be unable to revert to traditional notification

• Could deprive consumer of mandated disclosures• 1999 policy establishes requirements for disclosure

• XML help understand the meaning of disclosures – Credit Card - billing dispute but also transaction dissatisfaction

resolution process Reg Z– ATM Payments - only provides billing dispute of the

authorization and amount of a transfer. Reg E banks can take 10 days to research transaction before crediting your account

• Regulations on Disclosures seem to be preserving the existing rules without seeking input on what consumers want and need. Goal of advocates has been to avoid pushing costs of providing disclosure to customers or mandating electronic disclosure.

Conclusion• XML benefits in Electronic Payment for businesses

is unclear. Security,legacy, human • XML will not need new Laws • Effect on Consumers could be beneficial if the info

sharing ability empowers the use of electronic agents and ability to search for favorable terms

• If OLD regulations are carried forward regulators will need new tools to provide meet consumers preferences.