The Legal Nature of Electronic Payment

The Legal Nature of Electronic Payment

Undoubtedly, every form of commercial activity presupposes the payment of a price. In general, it is irrelevant to the merchant whether the payer is necessarily the buyer himself. What matters is that the payment is made. Accordingly, the concept of electronic payment must be distinguished from the identity of the buyer.

Payment security is fundamental to a purchaser seeking to ensure funds are not lost or misdirected to an unintended recipient.

The success of electronic commerce within open networks, meaning networks in which any new buyer may participate, depends largely on secure payment mechanisms. In this context, four principal methods of electronic payment are currently recognized:

• Guaranteed payment by a trusted third party.
• Payment by bank card.
• Remote payment.
• Electronic wallet.

Civil and Criminal Liability in Electronic Transactions

What Is the Legal Nature of Electronic Payment?

Naturally, although this issue requires further analysis, a payment made by bank card may be regarded, by analogy to the physical world, as a deposit or transfer. For purposes of electronic wallets, they may be treated as prepaid cards.

Revocable and Irrevocable Nature of Payment Orders

Electronic payments that require the use of a card number together with the entry of a personal identification code are considered irrevocable. Such payments may not be contested except in cases of card loss or theft. By contrast, payments made solely by transferring a card number are deemed revocable. In such cases, only the buyer’s identity is disclosed, without authentication via a security code. This interpretation is clearly intended to protect consumer interests.

Payment Order and Funds Transfer

If the customer’s provision of a credit card number is interpreted as an expression of intent to transfer funds from one account to another, or as granting the creditor authorization to withdraw funds, this operation is analyzed in economic law as a transfer. Under this analysis, payment is deemed complete when the merchant’s account is credited.

From this perspective, it follows that a payment order may traditionally be revoked until it is recorded as a debit in the payer’s account. Such an interpretation, however, may undermine the effectiveness of electronic transfers, as it would permit a customer to withdraw payment due to hesitation or reconsideration. For this reason, since 1991, payment orders have generally been considered irrevocable, except in cases of loss or theft of the card.

Proof of Payment

Is Payment a Legal Event or a Legal Act?

If payment is classified as a legal event, proof may be established by any means. If it is regarded as a legal act, proof must comply with the specific rules governing electronic writings. The legal characterization of payments posed challenges at a time when electronic evidence was viewed skeptically.

Today, in light of the recognition of electronic evidence, uniform standards of proof apply regardless of whether payment is classified as a legal event or a legal act.

In most cases, the seller’s electronic message confirming receipt of funds constitutes sufficient proof of payment.

Risk Management in Electronic Payments

The most common remote payment method in business-to-consumer transactions is the transmission of a visible credit card number. The use of such a number, which the supplier often treats as merely informational data rather than as evidence of payment, lacks legal value and exposes the cardholder to significant security risks.

In particular, the transmission of a card number does not render a payment irrevocable, even where the parties have contractually stipulated irrevocability. The cardholder may always claim that the number was not transmitted by him. In such circumstances, the situation is treated as a disputed payment order.

As a result, in the event of a dispute, the burden of proving the execution of the payment order rests with the intermediary bank. Judicial practice has shown a clear tendency to place the risks arising from atypical or unauthorized use of cards on the card-issuing institution. More generally, the risks inherent in electronic commerce are borne by the supplier, who is typically in a stronger financial position than in traditional forms of remote sales.

Only through the regulation and standardization of electronic communications can the scope of these risks be effectively reduced.

Frequently Asked Questions Regarding the Legal Nature of Electronic Payment