Applying the three foundation principles mentioned above yields the conclusion that traditional payment systems do not present significant “cyberspace” jurisdictional issues as a practical matter. Today, money moves around the world on a daily basis in vast amounts in as free and seamless a manner as it ever has in history, and nearly instantaneously for the great bulk of the transactions. These movements occur largely without incident and primarily through an established network of domestic financial entities and their correspondents, foreign financial entities, specialized governmental entities, and various service providers. In many countries these payment systems are subject to supervision and examination by the country’s banking regulators.
The reasons for this nearly
problem-free movement of money are many.
The development and wide-spread use of technology that readily permits
money and financial instruments to be evidenced as digital files, the
development of high-speed computers and high-capacity transmission facilities,
and the emergence of common and dominant currencies are but a few. However, five reasons are key from the legal
point of view:
(2)
The rules and processes for local, national and
international money transfers have become well established and carefully
defined over many years (indeed, centuries).
To a great degree, development of an electronic payments system happened
decades ago as “money” was converted from a “paper-world” to a
“cyber-world.” Vestiges of paper-based
transactions still co-exist with electronic payments, mostly because the
preferences of individual customers have not kept pace with the possibilities
presented by technological advances. But
the functionality of the payment system has been based in electronic exchanges
of debits and credits at least since the late 1970’s. Even the financial institution that continues
to mail its customers their cancelled paper checks each month long ago
converted to processing the payments represented by those items
electronically. Financial institutions
eagerly await the day their customers move from receiving their cancelled
checks in the mail to being satisfied with online access to image files of
those checks. The financial institutions
will still be performing exactly the same function, but the different
technologies will make the services appear to be distinct.
(3)
At the core of local, national and international
payment systems is an elaborate and constantly tended web of contracts,
protocols, time-honored practices, consultative mechanisms, and personal
relationships, all designed to produce swift and certain results without the
need for contentious dispute resolution.
To conduct transfers over the established payment systems, one must
agree to abide by these “rules,” which allocate the burden and risk of loss in
each transaction. In the case of an
error or mistake, all participants know what their rights are, how to enforce
them, and the party in error knows that it must accept responsibility to
continue as a participant in the system.
(4)
A substantial number of the contractual arrangements
involved in the traditional payment system contain provisions stipulating the
jurisdictional aspects of any issues that arise under the contracts, e.g., the
applicable law, the judicial forum for dispute resolution, and applicable
arbitration provisions. These agreements
are between and among sophisticated parties with strong individual or
collective bargaining power. Courts are
generally willing to enforce provisions of this type among such parties (as
opposed to contracts in which one of the parties is an individual). Thus, jurisdictional issues are contracted
away.
(5) Legal rules have developed
that limit the exposure of consumers to liability. For example, in the United States, the
Truth-in-Lending Act and the Electronic Funds Transfer Act generally limit the
exposure of consumers on individual transactions to $50 as a matter of
law. Programs are available that can
reduce that exposure effectively to zero.
This development reduces the likelihood that disputes -- the “stuff” of
jurisdictional questions -- will arise.
The potential consumer complaint becomes a claim involving the merchant,
the merchant’s bank and the cardholder’s bank and is resolved, without raising
jurisdictional issues, as a matter of contract among those parties. Globally, the sophisticated parties settle
the claims among themselves on the basis of a netting process and regard losses
as a cost of doing (1) business against which they create reserves or purchase
insurance. Consumers generally are aware
that they are protected and derive a sense of confidence from this fact, which
has been an essential factor in the expansion of electronic commerce on the
retail level.
In short, the operational
imperatives and legal structure of traditional payment systems are such that
they do not generate disputes that require adjudication. As to any differences that might arise,
solutions are provided for in advance by detailed agreements. The daily volume of global currency
transactions averages in excess of 1.0 quadrillion of US dollars. The average daily volume on the FedWire, a
principal component of the US payment system (discussed below) has exceeded 1.0
quadrillion US Dollars since 1997. If
only a very small percentage of these daily transactions yielded disputes, such
systems could not tolerate the clogging that would result from the accumulated
burden of cases. Indeed, a virtuous cycle
is at work: because there is vast volume, disputes are intolerable; and because
disputes have not been tolerated, expansion of the volume has been
enabled. This cycle has long been at
work in the paper-world. The addition of
computers and Internet communications have enhanced the cycle and accelerated
its expansion and development.
Thus, the payments system has
evolved in such a manner that jurisdictional questions are avoided. This is an important fact on two levels. First, this practice of avoiding
jurisdictional conflicts is employed with respect to business-to-business
electronic transactions generally.
Second, as will be discussed later, these may be effective techniques
for avoiding or minimizing jurisdictional conflicts in business-to-consumer
electronic transactions as well.
