Center for Contract and Economic Organization
The Charles Evans Gerber Transactional Studies Center
The Internet has produced significant changes in many aspects of commercial interaction. The rise of Internet retailers is one of the most obvious changes, but oddly enough the overwhelming majority of commercial transactions facilitated by the Internet use a conventional payment system. Thus, even in 2002, shoppers made at least eighty percent of Internet purchases with credit cards.' To many observers, this figure has come as a surprise. The early days of the Internet heralded a variety of proposals for entirely new payment systems-generically described as electronic money-that would use wholly electronic tokens that consumers could issue, transfer, and redeem. But years later, no electronic-money 2 system has gained a significant role in commerce.
The continuing maturation of the Internet, however, has brought significant changes to the methods by which individuals make payments. Person-to-person (P2P) systems like PayPal now make hundreds of millions of payments a year between individuals. 3 The most common purpose is to facilitate the purchase of items at Internet auctions, but increasingly P2P transfers are used to transfer funds overseas. Less far along, but gaining transactions rapidly, are a variety of systems for electronic bill presentment and payment (EBPP).4 Interestingly, both of these developments follow a less ambitious path than the still-hypothetical electronic-money systems: they involve the use of intermediaries to "piggyback" on existing systems to provide payment. Thus, in essence, they use the technology of the Web site to facilitate the use of conventional payment networks. 5
However disparate these developments might seem at first glance, they present a common challenge to the regulatory system.6 Unlike banks, which control the execution of payment transactions in conventional payment systems, the intermediaries that populate these new sectors generally are not inevitably subject to regulatory supervision. At most, they are subject to regulation as money transmitters (akin to the regulation of Western Union).7
Ronald J. Mann,
Regulating Internet Payment Intermediaries,
Tex. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/451