Electronic Payments

• Author: M.H. Ogilvie
• Profession: Chancellor's Professor and Professor of Law, Carleton University
• Pages: 371-400

371

C h a p t e r 1 0

ELECTRONIC PAYMENTS

a. Int roduC tIon

From a customer’s perspective, the evolution of payment methods of-

fered by banks over the past decade a s a result of technological advan-

ces has been dramatic, especially i n comparison to the slow evolution

of paper payment methods over the previous three hundred years.

Until the early 1990s most tran sactions were in cash, by cheque, or

by other negotiable instrument. However, since the late 1990s, most

transactions h ave been executed electronically by use of various plastic

payment cards whose orig inal differentiated f unctions are now largely

reduced to two cards, a credit card and a debit card. While customers

still use cash, cheque s, and credit cards where appropriate for their

purposes, the debit card i s now used for ordinary ba nking transactions

at ABMs operated by their own bank or as part of a network to which

their bank belongs, for retail purchases at point of sale (POS), and also

sometimes for some third part y payment provider transact ions that

may or may not clear through the ACSS.

Chapter 9 described t he payment systems over which payment

transactions a re carried out, but this chapter will describe t he mechan-

isms by which customers may access those payment systems in order

to make payments to other pa rties. At the outset, it is importa nt to

remember that a plastic ca rd serves the same purpose as an oral in-

struction or a written cheque, th at is, it is a means by which a customer

gives a mandate to its bank to pay funds from the customer’s account

BANK AND C USTOMER LAW IN CA NADA372

to another person, the payee of those fund s. The card, together with

other means of identif‌ication, such as t he personal identif‌ication num-

ber (PIN), serves to authenticate the customer much as a signature on

a cheque, although unlike a cheque on which the part iculars of the

mandate are written, the particulars must still be provided by the cus-

tomer on a device provided by the banking network once the customer

is authenticated in an electronic transaction.

This chapter will br ief‌ly survey the evolution of plastic payment

cards and then ex amine the practice and law of debit card transactions.

Further consideration wil l also be given to the rapidly developing third

party payment sy stems (3PPS), involving both the f‌inanci al institutions

and private 3PPS providers, some of which operate over ACSS in whole

or in part and some of which operate openly over the Internet, com-

pletely outside ACSS. The introduction of mobile payments, by use of

mobile phones, will also be considered.

Credit card tran sactions will be di scussed in the next ch apter

(Chapter 11), together with other payment mechani sms offered by

banks to their c ustomers, such as travellers’ cheques a nd money orders.

Credit cards operate outside the CPA payment network, although the

others clear within it as negotiable instruments. The payment meth-

ods discus sed in this chapter are t hose used daily by customers, whi le

those discus sed in the next chapter are those used from time to time

for special trans actions by customers.

B. the evoLutIon of pLastIC Cards

Although debit card transactions involve immediate payment, rather

than the exten sion of credit for a limited period of time, the use of

plastic tokens to initiate pay ment transactions b egan with tokens used

in the context of credit, rather than immediate payment. The earli-

est such tokens, usually in t he form of a coin, originated in American

retail stores prior to World War I as a means of identifying c ustomers

to whom those stores extended credit. They could be used only in t he

stores that issued them and that anticipated repayment on a regular,

normally monthly, revolving credit basis. Reta il-issued cards1 remain

as one category of plastic card now in w idespread use by retail stores

and gas companies, and they continue to be distinguished from bank-

issued cards in two legally signif‌icant ways: (i) they are bipartite card s

in that the cardissuer and merchant are identical, so t hat two parties

1 For example, the Bay c ard, Sears card, and t he Esso card.