Electronic Payments

• Author: M.H. Ogilvie
• Profession: Professor of Law, Carleton University
• Pages: 345-369

345

CHAP TER 10

ELECTRONIC PAYMENTS

A. INTRODUCTION

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

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

ces has been dramatic, especially in comparison to the slow evolution

of paper payment methods over the prev ious three hundred years.

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

by other negoti able instr ument. However, since t he late 1990s, most

trans actions have been e xecuted electronica lly by use of var ious plastic

payment cards whose original differentiated functions have now been

reduced to one card, the debit card, or in some insta nces, the credit

card or the credit card w ith debit card character istics. While custom-

ers still use cash, cheques, and credit card s where appropriate for their

purposes, the debit card is now used for ordinary b anking transactions

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

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

sometimes for some third par ty payment provider transactions t hat

may or may not clear through the ACSS.

Chapter 9 described the payment systems over which payment

transact ions are car ried out, but this chapter will descr ibe the mechan-

isms by which customers may access those payment systems in order

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

remember that a plastic ca rd serves the sa me purpose as an oral i n-

struction or a written cheque, t hat is, it is a means by which a customer

BANK AND C USTOMER L AW IN CANADA346

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

to another person, the payee of those funds. The card, together wit h

other mean s of identif‌ication, such as the per sonal ident if‌ication 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 wr itten, the particulars must still be prov ided 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 pay ment

cards prior to the virtually al l-purpose debit card in use today and

then examine t he practice and law of debit card transactions. Furt her

consideration will al so be given to the rapidly developing third party

payment systems (3PPS), involving both the f‌inancial i nstitutions and

private 3PPS providers, some of whic h operate over ACSS in whole or

in part and some of which operate openly over the Internet, completely

outside ACSS.

Credit card transactions will be discussed in the next chapter

(Chapter 11), together with other pay ment mechanisms offered by

banks to their cu stomers, such as travellers’ cheques and money orders.

Credit cards operate outside the CPA payment network, although the

others clea r withi n it as negotiable instr uments. The pay ment meth-

ods discus sed in this chapter are those used daily by customers, while

those discussed in the next chapter are those used from time to t ime

for special transactions by customers.

B. THE EVOLUTION OF PLA STIC CAR DS

Although debit card transact ions involve immediate payment, rather

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

plastic tokens to initi ate payment transact ions began with tokens used

in the context of credit, rather tha n 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 customers

to whom those stores extended credit. They could be used only i n the

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

normally monthly, revolving credit basis. Retail-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 disting uished from bank-

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