Article Title

Making XML Pay: Revising Existing Electronic Payments Law to Accommodate Innovation

Publication Title

SMU Law Review

Keywords

e-commerce

Document Type

Article

Abstract

Many businesses today are rushing to embrace "e-Business" technologies in a mad scramble to remain competitive. Only a few years ago, simply using email instead of faxes or phone calls, converting a purchasing system to EDI technology, or building a corporate Web site might have seemed like important advances in the use of new information technologies.

Businesses are now moving beyond such "electronic commerce" technologies and trying to integrate their disparate information systems and business processes into a comprehensive new "e-Business" structure. At the heart of this new model for business organization is the idea that information and resources should be able to flow to where they are most needed at a moment's notice. Such fluidity in access and control over information and resources is very difficult to achieve in traditional hierarchical corporate organizations.

By adopting new technologies, including XML, businesses can set up a more flexible, decentralized form of organization that can be more nimble in recognizing and responding to changing market conditions. The assimilation of these and other electronic commerce technologies into established businesses permits those businesses to provide goods and services to existing customers more efficiently. For example, General Electric, one of the world's largest diversified manufacturing companies, has used electronic commerce technologies to reduce the amount of time required to process purchase orders and to reduce the cost paid for materials by using a secure Internet site to link customers and suppliers to manufacturing resource planning software.

Efficiencies of this type are generally referred to as a function of "supply chain" reengineering when they take place in traditional manufacturing industries between purchasers and vendors, or "value chain" reengineering when the same type of efficiencies are sought more generally throughout more diverse types of organization and industries.

eXtensible Markup Language (XML) is a new standard that governs the way information is organized and exchanged. Use of the XML standard in organizing the information businesses need to conduct business would permit greater use of electronic searching technologies to identify potential trading partners, greater use of automated processes in negotiating the terms of transactions, and greater automation in tracking the execution and fulfillment of transactions after deals are struck. A major stumbling block on the path to realizing the "e-Business" model is the difficulty most businesses face when trying to integrate electronic payment processes into other business processes.

Financial transactions normally need to be controlled with more rigorous security procedures than other transactions. Financial markets were early adopters of electronic communications technologies, and as a result have a huge installed base of older technologies that are very reliable and stable. These legacy computer systems, however, integrate poorly with newer Internet based systems developed for other business processes. As a result, most businesses in the United States still rely heavily on paper checks as their primary payment device, even for transactions entered into electronically.

The adoption of XML standards by retail merchants and financial service providers will create new risks and opportunities for consumers using electronic funds transfers. In consumer markets, one challenge posed by the adoption of new technologies such as XML is designing appropriate human-computer interfaces rather than achieving interoperability among existing computer systems. In addition, new technologies will facilitate greater reliance by consumers on new automated contracting processes such as electronic agent software.

Unlike the law that governs business-to-business electronic funds transfers, the law and regulations governing consumer electronic funds transfers often reflect anachronistic models of technology and consumer protection. Since the mid-1990s, federal regulations governing consumer electronic funds transfers have been under review and are in the process of being updated. It is possible that even very recent revisions may soon appear anachronistic in light of the rapid pace of innovation in business processes.

Regulators should not focus on preserving the form of existing consumer protection regulations, but on advancing their underlying objective of consumer empowerment in new environments. The development of new user interfaces for payments products should include information that helps consumers understand the functional differences between different forms of electronic payments, and the different risks that may be associated with each. Consumers, consumer advocates, and regulators will need to contribute to the standard-setting processes to make sure that the concerns and preferences of consumers are reflected in standards that gain widespread acceptance.

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