The Contractual Regime of PayPal and Electronic Payments Irene Kull ETAg funding, project 9301

Outline I.Introduction II.PayPal – legal status and applicable law III.Paypal – triangle relationship IV.Paypal - private made rules and national contract law regime V.New technology and payment systems VI.Conclusions

Contractual regime -Formation of contractual relations -Type of the contract -content of the contracts -Liability and division of risks -System of remedies -System of applicable rules -Applicable law and jurisdiction

Online payment platforms Online platforms require more efficient, accessible, cost effective, secure and rapid payments to meet the needs of the market participants. PayPal – well established payment system, complex legal structure

Payment systems  cash payments, no intermediates participate  account based payments, with values residing on the customers accounts at their financial institutions or networks like PayPal  credit –based transactions, involving an extension of short or long time credit

Internet based payment solutions  P2P payments via , text message, web or social media  “Digital wallets” which are in form of app download to a mobile device as smartphone or tablet  digital currencies for exchanging money for credits, points or some form of virtual currency, like Bitcoin PayPal – account based payment system, digital wallets

PayPal – legal status and regulation  PayPal is in US founded online payment service; in 2012 the PayPal was acquired by eBay  In Europe licensed under the Luxembourg law (2007), supervised by the Luxembourg supervision authority  Registered in all EU member states

Legal regulation  Directive on payment services 2007/64/EC  Directive 2009/110/EC on supervision of the business of electronic money institutions  Unfair commercial practices directive 2005/29/EC  Directive on information society 2000/31/EC  Directive of unfair terms in consumer contracts 93/13/EEC  Money loundering legislation, data protection, illegal internet content etc.  EU member states laws

Private made law and state made law Good banking practices Transparency and fair advertising; Balanced contractual relationship; Following the national legislation and local standards Customer complaints are quickly resolved Confidentiality Transnational (consumer) legal order Private legal order

Why PayPal? reduces risks that funds will be transferred provides trust that the personal financial information is not transmitted prompt conclusion of the transaction, prompt payment and prompt delivery of goods possibility to deposit money variety of funding mechanisms

Accessibility of PayPal  Easy and comprehensible (language problem)  Certain level of ingenuity is required by the user Cost effectiveness In comparison with national bank cards – the difference is very small in Estonia; so no need to use for national payments B2B - outside of the European Economic Area, it is more beneficial to use credit cards than PayPal, EU payments – no differences

PayPal as intermediary According to the User Agreement for PayPal Service PayPal’s main business is the issuance of E-money and the provision of services closely related to the issuance of e- money. Hosting service provider (dir 2000/31/EC, art. 14) ?

Triangle relationship PayPal as payment platform provides triangle relationship: Contract between PayPal and buyer-payer Contract between PayPal and seller –payee. Contract between buyer and seller. SellerBuyer

PayPal’s dispute resolution mechanism Buyer Protection Programme (BPP) Buyer is protected in three situations: Goods are not received (“NR”) Goods are significantly Not as Described (“SNAD”) Non-authorized transactions If the final decision is in the buyer’s favor, the payment will be reimbursed through PayPal and “…. Payment Recipient bearing liability to PayPal for that reimbursement.”

What can be done: the buyer to post back to the Payment Recipient, to PayPal or to a third party (as PayPal may direct) an item the Payment Recipient to accept back the item sent to it by the buyer and refund the buyer the full purchase price plus original postage costs. safe disposal of an item

New electronic payment systems Outside banking system; in cooperation with banks With new technological solutions, but within existing frameworks Triangularization of bilateral relationship provides trust Transforming contractual disputes into payment disputes

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