Tell me, have you ever wondered what electronic money is? Of course each of you will give your definition to this notion, but have you ever think what electronic money is from the point of view of the law? After all, almost any phenomenon in our life is regulated by some legal act, and electronic money is a rather familiar concept to you and me, isn’t it?
In this article I propose to understand the concepts of electronic money and electronic payment systems from the point of view of the current Russian legislation and establish the degree of legality of these structures. I propose to consider all the analyzed concepts by the example of WebMoney EPS.
To begin with, I propose to clarify what this notorious electronic money actually is. And here the first, rather strong shock awaits us, and there is no electronic money, and there cannot be, as the current legislation of the Russian Federation does not operate with such a concept as electronic money (digital money) or electronic cash (otherwise – Internet-money).
Electronic money is not money in the sense that it is defined by the current civil legislation (Art. 140 of the Civil Code of the Russian Federation). Money, as it follows from article 140 of the Civil Code of the Russian Federation, is rubles, the legal means of payment, obligatory for reception in face value on all territory of the Russian Federation. I assume surprise in your eyes and quite natural question: What then lies on my WebMoney purse?, that’s what we will now look into.
Generally speaking, there are two approaches to understanding digital cash in nature. For example, the WebMoney system treats electronic money (referred to as title units) as securities. In PayCash as an advance payment. And in both cases the electronic money actually is a prepaid financial product. Subsequently, the purchase of goods and services is made with such title units or securities (or already considered prepaid), which, are not money.
For example, the owners of the WebMoney EPS define electronic money in their payment system as a universal title sign (WM) in digital form; the unit for calculating the quantity (volume) of property rights, which price (conventional network value) is set by its holders, and the procedure of transmission and accounting corresponds to the procedures of messages circulation of the format TITLE UNITS in WEBMONEY TRANSFER. Thus, the owners of the system themselves emphasize that electronic money is titular marks, property rights; the electronic payment system is defined as a system of message circulation (titular marks) between registered users.
I propose to summarize the intermediate results. As we can see, the concepts of electronic money or electronic payment system are legally incorrect, it is more correct in this case to say electronic means of accounting or electronic accounting system.
Let us continue our research. And what are these title units, what do the EPS owners mean by them and how does the current Russian legislation define this notion? Let’s again turn to the WebMoney system; this system supports several types of title units secured by different assets.
I propose to analyze each type of proposed title mark:
WMZ title sign (a conventional unit for calculating WMZ Certificate value, equivalent to $1) is a WMZ gift (commodity) pre-paid certificate for online shopping, emitted in WMZ. Such gift certificates are issued by the electronic system (Seller) and sold (traded) to third parties. The latter (Buyers) have the right to freely dispose of these certificates, to purchase goods and services by means of certificates (the money equivalent of certificates).
Purchasers shall deliver purchased certificates to the Supplier as evidence of their right to receive goods or services from the Supplier and shall receive. The Supplier exchanges the certificates for cash. A similar procedure is established for WME title units (WME certificate, equivalent to 1 euro).
Gift vouchers are essentially an advance payment. Buyer of a gift certificate, in fact, makes an advance payment (down payment) on account of future purchase of goods (order of service). As enshrined in paragraph 1 of Art. 380 of the Civil Code of the Russian Federation down payment is the amount of money payable by one contracting party against its owed under the contract to the other party, to prove the conclusion of the contract and to ensure its performance. In case of termination of obligation before the beginning of its execution by agreement of the parties or due to impossibility of execution the deposit should be returned (Item 1 of Art. 381 of the Civil Code).
A different legal nature is given by the system owner to WMR title units (the equivalent of 1 ruble). WMR title units (which are equivalent to rubles) record cheques in electronic form to bearer, which the user buys for rubles from the Russian Guarantor of the cheque issuer) or receive from another member of the system. A cheque for a certain amount shall be reflected as an entry on the Holder’s R-type prop in the system. The Cheque Issuer guarantees to any person holding and effecting settlement transactions by means of electronic bearer cheques (hereinafter referred to as ECPs) payment of the amount of money specified in the ECP when the ECP is presented for payment to the Paying Bank.
Bearer cheques, in fact, have all the attributes of an uncertificated security. The following attributes can be distinguished for this type of securities:
uncertificated form (as an entry in accounts); bearer securities; freely negotiable.
The operator of a title-card system actually issues securities in the form of uncertificated bearer cheques. Undoubtedly, the absolute attribution of electronic money to the category of securities is possible with certain limitations. So, for example, it is enough to refer to the Civil Code of the Russian Federation for the definition of a cheque. The latter is recognized as a security that contains an unconditioned order of the cheque bearer to the bank to make payment of the amount indicated in it to the cheque bearer (Clause 1 of Article 877 of the Civil Code of the Russian Federation).
A cheque belongs to the so-called non-issue securities and, accordingly, cheque circulation is not regulated by the Law on the Securities Market. At present, the procedure of cheque issue and circulation is regulated by the CBR Regulation No 2-P of October 3, 2002 on non-cash payments in the Russian Federation (with the latest amendments and additions of June 11, 2004)
The main features of a cheque as a security are:
1) is a document certifying property rights, the exercise or transfer of which is possible only upon its presentation. Property rights in this case are claims for payment of a certain amount of money;
2) this document must be executed in compliance with the requirements to its form and contain the mandatory requisites;
Among the obligatory requisites the legislator specifies (Art. 878 of the Civil Code):
1) name of the cheque included in the text of the document; 2) instruction to the payer to pay a certain amount of money; 3) name of the payer and indication of the account from which payment is to be made; 4) indication of the currency of payment; 5) indication of the date and place of drawing the cheque; 6) signature of the person who issued the cheque, the chemaker.
The absence of any of these details in a document makes it invalid as a cheque. Undoubtedly, electronic cheques issued by the title deed system do not meet all the above-mentioned characteristics. However, this does not mean that the circulation of this kind of securities is illegal. The Civil Code (Art. 143) allows the existence of other types of securities, although such should be classified as securities by the legislation on securities.
The acquisition of title marks is effected by purchase and sale (or by means of any other civil law transaction). Title marks are not restricted in any way to civil circulation, can be transferred anywhere in the world.
From all of the above, we can conclude that electronic money is, depending on its type, an advance payment or a peculiar (distinct from other) type of securities. Electronic money is not money in the sense that it is defined by the Civil Code of the Russian Federation.
Electronic money settlements are not non-cash settlements, these legal relations are not covered by the legislation on non-cash settlements and banking activity in general. But it should be emphasized that the lack of a regulatory framework does not at all mean that electronic money is illegal in the Russian Federation.
With the definition of electronic money we have more or less decided, now I propose to consider the mechanism of the payment system.
All electronic payment systems are based on the use of either payment cards or an electronic wallet (or wallet). If everything is more or less clear with the cards, there is the Regulation of the Bank of Russia ¹ 23-P, dated April 9, 1998, on the procedure of issue by credit institutions of bank cards and settlements for operations performed with their usage, where the mechanism of payments by cards is explained, then with a wallet you should understand. It is advisable to put something in this wallet.
Well, what’s a wallet without money! Of course, there will be money in it, and this is exactly the serious mistake leading to the term “electronic money”. It is not money, but only its electronic value, that is placed in an electronic purse. The money stays in the bank or in the company, which gave this purse. In this case, it should be seen as a prepaid financial product. All the more so, since it is in this form that our legislation gives it the right to exist. Bank of Russia Directive No. 277-U of July 3, 1998 On the Procedure for Issuing Registration Certificates to Resident Credit Institutions for Issuing Prepaid Financial Products
In such cases, we should speak of electronic payments or electronic value as the electronic equivalent of conventional money placed on a payment card or in an electronic wallet on a computer’s hard drive.
The electronic value is still tied to an account, regardless of whether it is a bank account or similar services provided by a non-bank institution. Funds are deposited into that account, and the customer is transferred to a card or electronic wallet with the equivalent electronic value of those funds, and then uses them for their intended purpose. Moreover, when settlements are carried out, or, more precisely, when the electronic value is transferred, there is no movement of the money itself. Real money is either exchanged for electronic value, at the time of its presentation, collected by the seller for goods or services sold, or there is a kind of clearing of transactions in which electronic value was involved.
There are several options for settling using e-value whether it is loaded onto a card or a virtual wallet:
1. The money remains in the customer’s bank account until the electronic value is transferred to the merchant’s account. That is, at the time of payment for the purchase, the seller does not receive the money itself, but the electronic value (or it can be called anything else), which he can then present to the bank or other organization to receive the already real money or at the time of purchase an order is given (naturally electronic) to transfer the money from the buyer’s account to the seller’s account.
2. The electronic value is loaded onto the card or into the customer’s wallet, the funds are transferred from a reserve or other account held with some organization that makes the payment. In this case, there is an instruction to that organization to make the payment. And this third party acts as an intermediary (commissioner, agent) between the seller and the buyer. 3. The card is issued by a third party that provides electronic value to banks and customers, the customer pays for the electronic value from their bank account or in cash at the time of purchase.
4. The card is issued by a third party, the bank pays for the electronic value and then resells it to customers.
All Russian electronic payment systems necessarily use bank accounts. And already from this account the electronic value is transferred, first to the buyer’s wallet, and then to the seller for the goods purchased.
In summary. Although at the moment our legislation does not yet have any means of legal regulation of the activities of Electronic Payment Systems, this by no means makes their existence unlawful. One can only hope that in the near future at least some weighty legal and regulatory framework will be developed to regulate these, very popular entities at the moment.
The following materials were used to write this article:
1. Description of WebMoney Transfer system // webmoney.ru/about.shtml;
2. Zakharchenko V. Money of virtual world // Banking forum Bankir.ru – 14.03.2005. http://bankir.ru/analytics/it/3/27881;
3. Agreement on Transfer of Proprietary Rights by Digital Title Marks //. http://webmoney.ru/syagreements2.shtml;
4. Agreements with system guarantors //. http://webmoney.ru/syagreements3.shtml;
5. Electronic Cheque Agreement //. http://webmoney.ru/syagreements3.shtml;
6. CBR Regulation No. 2-P “On Non-Cash Payments in the Russian Federation” dated October 3, 2002 // Bank of Russia Bulletin, December 28, 2002, No. 7;
7. Civil Code of the Russian Federation FZ N 1-FZ On Electronic Digital Signature (dated January 10, 2002);
8. Senchenko N. New time – new money // Banking forum Bankir.ru – 28.03.2005. http://bankir.ru/analytics/it/3/29052;
9. Shamrayev A.V. Development of European law of electronic commerce // eCommerce World. №3. – 2001; Shamrayev A.V. Legal nature of electronic money: obligatory-legal model // Dengi i Kredit. – – 2000. NO. 4.
10. Genkin A.S. Legal status of electronic money and electronic payment systems // Business and banks. – – 2003. NO.15.
11. The texts of the directive according to the publication: Shamrayev A.V. Legal regulation of information technologies (analysis of problems and basic documents). Version 1.0. – Moscow: Statut, Interteh, BDC-press, 2003. – – 1013 с. – – с. 328-331.
12. Senchenko N. New time – new money // Bankers forum Bankir.ru – 28.03.2005. http://bankir.ru/analytics/it/3/29052;
13. Glushenkov A. Electronic payments and how they differ from electronic money//. http://esecurity.com.ua
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