A Theoretical Analysis of Payment Systems

Abstract

For over two hundred years, financial institutions have been providing payment services to transfer monies from accountholders to merchants and other payees. The market however is constantly searching for more efficient and reliable devices for institutional money transfers. Credit card and other electronic payments are, accordingly, capturing a big share of payment services over which negotiable instruments have long exercised a comfortable monopoly. This Article offers a coherent theoretical model to conceptually unify payment services delivered through old and new payment devices. The model derived from the assorted payment systems currently in use argues that the payment law must adhere to a set of fundamental principles. In analyzing these principles, the Article first establishes that payment services actually follow, though not consistently, the proposed theoretical model. It then proposes a number of legislative reforms to eliminate discordance among diverse payment systems, to allocate liability for violations of principles, and to assure a more efficient delivery of payment services. The proposed model also guides lawyers and judges in resolving payment disputes in accordance with the principles.

Keywords: credit cards, debit cards, TILA, negotiable instruments, wrongful dishonor, negligence, authorization of payments