Brief Introduction on Online Payment
I PayPal Model and Its Legal Environment
(i) Basic Principles of PayPal Payment Model
(ii) Legal Relationship among PayPal, User and Bank
(iii) PayPal under Financial Laws of the U.S.
II Alipay Model and Brief Analysis
(i) Brief Introduction of Workflow of Alipay
(ii) Legal Issues Involved in Alipay Model
1. Business Scope and Legal Position
2. Obligations of Alipay in Online Transactions
3. Issues subsequent to that Funds are added into Alipay
Operation model of e-commerce and three steps of the workflow, including information flow, funds flow and goods flow, are crucial for promoting the development of e-commerce. Online payment, as the intermediate step, is the most concerned issue for both parties to a transaction of e-commerce. In case that this step cannot be well resolved, the fundamental ground for the smooth development of e-commerce would be undermined and the realization of e-commerce would have to remain on a theoretic level. As ¡°virtual business¡±, if e-commerce only refers to electronic information transfer and paperless contract but the online transaction cannot be fully completed, it would greatly impair the advantages of promptness and convenience of e-commerce.
At the preliminary stage of e-commerce, online transaction does not include the function of online payment. It only provides products (service) information browsing and placing order, while payment is completed in other ways (such remittance by telephone, by fax and by postal office, bank transfer and bank remittance, etc), which is also coined as the ¡°mouse plus cement¡± model. However, these payment modes greatly decrease convenience and effectiveness of e-commerce, even making e-commerce similar to purchase by mail order, which certainly cannot meet the demands of people who always aspire after convenience and effectiveness.
For the following part of this paper, it is necessary to define the Electronic Payment and Online Payment briefly.
Electronic Payment refers to an electronic evolution of traditional means of payment, in other words, to realize exchange of value in a transaction using electronic means.
Online Payment, also called Internet Payment, refers to the transfer and payment of funds in electronic information form via computer network system, especially the Internet.
Brief Introduction on Online Payment
Currently, the prevailing instruments of online payment around the world include electronic credit card, electronic debit card, electronic cheque, electronic cash, etc. Thanks to the assistance of these commonly used payment instruments, online payment can be realized through means of payment used on the Internet, such as logging into an online banking system, and payment platform of a third party (to be elaborated hereinafter), such as PayPal and Alipay.
Credit card is the most frequently used instrument in electronic payment and payment by credit card has become the most popular mode of electronic payment in those developed countries and regions. Facilities for payment by credit card are available in many public places. People may pay by credit card or use cash withdrawn from the ATM by credit card to pay. Credit card in broader sense refers to a card providing the cardholder credit certification, by which the cardholder may purchase the product and enjoy the service, including bank credit card, debit card and cheque card.
Credit card fits well with the operation of computer network. For instance, the simplest mode of conducting e-commerce would be to ask a consumer to register a credit card number and a password in a company in advance; when the consumer purchases products from the company through the Internet, all he need is to submit the password to such company; then the consumer will receive an email to confirm whether the said purchase is effective or not; once the consumer confirms the said purchase is effective by return, the company will debit the amount of payment from the consumer¡¯s account. But poor safety precaution is the disadvantage of this mode. Cardholder depends too much on the good faith of merchant to protect privacy information of his credit card. In case any mistake is made in the disclosure of such information, safety problem and dispute of online payment are inevitable.
Currently a commonly used mode is to complete online payment by interchanging relevant information of payment with bank directly through the platform of payment gateway under the SET or SSL protocol. The characteristics of this mode is that a consumer send the encrypted credit card number and password through the Internet to a bank for payment. The risk of disclosure of credit card number and password is reduced and the safety is accordingly enhanced in this circumstance.
Another mode, which can also reduce the risk of online payment and has developed rapidly, is a payment mode involving a third party institution and using its payment process. In this mode, the third party institution shall have a reputation for its good faith. In practice, the third party may be the bank that issued the credit card itself. In the event that the third party is the bank itself, credit card number and password is only transferred between a cardholder and the bank during the process of payment so that the risk arising from the transfer via the merchant can be reduced.
Likewise, in the event that the third party is an institution with good reputation and technology support capacity except the bank, the payment is processed between a cardholder or consumer and the bank via the third party. In this case, a cardholder and the third party transfer the account information in a certain digital form (for instance, email), by which the cardholder will not have to disclose his bank information to the merchant and will not necessarily log in to different online banking interfaces every time (every time he logs on, he will see the relatively familiar and simple third party institution¡¯ s interface).
The third party institution enters into relevant agreements with major banks. According to those agreements, the third party may interchange data with the banks in certain form so that the third party can establish a process of payment among cardholders or consumers, banks and final payees or merchants. The process of payment is as follows:
bank or similar institution
I. PayPal Model and Its Legal Environment
With the rapid development of e-commerce, especially online transaction, the new payment mode relying upon a third party has showed its strong vitality in recent years. After PayPal, an online payment service provider (www.paypal.com), was acquired by eBay (www.ebay.com), an e-commerce website operator, the payment mode provided by PayPal has continually developed by right of the characteristics of eBay¡¯s online auction business, especially the characteristics of C2C transactions, in the U.S. and those European countries and regions. The most important difference between the new mode and consumer¡¯s online payment by credit card is that a consumer pays a merchant via the third party ¨C PayPal. Under this payment mode the merchant cannot obtain the data of the consumer¡¯s credit card directly so that the probability of disclosure of said data is greatly reduced. So far the payment mode has attracted more than 72,000,000 users in over 18 countries worldwide.
(i) Basic Principles of PayPal Payment Model
When a payer is going to pay certain amount to a merchant or payee via PayPal, the workflow is divided into the following steps:
1. A payer can open a PayPal A/C through PayPal¡¯ s website with his email address, as long as he has one. After going through the verification, the payee becomes a user of PayPal. Then he provides the data of his credit card or bank concerned, add funds by transferring certain amount from his registered bank account (for instance, credit card) to his PayPal A/C.
2. When a payer initiates the process of payment, he shall log in his PayPal A/C, confirm the amount of payment to be remitted and provide the email address of payee to PayPal.
3. PayPal notifies the merchant or payee that there is certain amount of payment to be accepted or transferred.
4. In case that the merchant or payee is also a user of PayPal, the designated amount of payment, after confirmed acceptance by the merchant or payee, will be remitted to the payee.
5. In case that the merchant or payee does not have a PayPal A/C, the payee shall register on PayPal¡¯ s website to obtain a PayPal A/C through the link listed in the notification email. The payee may choose to withdraw the money by drawing a check to be delivered to a designated address, by transferring it to his personal credit card A/C or another bank A/C.
Viewed from the above workflow, in case that the payee is already a user of PayPal, the amount of payment will be remitted to his PayPal¡¯ s User A/C; in case that the payee does not have a PayPal A/C, PayPal will send a notification email to guide the payee to register a new PayPal A/C on PayPal¡¯ s website. The sales model of PayPal is called ¡°Email Viral Marketing¡±. Therefore, PayPal is able to occupy higher and higher market share.
Usually it seems that the funds is funded-in or funded-out by email and the process of payment is completed between payer and payee in this payment mode. Actually, the email sent by PayPal only plays the role of notification and the PayPal¡¯ s service is merely to make records accordingly for debit or credit the user¡¯s credit card A/C.
To sum up, the current payment mode of PayPal is basically an ¡°email payment¡± mode. In essence, PayPal is an accounting and transfer system of virtual bank account based on its platform. The transfer of funds is processed among the payer¡¯s bank account, PayPal A/C and the payee¡¯s bank account. The email sent by PayPal has the function of transmitting information and notifying (for a payee that does not yet own a PayPal A/C, it also serves the function of promotion as well). The operation of PayPal cannot do without the traditional payment instruments, including bank account, electronic transfer, credit card, etc.
The characteristic of this payment mode is that a payee (seller) only needs to advise a payer (buyer) of its email address, i.e. its user name of PayPal, then the payer can complete the payment through PayPal. The funds remitted or received by PayPal¡¯ s user is reflected by the increase or decrease of amount of its PayPal A/C balance. The user may give instruction through his PayPal A/C to make payment, do withdrawal, or transfer the funds into his bank deposit. He may instruct PayPal to issue a check or transfer the funds to the bank account designated by him. As long as the payer and the payee are PayPal¡¯ s users, they can open their bank accounts in different banks, even open bank accounts in different countries or regions that are far away from each other. This can simplify the procedures of cross-bank, cross-border transfer. It is undoubted that the convenience of one-stop service and PayPal¡¯ s model using email address as account are quite different from the traditional transaction and transfer model depending on financial system.
In addition, PayPal also plays a similar role as firewall to the safety of payment. It set up a safeguard between the payee and the user¡¯s credit card data. In the past, a consumer would need to input his credit card number on the payment web page of online shop in order to purchase by credit card, which was certainly quite convenient. However, the safety of doing so would be greatly threatened (for instance, the credit card data will be obtained by the staff of website or other persons), if such information is not encrypted for transmission or the spoof site cheated the transaction information in bad faith. Now the situation has changed. Firstly, in order to transfer or pay the amount of payment to the merchant through PayPal, the user should input his PayPal A/C, which will pave one layer of protection regarding the password. Secondly, the payment web page is supported by PayPal instead of an online shop. Thirdly, the information is encrypted on the PayPal¡¯ s website. No third party (including the online shop) can reach the data of user¡¯s bank account or the personal data of credit card cardholder.
(ii) Legal Relationship among PayPal, User and Bank
Before we go discuss the relationship between PayPal and its user, it is necessary to briefly introduce the User Agreement of PayPal. In the early User Agreement of PayPal, PayPal may deposit user¡¯s funds into the bank accounts opened at the FDIC-insured banks. By accepting the early User Agreement, user agrees that PayPal owns any earnings generating from those accounts and user will not receive any interests or other earnings generating from the funds that are transferred by him through PayPal.
In the current User Agreement (applicable for the US, last modified up to June 2005), PayPal strictly keep users¡¯ funds and its own funds separate. PayPal will not use user¡¯s funds for PayPal¡¯ s operation or any other corporate purposes, nor will it voluntarily make user¡¯s funds available to PayPal¡¯ s creditors in the event a bankruptcy petition is filed by or against PayPal or for any other purpose. This indicates that PayPal does not gain the income of interests by using user¡¯s funds. User¡¯s funds will be held in the interest-free accounts opened at the FDIC-insured banks if the user¡¯s funds are not used to invest in the PayPal Money Market Fund, another service provided by PayPal.
In the User Agreement, PayPal claims that it is the agent of user, which helps user to accept payment from a third party or pay a third party. In the User Agreement, user acknowledges that (a) PayPal is not a bank, and what it provides to user is payment processing services rather than banking services; (b) PayPal is not acting as a trustee, fiduciary or escrow agent with respect to user¡¯s funds, but is only acting as an agent of user and a custodian of funds.
Based on the User Agreement of PayPal, we may consider that PayPal provides processing services for online payment between the payer (buyer) and the payee (seller), who are both registered as PayPal¡¯ s users. In another word, once a user accepts the User Agreement, a contractual relationship that PayPal shall provide the online payment service and the user may enjoy such service is established between PayPal and the user.
In the User Agreement (applicable for the U.S.), PayPal indicates that it is an agent of user and a custodian of user¡¯s funds in the whole process. We are of opinion that major legal issues involving PayPal are in the following aspects: relationship with user, relationship with bank (credit card), safety of payment and the legal position of PayPal.
Relationship between PayPal and User
The User Agreement of PayPal (applicable for the U.S.) stipulates, ¡°PayPal acts as a payment service provider by creating, hosting, maintaining and providing our Services to you via the Internet. We do not have any control over the products or services that are paid for with our Service. We cannot ensure that a buyer or a seller you are dealing with will actually complete the transaction.¡± This provision expressly indicates that PayPal is an online payment service provider so that it cannot ensure a transaction may be fully performed by a buyer or a seller, as well as it is hereinbefore clarified that PayPal is only an agent of its user.
We think that PayPal defines itself as an agency in the U.S. version of User Agreement. That is to say, PayPal U.S. shall complete online payment in its user¡¯s name per its user¡¯s instruction and request.
When PayPal, acting as an agent of its user, deals with issues concerning the online payment, PayPal, based on its representation and warranty in the User Agreement, is responsible for performing its obligation, which is to notify concerned party of the authorized payment and collection via email. Certainly, acting as the agent and the custodian of funds, PayPal is obliged to keep user¡¯s personal information and the information of account confidential to a certain extent; also PayPal shall ensure the safe transfer of online payment funds. The User Agreement has expressly stipulated that PayPal shall not use user¡¯s funds for PayPal¡¯ s operation or any other corporate purposes as well as voluntarily make user¡¯s funds available to PayPal¡¯ s creditors in the event a bankruptcy petition is filed by or against PayPal or for any other purpose.
Relationship between PayPal and Bank (Credit Card)
PayPal provides online payment service and funds safekeeping service for users who accept its User Agreement. However, PayPal has to rely on credit card organization and banking system to build up its serving frameworks because it is not a bank. As for bank and credit card organization, PayPal acts like an acquirer, i.e. user adds funds to PayPal A/C through his credit card or bank account. PayPal needs to have a service agreement with bank (credit card organization) to define both parties¡¯ rights and obligations. The following aspects should be considered:
1) Verification of user¡¯s credit card and bank account;
2) Transfer of funds processed by credit card organization and bank upon the instruction of PayPal (PayPal¡¯ s user);
3) Confirmation of possible fraud and request of refund.
Both PayPal and users show great concern over the issue of the safety of payment. Although email address is adopted as PayPal A/C name and simple password is accepted as order and instruction for payment, which avoids the risk with regard to disclosure of credit card information or other bank account information in the process of being sent to merchants, in PayPal¡¯ s practice, the issues concerning good faith and safety on the Internet are nevertheless inevitable, as well as the issues of protection for privacy and consumer.
Therefore, PayPal has issued a series of policies and measures in order to protect the safety of online payment, such as verification of account and protection of transaction.
(iii) PayPal under Financial Laws of the U.S.
The emergence of PayPal has brought up many challenges and considerations to relative laws and policies, for the sake of the highly creativity of its business. It is of the greatest importance for PayPal to propitiously expand its business that PayPal U.S. insists in the User Agreement, times and again, that it is not engaged in banking business. Otherwise, PayPal, as a non-bank institution, will probably be bound with various laws and regulations set for banks and other financial institutions, since its service is similar with that of the funds transfer of banks. PayPal always represents in its User Agreement and lawsuits that it is acting in the place of an agent and online payment service provider. While providing online payment service, with the substantial amount of accumulation of funds, PayPal has made a certain reserve, which gives PayPal some features of banks and their business functions, such as transfer, withdrawal and payment. To have a further understanding of the legal position of PayPal, we shall get some illuminations in the light of the macro legal environment of the U.S. and the lawsuits PayPal was confronted with in recent years.
Legal Environment Concerned in the U.S.
In the U.S., PayPal¡¯ s business is regulated mainly by two levels --- federal level and states level.
Electronic Fund Transfer Act promulgated by U.S. Congress and its rules for enforcement by the Federal Reserve can be applied to any kind of fund transfer. This Act specially provides for non-bank institutions as online payment services provider and gives protection for consumers. In present discussions and researches, PayPal is deemed to be regulated by Electronic Fund Transfer Act and E Rule, for example, it shall be responsible for some portion of loss in the transactions without the authorizations of consumers. Besides Electronic Fund Transfer Act, the National Conference of Commission on Uniform State Laws has made Section 4A of Uniform Commercial Code which mainly aims at, but not limited to, adjusting the inter-bank commercial electronic fund transfer in large sum. Now Uniform Commercial Code has become the most important law for electronic fund transfer in large sum within the jurisdiction of the U.S.
Moreover, FDIC once evaluated PayPal in one of its letter that, ¡°PayPal does not physically handle or possess funds placed into the PayPal service¡±, which is taken good advantage of by PayPal to distinguish its own business from that of traditional banks, so that it is able to circumvent lots of bindings of laws and policies set for banking and financial business.
In order to propitiously expand business in the states in the US, PayPal made great efforts to obtain the Money Transmitter Licenses and tried to convince the states that it is not a bank, not engaged in banking business, and so not regulated by those financial laws for banks. During the course, it received inquiries addressed by the states of New York, Idaho, Louisiana and California, and at last got the Money Transmitter Licenses. But the said Licenses are merely of such a level of states, rather than a uniform federal license, which it is far from enough for a company who operates payment business via the Internet.
Of course, PayPal is also confronted with many Internet frauds, especially in the transactions by credit cards. In case that a cardholder has a dispute in the transaction, PayPal shall refund for those complaints of payments without authorization. While since the transactions by credit cards occupy more than 50% of the whole online payment service, PayPal has to take severe measures to fight against Internet frauds. Once an account is suspected to be used to involve in fraudulent activities, PayPal would limit the account in a controversial way that may sometimes result in a limit, by mistake, to some accounts with good record, which brought up dissatisfaction of users or even were deteriorated as to file actions against PayPal.
II Alipay Model and Brief Analysis
Briefly, the function of Alipay (www.alipay.com) is to provide ¡°the agency service of paying and collecting funds¡± and ¡°third party guaranty service¡± for the users of Taobao.com, other dealers of online transaction and even offline dealers. In terms of the payment operation process, it is quite similar to the email payment model of PayPal. However, it is different from the business of PayPal, which is based on the credit card payment system and highly limited by regulation of credit card organization (in the area of consumer protection) and influenced by external policies. In addition, the PayPal supports multinational (regional) online transaction, however, although Alipay does not reject the ¡°international user¡±, the ¡°account in domestic bank is nevertheless required¡±. The initial purpose of Alipay is also to solve the safety problem of funds in domestic online transaction, in particular to solve the payment problem between the seller and buyer of online transaction in connection with the C2C business of its associated company, Taobao.com. The basic model at the initial stage is that the buyer transfers the payment online to Alipay online; after receiving the money, Alipay will inform the seller to deliver the goods; when the buyer receives the goods, he shall inform Alipay again, then Alipay will transfer the money to the account of seller, and then the whole transaction is completed. During this process, if there is any fraud, Alipay will be liable for compensation.
(i) Brief Introduction of Workflow of Alipay
The procedure of becoming a user of Alipay is quite similar to that of PayPal: a registration procedure is required, the user shall have a personal email address, so as to form an account of Alipay, and input the true personal information (it might be registered in the name of a company as well), including the name and ID number. After the ¡°Alipay Service Agreement¡± set forth by Alipay is accepted, Alipay will sent an email to the email address provided by the user, the account will be activated after the user click the activation link in the email. After that, the user can go on with the next step of online payment. At the same time, the user must provide and designate a corresponding real bank account or credit card account to the Alipay account, so as to complete the real fund transfer process.
Up to now (June 2005), Alipay offers two transaction models in dealing with the payment of the user according to the transaction process.
Model one: after both parties reach an agreement of payment, the buyer shall transfer the funds to his Alipay A/C (actually, the corresponding bank account of Alipay), then Alipay sends an email to notify the seller to deliver the goods, the seller delivers the goods to the buyer, the buyer notices Alipay after receiving the goods, Alipay transfers the money previously transferred by the buyer from the virtual account to the seller¡¯s Alipay A/C. This can be illustrated in the following picture:
The buyer inform Alipay to pay the money after receiving the goods
Alipay sends an email to notify the seller
The seller delivers the goods to the buyer
The buyer transfers the funds from its own bank account to the account of Alipay
Alipay sends the email to the seller, informing him to collect the money
The beginning of transaction
The end of transaction
Model Two: ¡°instant payment transaction (to pay directly)¡±: both sides of the transaction skip the procedure of confirming the delivery and reception of the goods, the buyer transfers the funds to the seller through Alipay directly. Alipay will send an email to the email address (provided by the buyer) of the seller, which informs the seller that the buyer has paid some amount of money to him by Alipay. If the seller is not a user of Alipay, the seller has to become a user of Alipay through the registration procedure before obtaining the money. It should be noticed that the instant payment service provided by Alipay is not limited to the online transaction platforms such as Taobao.com etc, but also applicable to the offline transaction where an agreement between the seller and buyer has been reached. To some extent, even there is no real transaction in existence (i.e. the two parties are not in a relationship of sales and purchase), the money can nevertheless be transferred to anybody through Alipay. This can be illustrated in the following picture:
Buyer/payer¡¯s funds transferred from his bank account to the account of Alipay
Pay to the seller/payee
Maybe no real transaction
Alipay notice the seller/payee
Purchaser/payer logs on the page of instant payment
Seller/payee received the email notice, accepted or rejected the payment
(ii) Legal Issues Involved in Alipay Model
When Alipay assists the business of its affiliated company Taobao.com, it promotes an ¡°email payment method¡± in China. However, due to the absence of relevant legislation and the conflicts with the traditional laws and cash payment mode, Alipay and other similar websites would be confronted with some legal problems in their establishment and development in real practice. On one hand, there is no specific regulations regarding the legal position of online transaction platform so far, and its respective legal obligations in the process of transaction are not clearly defined; on the other hand, in front of the rapid development of online payment and the mutual promotion and support of business between online payment and online transaction platform, the traditional domestic legal concept and judicial practice appear to lag behind in this field. We hereby proceed with the discussion from the following aspects regarding to the legal issues that the third party online payment model, such as Alipay, will meet.
1. Business Permission and Legal Position
The approved business scope of Alipay indicates that its business shall include guarantee and agency. However, the business of guarantee is strictly restricted in China. As shown from the relevant government approvals regarding the business scope of Alipay, which is available for public enquiry, Alipay is entitled to conduct ¡°guarantee business allowed by the state policy (in case that any license is required, it shall subject to the license,)¡±. As general guarantee business will be subject to the pre-approvals from various government authorities, Alipay can conduct general guarantee business, except guarantee business relating to finance. However, due to absence of relevant laws at present, although Alipay is conducting third party guarantee business in the transaction process, it shall still try to keep itself away from the potential liabilities of guarantee that will occur in the real transactions. Additionally, as set forth in its service agreement, it does not make it clear which category of payment agency service its service will fall into. Generally speaking, if it provides more than merely a technical platform, the payment agency business is quite similar to a settlement service, however, according to the Commercial Bank Law, the settlement business belong to a agency business of commercial banks, which shall be subject to the approval of China Banking Regulatory Commission.
Moreover, as the domestic legislation has not yet allow the foreign investor to participate in the electronic payment area, further observation would be needed as to how can PayPal (which is similar with Alipay) engage in the third party payment area of e-commerce in China.
It is referred in Alipay¡¯ s User Agreement (February 2005) that ¡°Alipay¡± service is an agency service, which consists of the ¡°Alipay¡± soft service system provided by Zhejiang Alipay Networks Technology Co., Ltd. and associated agency service of ¡°paying and collecting goods payment¡±. Alipay describes itself as an agent, and also tries to avoid the presentation of bank or financial institution on various occasions in the User Agreement. It can be understood that Alipay is trying to define itself as an agent to pay and collect the goods payment on behalf of clients in its service agreement. From the actual business operation of Alipay, it can be found that Alipay provides a reliable third party guaranty (escrow) to the both parties to an online transaction (especially to the buyer), in order to secure the safety of online transaction; on the other hand, it also collects a lot of funds transferred by the clients, which make it to have a similar functions of a bank.
2. Obligations of Alipay in Online Transactions
It needs to be further clarified in the legislation that when Alipay participates in the transactions of e-commerce as an agent of payment, what kind of legal position it will have and what kind of legal responsibility it shall undertake. In an online transaction, the position of Alipay as agent of payment can be set forth in the User Agreement. However in an online transaction, the two parties act quite different from in the process of the traditional transactions. Therefore, Alipay as an agent will play a significant role in assisting to resolve the concerns of good faith during the online payment process. The responsibilities that an agent of online payment should undertake shall be further clarified by laws. At present, we consider there are at least the following aspects that could be considered:
Firstly, Alipay can be positioned as a provider of online payment technology service to deal with the instructions from both sides of transactions and the data thereof, without taking the burden of verifying the validity of the transaction and the authenticity, legality or the relevant information, or it would only review the information to a limited extent from the perspective of commercial due diligence, e.g. by checking the ID, or checking the authenticity of the ID in connection with the respective designated virtual account (email address) through the agreements with banks. The unauthorized instruction for payment shall be taken into consideration as well, e.g. somebody may steal the account of the user and performs an instruction. If any payment occurs in that case, according to the current laws of China, it is hard to get the compromise under Electronic Fund Transfer Act that PayPal will get if confronted with the same problem, i.e. the transferor of electronic funds shall be liable for some portion of the damages.
Secondly, Alipay, as an agent of paying and collecting funds, is somehow conducting a settlement business, which makes it similar to traditional financial settlement service provider. Alipay conducts the settlement on behalf of both parties, and records the ¡°remained funds¡± of both parties, in order to ensure that the online transactions are finished legally and effectively. Alipay has made the following representations in its service agreement ¡°1. Custodian function: you may transfer an amount of funds to us and authorize us to keep for you. 2. Collecting the funds as an agent: you may request us to collect the funds paid to you by anther registered user of our company. 3. Paying the funds as an agent: you may request us to pay the funds kept or collected by us to any third party designated by you, you agree this payment is irreversible, unless through a juridical procedure or any specific issue set forth herein occurs.¡± There are some legal issues needed to be further discussed: When Alipay, as an agent of online transactions settlement, provides agency service for both parties¡¯ paying and collecting, it shall keep itself in a neutral position. However, if there is any dispute arising out of the online transactions, Alipay, as the agent of paying and collecting funds will be in a dilemma situation, because from the general legal status of agent, an agent that works for both parties at the same time can hardly be fair and justice. If the agent bias towards one party, it will be unfair to the other party and it will make it falling into the dilemma of double agent.
Thirdly, being the guarantor of online transactions. It can be found from Alipay Funds Application Policies issued by Alipay on March 15, 2005, whose policies are generally inclined to favour the buyer, and the relevant complaints and questions raised by the users, that Alipay is confronted with some legal problems in providing such service.
The Alipay Funds Application Policies is operated on the basis of transaction concluded on Taobao.com, in order to provide a third party guaranty (escrow) service, as to keep the payment of goods in custody for both parties before the buyer receives the goods from the seller. In this Policies, Alipay represents ¡°Alipay funds is set up by Alipay in order to further lower the risks in the using Alipay service and the buyer¡¯ s risks in the online transactions with third parties. Alipay will provide funds aid in cash to the buyers who satisfies the requirements of this Policies and upon approval by Alipay.¡± The operating procedure for such Policies would be: firstly, the buyer and the seller reach an agreement regarding some goods online, then the buyer transfers the payment to the third party¡¯s account of Alipay; after the buyer sends a confirmation to Alipay and Taobao.com, which indicates that he has received the goods that is in compliance with the relevant goods information, Alipay will transfer the money to the account of the seller. However, once the buyer conducts fraudulent activities or intentionally refuses to send the notice after receiving the goods or refuses to pay the money by excuse of poor goods quality etc¡ then the seller will probably become the only damaged party in the whole process of transaction. Up to now, Alipay has not yet issued any protection measures to protect the seller. Therefore, the agent position defined by Alipay in the service agreement seems to be a bit farfetched, as in the whole process of payment, the interest of the buyers of Taobao.com has been well protected, but there are chances that the sellers may never received the money. Through this Funds Application Policies, Alipay, who is acting as an agent for the two parties, engages in the detailed transaction, and controls the flow of funds per the instruction from the buyer, which shows the function of a securer and performs a function of guaranty.
3. Issues subsequent to that Funds are added into Alipay
3-1 the generated interest
Nowadays, most accounts of the banking system of China will generate interest. Likewise, many users open accounts on Alipay, when they want to use Alipay, they have to ¡°add funds¡±, i.e. to transfer the funds from their bank account to their Alipay A/C, i.e. the bank account of Alipay (same as the Pooled Account of PayPal). Additionally, during the process of using Alipay, if the buyer needs to wait for the delivery of goods from the seller, there must be some period of time, during this period, the funds in the bank account must generate interest. Alipay represents in the service agreement that ¡°You agree, the Company is not liable for the risk of currency depreciation when it is under our custody or in the process of paying and collecting, and the Company also does not need to pay you the interest generated thereof.¡± In general, if Alipay excludes the right of users to claim the interest, then there will be two possibilities for handling the interest generated: first, the account is an interest-free bank account or the interest is taken by the bank, second, the interest produced by the funds of users is taken by Alipay. The latter circumstance is more likely in this case. Just supposing that once the amount of user increases rapidly, a huge amount of funds accumulated will bring a considerable income of interest, and the restriction of laws and corresponding supervision will follow up as well. It is the same as the initial period of PayPal that the company will take the interest, and later, according to the Electronic Fund Transfer Act, the users¡¯ funds shall be kept in an interest-free bank account. At the present, the latter circumstance will be subject to the restriction of finance laws and the supervision of banking regulatory authorities in China.
3-2 security of funds¡ªprotection of consumer
How to refund the funds of users when Alipay is facing a potential suspension or closing is also a problem. As an online payment service provider, how to secure the safety of fund is the problem what users are most concerned about. As a consumer of such service, a user is lacking of protection against the potential business and policy risks. Moreover, Alipay states that it can terminate the service without any notification in advance, and delete the account and the data therein, which also cause a huge concern to users with regard to the safety and continual and healthy development of online payment.
3-3 ownership of the funds
After the buyer or the payer adds funds to his Alipay A/C, the funds will be transferred from buyer¡¯s bank account to the bank account of Alipay, and Alipay also plays a role of fund custodian, e.g. it is stated in the service agreement that ¡°1. Custodian function: you may transfer an amount of funds to us and authorize us to keep for you.¡± The ownership to the funds has not been transferred, and the buyer is still the owner of this funds. When the buyer and the seller reach a transaction and the buyer receives the goods, and pays the money through Alipay, the ownership of these funds shall be transferred to the seller. It can be found that Alipay, as a custodian of these funds, never has the ownership, but only has the obligations of a custodian. There are still some problems needed to be discussed hereby:
First, taking the interest in the bank account. As mentioned above, after the ending of keeping period, the custodian shall return the object and the interest generated thereof to the owner. Therefore, Alipay, which is taking the interest of the funds of users, may be required to clarify the ownership of such interest occurred under its custody.
Second, the compensation under the Funds Application Policies, according to such Policies, after the applicant (buyer) adds the funds to the account of Alipay, as long as he has not received the goods or the goods is not in compliance with the description, the buyer can apply for 100% compensation. Under such circumstance, Alipay as a third party supervisor shall provide a ¡°full compensation¡± equivalent of the value of goods to the buyer, i.e. the funds. In our opinion, before the buyer confirms with Alipay the acceptance of goods, which is in compliance with the description, the ownership of the funds that transferred by the buyer to Alipay has not been transferred, neither to Alipay, nor to the seller. Therefore, Alipay is a temporary custodian of the funds provided by the buyer; Alipay¡¯ s role is limited to a custodian that can return the funds to the buyer according to the instruction from the buyer, based on the failure of receiving the goods or the goods is in incompliance with the description. The ¡°Funds aid¡± as described by Alipay shall be understood as Alipay¡¯s own funds, rather than the users¡¯ funds (the buyer¡¯s), whose ownership has never been transferred.
To sum up, while analysing the overseas PayPal model and the domestic Alipay model, they both share some common points, i.e. conducting online payment by means of email, though the real transaction of payment is still operated through the bank channel behind the scene. With the appearance of this new payment model and the emergence of other online transaction models, it is hard to solve the new problems arising in online payment with the traditional legal concepts, theories and sources.
In recent years, there is also some progress in the domestic legislation for e-commerce area, e.g. Electronic Signature Law entered into effect this year, which is the first specific law regulating the e-commerce area and it specifically defines what ¡°electronic data¡± is and clearly regulates that the electronic documents shall have the equal effect as the written documents. Afterwards, China E-commerce Industry Association also issued the Regulations on Online Transaction Platform Service, some relevant chapters thereof also refer to the concept of facilitating service for online transactions, and mention that the online transaction platform provider can provide facilitating service of online transaction for relevant parties, subject to the relevant qualifications. In the previous laws and industry regulations, it seldom touches the issue of online payment, nor does it make a specific legal position for the online payment supplier, nor does it regulate the rights and obligations of the online payment participator, nor does it make a clear legal definition regarding issuing payment instruction and accepting payment in an online transaction.
When two parties reach an agreement with the payment service provider in the process of online payment, it forms a legal relationship within the meaning of civil law. However, as it relates to tremendous exchanges of user¡¯s funds and a period for custody of funds, it must incur involvement from the supervision of public administration, which is intended to avoid the risks of using the funds without any supervision and to protect the public interest. In the real practice, there are also many problems regarding how to secure the confidentiality, integrity, and multi-certification within the process of payment. We are of opinion that the government shall encourage some leading e-commerce enterprises to take the initiative to conduct innovation. If there is any new legal problem incurred in the commercial operation, it can be solved by means of academic discussion, settlement of civil dispute, etc., and finally regulated by the exploration of local legislations and then later improved national laws and regulations.
 The US Congress formulated Electronic Fund Transfer Act in November 1978 as to regulate the electronic funds transfer in small sum made by clients who are natural persons.
 Since Alipay service was launched by Taobao.com in 2003, Alipay Company was formed and the Alipay A/C system was launched on December 30, 2004. For more details, please refer to www.alipay.com.
 Article 3 of ¡°Commercial Bank Law¡± provides that commercial banks can be engaged in the following businesses: ¡°¡engaging in bank card business; providing letter of credit services and guarantees; acting as an agent for the receipt and payment of money and acting as an insurance agent; ¡
 Regulations on Online Transaction Platform Service is formally announced to the public on the 8th China International E-Commerce Conference on April 8, 2005.