Regulating the New Cashless World

Abstract

Internet and mobile payment volume is growing exponentially. From established technology giants like Amazon, Google and PayPal to relative newcomers like Square and Level Up, Internet and mobile payment systems are changing the face of modern commerce. Consumers and merchants have embraced cashless payment options like mobile wallets and mobile credit card readers. Unfortunately, existing laws and regulations lag behind. State money transmitter laws, once a virtual unknown, have become a source of frustration and confusion. These statutes historically regulated money transfer business like Western Union with an eye toward preventing consumer harm. The plain language of such statutes, however, purports to broadly regulate the receipt of money or monetary value for the purpose of transmitting it to another place or location by any means. As such, an array of business activity, from bike messengers to app stores, is potentially implicated. In the absence of clear guidance, a number of services that accept customer payments on behalf of merchants in connection with the sale of the merchant’s goods and services have struggled with the question of whether their unique business models are subject to regulation. In the face of uncertainty, Amazon, Google and PayPal have all become licensed money transmitters under state law. Even Facebook has become licensed to mitigate the risk of sanctions as their payments product continues to evolve. While established companies can afford to comply, the licensing and regulatory compliance costs exist as a barrier to entry for payment start ups and may stifle continued innovation if left unsettled. This Article takes the first meaningful look at the intersection of technology and consumer protection in the context of new and merging payment systems, and seeks to resolve the apparent tension between the two, suggesting a framework for modernizing state money transmitter laws to accommodate new technology and the realities of a cashless world while still respecting the statutory purpose of consumer protection where appropriate.

Keywords: internet payment, mobile payment, mobile wallet, e-commerce, commercial law, payment systems, money transmission, law and technology, consumer protection, money transmitter laws