With more people than ever before exchanging goods and services across the world thanks to online marketplaces and more ways to pay for those items in a secure way thanks to new technology and financial processes. While global payments are now becoming more convenient and comfortable for a larger audience, the framework behind the scenes struggling to find a standardized system of rules and regulations about how to handle, record, and secure global payments.
In looking at the various country regulations related to online payments, it becomes clear that more work needs to be done to reach an agreement and standardized approach across the globe with international online payments.
The E-Commerce Payment System Framework
The operational framework for these global payments is an e-commerce payment system that allows for various types of payment methods, including credit cards and debit cards. The system is also known as Electronic Data Interchange (EDI), which shares personal and financial information across a network to complete the payment transaction. EDI is an electronic communication method that is behind global payments because it serves as a way to exchange the financial and personal data involved in every transaction in a way that both sides involved in the payment can exchange the documents and funds associated with that payment. There are many EDI standards by regions and industries, which can often complicate the global payment process.
Because such sensitive data is being sent in a form that may make it vulnerable to theft, numerous security measures have been added to the e-commerce payment system. Regulations for this system originate with a country's financial and government institutions as well as with credit and debit card issuers that exact their own stringent rules for transaction security and safety.
Regulations Focus on Secure Payments Process
Part of these regulations in many countries involves the need for a certificate from a certification authority that provides public-key infrastructure as a means of securing every credit and debit card transaction. While the certification process is standard throughout North America and even parts of Europe, many countries lack payment security protocols or a regulatory framework to ensure secure online payments. This includes countries that may not have as sophisticated online shopping or transaction system like China, Pakistan, and India.
To bring a higher standard to all global payments, one solution has been the use of a smart card, also known as an EMV. These cards use electronic cash rather than currency and embedded 8-bit microprocessors. The thought process is that these types of payment cards provide some standardization capability for a globally regulated payments system.
In light of the confusion and complexity associated with global payments, J.P. Morgan has issued a Global Payments Guide that attempts to explain how cross-currency payments can be made in over 150 countries. In reviewing the guide and its breakdown of payment regulations by country, you can quickly see the diversity in requirements and laws that govern various parts of the world.
The global payments guide also notes that there is constant change in terms of payment forms and how they can be used around the world. The associated political climates associated with these countries also drive regulatory changes in terms of how online payments can be made with approved and in regards to restricted currencies. Typically, most countries require:
SWIFT BC is a unique bank identifier code of a particular bank, which offers a layer of protection in terms of ensuring accurate identification of the financial institutions involved in a payment.Specific payments are required in some countries associated with their particular currency as well as to identify why a payment is being made, how to route the payment, and who is to receive the payment.The International Organization for Standardization (ISO) also created the International Bank Account Number (IBAN) to provide a unique way to verify each payment transaction.The Single Euro Payments Area (SEPA) has developed a set of standards and procedures for cross-border payments that include the euro. The intent was to create a standard way to conduct online payments with this currency throughout Europe.
Other countries may require other specific information as part of their regulatory framework, including a telephone number and an explanation for the payment.
In the U.S., PCI compliance is a main regulatory framework used for those businesses that accept credit and debit cards. This compliance involves meeting the Payment Card Industry Data Security Standard (PCI DSS), which was established by Visa, American Express, JCB and MasterCard. There are four levels of compliance based on the number of e-payments you do each year.
For example, Level 4 is for small businesses that do less than 20,000 electronic payments each year. They must complete an annual risk assessment and quarterly PCI scans. The other three levels are for much larger businesses and each have their own requirements. As part of the risk assessment, each business must show network security, data protection, vulnerability management, access control, monitoring and testing and information security as the overall framework required.
Potential Global Payment Solutions
Other solutions have also been proposed to create a truly global payment system:
Online payment processors have emerged like PayPal to fill in the need for secure and standardized payments over the Internet. Companies like PayPal tend to serve as a mediary, allowing for an account to be set up and then enable funds transfers from the PayPal account to a traditional bank account via ACH transactions so the money can be used or store in many ways. These sites also have been approved to do currency exchange and accept payments in the form of debit and credit cards. However, there are typically fees involved that have also come into the debate on regulations that should manage these fees. Additionally, issues have arisen in terms of abuse, theft, and wrongful behavior by the mediaries.Net banking is used in countries like India and the Netherlands. It does not involve any type of physical card but instead offers a way to specify which bank payment should come from. When this happens, the user is redirected to the site of this bank for authentication and payment approval. Many find this payment method safer and easier to regulate than credit and debit cards.Digital wallets are emerging as a universal way to make a payment and transfer money online in a secure and standardized way. The digital wallet system has proven itself secure, offering the ability to address the overall issues of working safely across all types of currencies. Google and Apple are two companies that are offering this type of payment method on a global basis.Cryptocurrency appears to be one of the most widely thought ways to standardize and secure payments from any country in the world. As a decentralized virtual currency. Bitcoin and other digital coins are beginning to gain ground as a solution for a global e-payments system. More regulatory issues have appeared because of the lack of understanding about how cryptocurrency can work and its ongoing evolution in terms of how it can be used. However, many countries have banned the use of cryptocurrency while others are still deciding on how to label, apply, and regulate it.
Global Impact and Perspectives on Regulating E-Payments
Among the world's financial institutions, there is agreement that the regulatory environment's current fragmented state with multiple standards across countries. Hoping to bring some higher standard is the EMVCo, which is behind the development and implementation of the smart card across the world and which consists of all the major credit card companies as its members. The organization is continually updating and refining the specifications for use and suggested rollout around the world over the course of the next few years.
Along with these smart cards, other global payment providers are looking to further develop the digital wallet while others are continuing to consider cryptocurrency as an ideal solution to create a unified payments system regardless of the country. However, buy-in has to occur from countries like China where Bitcoin is still banned.
Credit card companies continue to take the lead in the idea that a global payment standard can be developed. The focus continues to be on tokens that replace entering an account number and that work with digital wallets and are effective across all payment networks. These companies are looking at features like "new data fields to provide richer information about the transaction, which can help improve fraud detection and expedite the approval process; consistent methods to identify and verify a consumer before replacing the traditional card account number with a token; and a common standard designed to simplify the process for merchants for contactless, online or other transactions."
As part of e-payments is the growth in mobile payments through smartphones and other devices that also need to become a focus for standardized regulations related to payments through this channel. With China looking at adopting the global standard for near-field communications for contactless payments, this may signal a potential direction for global payments. Combined with the token idea and the availability of decentralized currency in the form of digital currency, there seems to be many ways to be able to accomplish the goals when it comes to a global standard. Perhaps, in the next year there will be some movement toward a worldwide regulatory framework for payments that will further stimulate the growth of online transactions.
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