Lawsuit in the Netherlands on Bitcoin as 'money' or 'current money'

Since May this year, there is an interesting discussion here in the Netherlands on the legal status of Bitcoin as money.

First law suit on failed bitcoin delivery 
The discussion starts with a law suit of two people engaged in a bitcoin transaction. Party B failed to pay up the whole amount of bitcoins, although it had received all the money for it. Party A, after two weeks partially annulled the agreement (for the part of the bitcoins not delivered). However, this party later on decided to demand to be compensated for the financial loss that resulted due to the increase in price of bitcoins over the course of the year (after the moment of canceling the contract).

Party A based its reasoning on the fact that our law allows for something as 'current money' to be used in order to pay a sum of money. This terminology was explicitly chosen by our legislator (instead of the legal tender concept) to allow non-State forms of money to be condoned in our country in situations where it was commonly used and accepted by all the people.

Should this argument succeed and bitcoins be considered such 'current money' the consequence could have been that an additional compensation claim could be made under our civil law. The judge however outlined that Party A should be compensated for the price rise of Bitcoin between the moment of concluding the contract and of canceling it (some € 1700). No compensation was due however for the remainder of the time, as it was party A that had initiated the canceling of the contract.

In addition the judge outlined that Bitcoins cannot be considered current money that is condoned by the State. Our Ministry of Finance has outlined that it doesn't fit the definition of legal tender, nor that of electronic money and that it should be considered a means of exchange. The nature of bitcoin (tradeable) doesn't work as an argument as also silver and gold are tradeable but not considered to be current money.

New law suit on status of bitcoin as money
A number of players in the Dutch Bitcoin community have chosen to challenge the above verdict of the judge and has raised more than  € 15.000 to pay for expenses of a law suit. It challenges the first verdict in order to have the judge reconsider its position and outline that Bitcoin is money. As a consequence it feels that it must then also be treated as such by our administrative bodies, supervisors, tax authorities etc. This would mean that bitcoin operators could be payment institutions, supervised and exempt from VAT (which, as I understand, are the underlying goals).

While I am very sympathetic to the concept of challenging a status quo and laws, I fail to see how a verdict on civil contract law could spill over into:
- the definitions of payments, money and payment institutions under the Payment Services Directive (and Dutch law),
- the definitions of payments under the Sixth Tax Directive.

Having said that, it will surely be very interesting to see which approach will be taken by the law firm involved and see if they are able to convince the judge that at least in civil contracts bitcoins may act as money.


Last edit: October 1, to outline that it's not the whole Bitcoin community that seek to challenge the verdict.

Outsider ideas in the payment space.... seldom really new..

One week ago Rabobank Nederland announced that it might de-activate the possibility to use their debit-card outside Europe, in an effort to eliminate fraud. And today the Financieele Dagblad has an article in which it becomes clear that an entrepreneur claims that this is actually his idea and not Rabo.

He's written the idea of functional/geographic application controls (including de-activation for certain geography) down as his idea, sent it to the Rabobank. And some time later he even spoke with Rabobank. And now that he discovers that Rabobank will in practice block geographic use, he claims that Rabobank has stolen his idea. It appears that he's in full swing with preparation of a court case.

I think this court case may not be effective. Application and functional controls in the payment area are around since ages. There can be checks and limits on payments via certain channel, with certain amounts, to or from a geographic area, number of times of use, branche-codes and what have you. And we have seen these developing over the years. In a planned talk on this issue in 2004 I already mentioned the user control of these application controls.

In this particular case (blocking a geographic area for card use), it was clear ten years ago that there would come a time that EMV-debit-cards would be blocked for use in countries that hadn't fully migrated to EMV. And that the amount of fraud would essentially determine the timing.

Now I do understand the serendipity-element in this story. It must be frustrating for an outsider to think that he has found the golden idea in payments and observe one bank (that he spoke to) introducing 'his' idea. However, this was certainly not a unique idea, but an inevitable, already foreseen consequence of technology migration and fraud.

Interpay, Chess and LogicaCMG cooperate to deliver Ideal-platform

Planet Multimedia reports that Interpay, Chess and LogicaCMG have signed a cooperation agreement to deliver platforms and services related to the Ideal-payment standard.

OV Chipkaart becomes reality: first launch this monday

Automatisering Gids report that tomorrow, the first public transport contactless chipcard will be distributed to customers of the ferry service Vlissingen-Breskens. It is the first pilot group to be followed by the whole of Netherlands later.



Last week, I noticed that the Rotterdam underground is also preparing for the contactless chipcard. There is a confusing mix of new and old machines. The new entry doors are installed but we are still able to walk alongside of these towards the regular ticket validating machines.



Anyhow, as also our National Railways will be migrating, next year will definitely be the OV-chip year...

Mobile Payments 2004: brief summary

Some highlights of an interesting conference in Amsterdam:

1. Consumers are willing to pay for mobile payments, especially for parking, public transport and road pricing.

2. RTL Netherlands receives about 60 million premium sms-es per year; their demand to better payment mechanisms focuses mainly on squeezing the current operator marging of 20-40%.

3. Netsize estimates the EU market for mobile services at 23 billion euro and the Dutch market at 1 billion euro.

4. Mobile operators still are the opinion that pre-paid purses with eurovalue in them, from which third parties are being paid, have nothing to do with e-money, money and need not be regulated. The representatives of those operators that effectively operate the most use mobile payment channel, downplay the importance of their payment channels, while not disclosing any data to back this up.

5. Banks intend to expand the internet payment mechanism Ideal for use on mobile channels as well. But first concentrate on the Internet part

6. Simpay will go live in second quarter of 2005; merchants accepting simpay will be faced with 30% fee to be paid as a merchant service charge.

Brr... order confirmation spam

It's quite annoying. Spam that has the form of order confirmation. But given my consumer rights I have no need to worry. It's a pain though. And the obvious mislink leads to: http://onestepgo.com/



Dear Customer,



Thank you for your order. Your credit card has charged for amount $560.00.

Charges for the transaction will appear on your credit card statement under the name INTEGRAL LLC.



To view transaction status and order details, point your browser to the following URL:

http://www.mybill.com/order=SD25xxx



Sincerely,

MyBill Team

IInternet: browsing not buying...?

Research by Dutch retailers organisation RND demonstrates that a huge group of consumers uses the Internet to look before they buy. Of the 8,7 million active Internet users, 93 % uses the web to be informed about prices/products. Of this group of 8.7 million, 39 % has actually bought something over the web.

Size matters...

Small countries can more quickly cooperate and produce new products. Therefore the Estonians attract Ian's attention with smart cards that work on a national level:

Surprise and Shock! Identity smart cards that work on a national level!.

Dutch Standard for Internet payments: Ideal

In September Rabobank, ABN AMRO and ING announced the development of a Dutch standard for internet payments. The standard protocol essentially routes the shopper from the site of the merchant to the shopper's internet-banking environment, where payment is made in the usual manner. After the payment the merchant gets a guarantee en the shopper is brought back to the merchant environment.



The standard will be available to merchants and consumers from mid 2005 onwards. The name of the standard: Ideal, was announced during an e-banking track of e-Netherlands conference on November 11. It is expected that other Dutch banks will also incorporate the standard for their customers.



Research by Multiscope showed that 87 % of the Dutch population find the standard a good idea; 60 % expect to immediately make use of it. Especially a bunch of those consumers that at times still fear the Internet (70%) expect to use the product.



The poll also outlined that the awareness of bank internet payment products was:

- ING's paypal like scheme Way2pay: 32 %

- Rabodirect betalen: 28 %

- ABN AMRO E-Wallet: 14 %

- Rabo Minitix: 3 %

- ING Tootz: 1 %

Of these current payment products, only Minitix will continue to be offered by Rabobank. Rabodirect betalen will become Ideal; the other schemes will be dismantled.



By the way, during the conference it was stated that the current level of Internet payments in the Netherlands is 10 million. This number allows for some further calculations and estimations as to the total number of internet-payments in the EU. But I will leave that to others.

German Federal Institute for Financial Services Supervision Issues Germany's First E-Banking License to A Telco Operator

The German Federal Institute for Financial Services Supervisions authorised the NCS mobile payment Bank GmbH under NAK 32, Para. 1, Clause 1 combined with NAK 1, Para. 1, Clause 2, No. 11 German Banking Act, to issue and administer electronic money (e-money business). See: http://www.newratings.com/analyst_news/article_501499.html.



Undoubtedly this is the first of many more operators to follow. A new market is now emerging, which is the market of regulated or unregulated mobile operators. In that market NCS mobile payment Bank is now officially the first mover (with Vodafone UK being the unofficial zero-mover; operating under the waiver of a small e-money operator). See also the website: http://www.crandy.com/homepage/en/include/index.html.

Yahoo Direct gives in to Paypal

Emerce reports that Yahoo will stop its payment method: Yahoo Direct as of November 22 this year. It was unable to get a substantial foothold in the market for auction-payments alongside competitor Paypal (who has two thirds of this market).

Dutch banks join hands to develop standard for e-payments

Having built a joint system in 1997 (I-pay met SET) and having discovered the complexity of public key infrastructure technology, Dutch banks set out to develop their own Internet strategies. Having done so, now is the time to join hands once again.



Recently the Dutch banks announced (see in Dutch: Planet Multimedia) that a new internet payment standard will be developed. Current e-payment initiatives by ING (Tootz, Way2Pay) and ABN AMRO (E-wallet) will be stopped. Rabo continues its Minitix however and aims for the mobile market with that application.

9210 (nine to ten): the zip code of another IT-soap

9210: the zip code of another IT-soap1 is the page where interested readers get to learn more about the costs of changing numbering systems in banking.

This blog: plots for horror stories?

So every now and then I check my referer stats to find out how people end up on these pages. Today it turns out that someone seeking plots for horror stories ends up with a single hit: one of my blog-entries on systemic risk.



Although I personally can imagine quite some horrorful payment stories, I can't imagine the world to be so dull and unexciting as to need to revert to retail payments for inspiration. So whoever was looking for those plots: good luck with your quest !

President Bush's picture on a fake $200 bill

Well, here's a nice one. A (undoubtedly visionary) woman pays in a shop, using a 200 dollar bill with the picture of George Bush on it. See this CNN-story. It's not that strange an idea. If Bush wins the upcoming elections he may start thinking he is a brilliant statesman that ranks alongside Franklin and all the others.



I wonder if, in case I were a US states official, I would be able to make Bush sign a Presidential Decree that -to celebrate his election victory- he's going to be on the next bank note. My guess is that Bush checks the details of such a decision as good as the intelligence reports he gets every now and then. Which would be interesting, because these details state that according to US law, only dead man may become immortal by appearing on US bank notes.

Moxmo, small e-money issuer, is broke

Emerce reports that Moxmo, the small e-money issuer that has been operational for 2,5 years, has gone bankrupt. This is the second failing e-money startup who focused on the mobile phone as a payment mechanism. The first one was Digipay.



Now was their business assessment to focus on the mobile phone as a payment mechanism wrong? No. The market for ringtones, premium services, ticket sales is huge and getting a slice of that at provision percentages (10 %) well below those of mobile operators (30 to 40 %) attracted quite some investors.



What did go wrong was the legal part. The start-up were held to comply with supervision law, given that their payment mechanisms was e-money. And they assumed, given the EU-regulation on e-money, that any player who was operating a similar scheme would be held to the same standards. After all, the regulation clearly aimed at a functional approach; the supervision would apply regardless of technology.



Unfortunately, the functional approach was one bridge too far in practice. The Dutch supervisors did not dare to apply the e-money law to the incumbents in the mobile payment market (5 operators, generating hundreds of million euro in the third-party PRS-market). So during two years, the supervision of these players was stalled. Which was just long enough to wear out the new startups who had betted on equal supervision for all e-money players in the market.



It is only too sad that it took the Dutch supervisors two years to formally recognize that mobile phone operators that allow third-party payment from their pre-paid accounts are indeed e-money institutions that need to be supervised. Even sadder is the fact that we will most likely need some 2 more years of European and national discussion before the whole market is properly supervised.



So in the Netherlands I would like to close the chapter on innovation and regulation with the following hypothesis:

The succesfull innovation of new payment schemes in a previously unregulated market depends not so much on the existence of regulation, but mostly on the willingness/boldness of the supervisor to ensure compliance with the rules, regardless of size and power-position of the supervised.

Oops... payment of 3000 euro via the phone?

An active student, Tjalling Kuipers, has started a public discussion on the new product feature of a phone payment product: KPN Switchpoint. The product now allows for payment up to an amount of 3000 euro. Quite a lot and all the checking is IP-address, account number and phone number. So the premium services fraud and 'ghost-bill' problem may now become bigger due to the unsecurity in the home environment.



In the back office, KPN makes use of a one-off direct debit mechanism. Although formally not allowed by banks, an increasing number of players in the Internet market 'forget' these rules and find their bank willing to use the mechanisms to ensure quick payment. The consumer however has to suffer, as they are unable to reverse the payment in case of fraud.



My solution to this problem, which will hopefully be introduced any time soon now, is to shift the reversability and fraud problem to the acquiring bank involved in these set-ups (see this previous logentry of one and a half year ago). Consumers should always be able to reverse the payment of an off-line direct debit. This provides the merchant, payment service provider and acquiring bank the incentives to ensure that fraud levels remain low.

BRINXPAY.NET ?

Speaking of Paypal immediately makes Brinxpay show up in the Ads. A German version of Paypal, so it seems. See theirsite here.

Receiving payment for Adsense

This summer I received Googles first cheque for payment of the Adsense ads. Of course a cheque, because that's the US way of doing payments. And although the cheque is an obscure payment instrument for the Dutch, I only needed a few mouse clicks to arrive at this Postbank page for information on cashing the cheque. Too bad, that the fee for cashing turns out to be € 12,3 (on a sum of € 104 euro).



It would be better for both Google and me if they would use Paypal instead. Perhaps for the next payment?

Paysquare to lower fees for some

Het Financieele Dagblad (paid access) reports that Payquare is countering the B+S bid for credit-card fees in the restaurant sector by lowering its merchant service charge with 0,5 %. The lower fee is applicable to enterprises that are members of the Koninklijke Horeca Nederland.