Electronic transactions are the exchange of information, goods, services, or payments using electronic means, such as the internet, mobile phones, or electronic cards. Electronic transactions have become increasingly popular and convenient in the modern world, especially in the context of the COVID-19 pandemic, which has accelerated the digital transformation of various sectors, including banking. However, electronic transactions also pose some legal and regulatory challenges, such as the validity, security, and enforceability of such transactions, as well as the prevention of fraud, cybercrime, and money laundering. Therefore, it is important to have a clear and comprehensive legal framework that governs the electronic transactions and provides certainty and protection to the parties involved.
The Negotiable Instruments Act 1881 (NIA) is one of the oldest and most important laws that regulate the banking system of Pakistan. The NIA defines and amends the law relating to promissory notes, bills of exchange, and cheques, which are the most common forms of negotiable instruments in Pakistan. Negotiable instruments are written documents that contain an unconditional order or promise to pay a certain sum of money to a specified person or bearer on demand or at a fixed or determinable future time. Negotiable instruments are widely used in the banking system for various purposes, such as making payments, transferring funds, obtaining credit, and settling debts.
The aim of this essay is to examine the role and influence of the electronic transactions and the NIA on the banking system of Pakistan, and to highlight the main issues and challenges that arise from the interaction and integration of these two aspects.
The electronic transactions in Pakistan are governed by various laws and regulations, such as the Payment Systems and Electronic Fund Transfers Act 2007 (PSEFTA), the Electronic Transactions Ordinance 2002 (ETO), the Prevention of Electronic Crimes Act 2016 (PECA), and the rules and guidelines issued by the State Bank of Pakistan (SBP), the central bank and the regulator of the banking system of Pakistan. The PSEFTA provides the legal basis for the establishment, operation, and oversight of the payment systems and electronic fund transfers in Pakistan, and empowers the SBP to regulate and supervise the payment service providers, such as banks, microfinance banks, electronic money institutions, and payment system operators. The ETO gives legal recognition and validity to the electronic transactions, documents, signatures, and contracts, and provides the rules for the admissibility and evidentiary value of the electronic records and data. The PECA defines and criminalizes various offences related to the misuse of the electronic transactions, such as unauthorized access, data theft, cyberterrorism, electronic fraud, and money laundering, and prescribes the penalties and procedures for the investigation and prosecution of such offences. The SBP also issues various circulars, directives, and guidelines to regulate and facilitate the electronic transactions in the banking system, such as the Framework for Mobile Banking Interoperability, the Regulations for Electronic Money Institutions, and the Guidelines on Risk Management of Electronic Banking.
The NIA in Pakistan is based on the English law of negotiable instruments, which was introduced in the subcontinent during the British colonial rule. The NIA was enacted in 1881 and has been amended several times to incorporate the changes and developments in the banking system and the commercial practices. The NIA provides the legal framework for the creation, transfer, endorsement, presentation, payment, dishonor, and discharge of the negotiable instruments, and the rights, duties, liabilities, and remedies of the parties involved. The NIA also specifies the rules for the determination of the maturity, validity, and negotiability of the negotiable instruments, and the presumptions and exceptions that apply to them. The NIA applies to all the negotiable instruments, whether they are made or drawn in Pakistan or in any foreign country, and whether they are payable in Pakistan or elsewhere. The NIA also saves the usages and customs relating to the hundis, which are the indigenous forms of negotiable instruments in Pakistan.
The electronic transactions and the NIA play a significant and complementary role and influence on the banking system of Pakistan, as they enable and facilitate the smooth and efficient functioning of the banking operations and services, and promote the financial inclusion and innovation in the country. Some of the main aspects of their role and influence are as follows:
The electronic transactions and the NIA provide the legal basis and the operational mechanism for the settlement of the interbank and intra-bank transactions, such as the clearing and collection of the cheques and other negotiable instruments, the transfer of funds between the accounts and branches of the banks, and the execution of the standing orders and direct debits. The electronic transactions and the NIA also support the implementation and integration of the various payment systems and platforms in the banking system, such as the Real Time Gross Settlement System (RTGS), the National Institutional Facilitation Technologies (NIFT), the Pakistan Automated Clearing House (PACH), and the Pakistan Real Time Interbank Settlement Mechanism (PRISM), which enable the fast, secure, and reliable processing and settlement of the large-value and small-value payments, respectively.
The electronic transactions and the NIA enable and facilitate the provision and delivery of the banking products and services to the customers, such as the deposits, loans, overdrafts, credit cards, debit cards, prepaid cards, and electronic money. The electronic transactions and the NIA also enable and facilitate the access and usage of the banking products and services by the customers, such as the withdrawal, deposit, transfer, and payment of money, the issuance, acceptance, and presentation of the cheques and other negotiable instruments, and the creation, modification, and termination of the contracts and agreements. The electronic transactions and the NIA also enable and facilitate the diversification and innovation of the banking products and services, such as the introduction and adoption of the mobile banking, internet banking, branchless banking, and digital banking, which offer the convenience, flexibility, and affordability to the customers, especially to the unbanked and underbanked segments of the population.
The electronic transactions and the NIA provide the legal protection and the dispute resolution mechanism for the parties involved in the banking transactions, such as the banks, the customers, the payees, the drawers, the drawees, the endorsers, and the holders of the negotiable instruments. The electronic transactions and the NIA provide the rules and principles for the determination of the rights, duties, liabilities, and remedies of the parties, and the conditions and procedures for the enforcement of such rights and remedies. The electronic transactions and the NIA also provide the rules and principles for the resolution of the disputes and conflicts that may arise between the parties, such as the dishonor, forgery, alteration, loss, or theft of the negotiable instruments, the fraud, misrepresentation, or mistake in the electronic transactions, and the breach, repudiation, or termination of the contracts and agreements. The electronic transactions and the NIA also provide the rules and principles for the admissibility and evidentiary value of the electronic records and data, and the negotiable instruments and documents, in the courts of law and other forums.
The electronic transactions and the NIA are the two key aspects that govern and influence the banking system of Pakistan. They play a vital and complementary role in enabling and facilitating the smooth and efficient functioning of the banking operations and services, and promoting the financial inclusion and innovation in the country. However, they also pose some challenges and issues that need to be addressed and resolved, such as the compatibility and harmonization of the electronic transactions and the NIA, the security and reliability of the electronic transactions and the negotiable instruments, and the prevention and prosecution of the fraud, cybercrime, and money laundering. Therefore, it is important to have a continuous and comprehensive review and reform of the electronic transactions and the NIA, and to ensure their alignment and adaptation with the changing needs and demands of the banking system and the society.
