Coining devices to protect Net consumers

RETAIL COMMERCE: fraud hits B2C market, say James Catchpole and Simon Walker

Internet payment systems range from large-value fund transfers that are the mainstay of the money markets, through to the small-value consumer transfers for Internet shopping.

The ultimate success of on-line retail commerce will hinge on consumer confidence in the security of such transactions.

Overcoming consumer fears of on-line fraud continues to be crucial in determining the success of the B2C (business-to-consumer) market.The increasingly frequent publicity surrounding lapses in security of commercial Web sites (which has even claimed credit card details appearing on the Consumers' Association's site) and the misuse or fraudulent use of credit cards does little to allay consumers' fears and continues to stifle the B2C market.

Numerous initiatives have been introduced but, in view of the relative novelty and variety of these measures, the application of existing laws and regulatory structures is to a degree uncertain and means their implementation is unlikely to be uniform for some time.Of the systems that have been introduced, off-line concepts such as smart cards, for example,Mondex, VisaCash and Proton,and 'Green Shield'-style loyalty schemes, have been the first to emerge.

Such systems have not managed to allay the criticism that financial institutions need to introduce more robust means to reduce fraud risk.

To combat this criticism, electronic 'wallet' software, that passes encrypted payment information between the cardholder and retailer, and e-money, where users load onto PCs 'coins' which are capable of use across borders, are being developed.

The latter also permits users privacy as under 'blind verification' procedure banks verify the authenticity of 'coins' without identifying the user.

From the retailers' perspective, the 'coin' will appear to have come from the bank.

Other schemes work in such a way that the retailer never receives credit card details.One perceived pitfall of the current environment is that many of the e-money, or e-cash, systems do not allow for the reuse of 'coins'.

One such system that does is Mondex, which is designed for physical and virtual markets and closely resembles a true Internet cash system; its currency does not need to be redeemed or cleared through a bank and so is claimed to be more efficient and cheaper than other methods.

However, the innovative nature of such systems and products does mean that there is a lack of specific legislation applying to them.

The central banks and financial regulators, which are leading the drive on policy and regulation of such systems, have been concentrating on: effective monetary policy; systemic risks threatening the financial markets' stability; the need for supervisory bodies and law enforcement; and protecting consumers from fraud, financial loss and unwarranted intrusion into their private lives.

Until such time as the legislators address these issues, this area will continue to be an example of the current failure of the law to accommodate e-commerce's evolution.It will be the consumers' seal of approval that providers will be seeking.

While market penetration of such payment systems remains low, and until secure means of payment are developed involving encryption, such as SET (Secure Electronic Transactions Protocol), their success and that of the B2C marketplace remains questionable.

James Catchpole is a member of the IP, IT and digital business group, and Simon Walker is head of e-business, at Landwell UK