ANALYSIS AND STRATEGIES FOR THE MINISTRY OF CONSUMER AFFAIRS

Speakers’ Summaries Hon Robyn McDonald Minister of Consumer Affairs   Outlining the Government’s Consumer-Related Interests in Electronic Commerce   The Minister began by highlighting the importance of electronic commerce to New Zealand’s economic development. Access to an immediate global marketplace increases the potential for trade and the utilisation of New Zealand’s skills. However, Ms McDonald pointed out that such trade could only exist within a fair environment and the high level of consumer protection enjoyed by New Zealanders at present must also extend to cross-border electronic commerce. She advocated an International Code of Conduct as a way forward to international co-operation.   Scott Smith Director - Digital Commerce Group, Jupiter Communications   Drivers of the Future, Rapid Growth and New Technology   Mr Smith reminded delegates that electronic commerce was not a new phenomenon - the financial markets had been moving money electronically for years. However, the capacity of the Internet was growing rapidly with massive investment from telecommunications companies and Internet Service Providers. Mr Smith identified future technologies that included personal desk top ATMs, home LANs and the increased mobilization of current technology. "Unfortunately, the rapid growth of technology is outstripping the consumers’ ability to keep up", he said. "Larger ‘brand name’ retailers, too, are waiting for technology to drift down to their level fearing that jumping too soon may damage their name." Mr Smith then pointed out key development areas in the Internet such as financial and educational services, games and retailing. He highlighted the adverse effect different cross-border laws have on worldwide gambling and banking. Mr Smith concluded by calling for international rules that protect consumers without quashing new technologies.   Roscoe B Starek III Commissioner, US Federal Trade Commission   Consumer Protection Policy in the New High-Tech, Global Marketplace - United States of America   Mr Starek began by outlining the role of the Federal Trade Commission in prohibiting unfair or deceptive acts. He noted that current US consumer protection law is directly applicable to electronic commerce, such as the Electronic Fund Transfer Act and the Fair Credit Billing Act. He informed delegates of the FTC hearings and workshops that had been held in connection with electronic commerce. The hearings and workshops had addressed such issues as the new opportunities for fraud, privacy and identity fraud. Mr Starek continued by outlining the various enforcement actions taken by the FTC involving electronic commerce. One case involved a programme which illegally altered an individual’s credit rating. Other cases included misrepresentations about the earning potential of business opportunities, traditional pyramid schemes and innovative long distance billing scams. Mr Starek suggested that the existence of these fraudulent and deceptive practices discouraged consumers from participating in on-line commerce, therefore harming legitimate businesses. He then explained some non-regulatory methods used to protect the electronic consumer. These included the production and dissemination of publications for consumers and business and on-line contact regarding the latest scams and potential non-compliance. He also outlined an on-line seal of approval programme which authorised the use of an encrypted seal for members of the Better Business Bureaux. Such use of seals has also extended to the privacy area with vendors using logos which guarantee various levels of privacy protections. Mr Starek finished by suggesting some potential enforcement challenges as a result of electronic commerce. These included the obscurity of disclaimers, the use of on-line tools such as registration screens as methods of unfairly collecting and using information, how unsolicited e-mail may incur downloading costs for consumers and ISPs, and how jurisdiction problems pose barriers to effective law enforcement.   Allan Asher Deputy Chairperson, Australian Competition and Consumer Commission   International Trade: Consumers’ Access to Justice - Australia   Mr Asher opened his conference address by briefly outlining the new technologies observed in electronic commerce such as home shopping, banking and entertainment, smart cards, call centres and cable television. He pointed out, though, that the use of on-line technology was still restricted to that of an information provider due to concerns about security, operating speed and search tools. "The opportunities electronic commerce present are numerous," Mr Asher said. "Increasing competition by lowering barriers and introducing more suppliers into the market delivers consumer gains as to price, quality and service. Small and medium enterprises can compete on a level playing field with large organisations by using cheap service delivery, having low overheads and by exploiting niche markets." Mr Asher also observed that "on-line commerce actioned from a single point expands consumer access to information, increasing choice and decreasing the cost of physically gathering and processing information." "However, commerce in a global environment also presents a range of challenges for market participants and regulators," Mr Asher said. These were identified as being competition, consumer protection and enforcement issues. Competition concerns included monopolies and mergers between financial services and information technology and telecommunication companies, price fixing and limited access for consumers. Mr Asher identified numerous consumer protection issues including security of payments and information, the collection, use and storage of information, consumer redress and disputes resolution, product safety standards. Global marketplaces present difficulties in enforcement. Identifying and locating operators presents evidential problems, whilst cross-border transactions highlight jurisdictional issues and require a choice of law. Mr Asher also believed that court systems do not provide understanding of the nature of business records relating to electronic commerce. Mr Asher then addressed the issue of how to meet these challenges. He said that self- and co-regulation on an international scale were required. ‘Soft law’, i.e. the use of codes of conduct and agreements between international industry associations, will provide an important solution to extending consumer protection. Large organisations should take responsibility for vetting business access to the payments networks and encryption services. Brand names and good reputation will eventually determine the players in the market and information on the reputations of traders could be disseminated by consumer interest groups and consumers themselves. With the market and business regulating itself through adherence to codes of conduct, Mr Asher saw the role of regulators as facilitating, monitoring and improving these arrangements. He reiterated that these measures must be taken on a global scale with more formal co-operation and information sharing between nation based regulators needed.   Neil Russ Buddle Findlay   Focusing on the Tax Implications of National and International Trade   Mr Russ began by stating the two primary ways the Internet is being used for commercial purposes. Firstly, the Web is being used to disseminate information by retailers and wholesalers. Secondly, the Internet is used to actually sell products and services. These may be delivered at a later date or directly on-line, such as the downloading of software or the use of banking facilities. Mr Russ then went on to highlight how Internet commerce presented new challenges to revenue authorities. He stated that "as tax is imposed on the basis of both the source of the income and residence of the person earning it, the location of the parties is of vital importance. Internet ‘addresses’ are not reliable indicators of location and the use of ‘mirror’ sites in different countries exaggerates the difficulties in determining location." Mr Russ said that the nature of the Internet and development of electronic money did not promote good audit trails for revenue authorities to track commercial transactions. More specific issues included the non-payment of Goods and Service Tax and Non-Resident Withholding Tax on downloaded software and the possible solutions provided by new US proposals. The exportation of goods and services via the Internet to ‘unknown’ locations may force New Zealand companies to place themselves in non-competitive positions so as not to risk breaking New Zealand tax laws. Mr Russ then went on to discuss the definition of ‘permanent establishment’ and whether the definition covered web sites or servers for the purposes of determining source-based income. He concluded by suggesting that New Zealand tax law must be reviewed and new taxation techniques developed to counter these trans-national issues.   Dr. Allan Bollard Chairman, Commerce Commission   Understanding the Fair Trading Act and its Impact on Electronic Marketing, Sales and Production Description   Dr. Bollard began by informing delegates that the Commerce Commission are finding the issues that occur are the same regardless of the nature of the transmission. He continued by outlining the scope of the Fair Trading Act in that it prohibited misleading and deceptive conduct and unfair practices. It also provided for standards and mandatory product recalls. Dr. Bollard noted that the most frequently raised misrepresentation already concerned electronic commerce, and that was the misrepresentation as to price in the use of bar code scanners. He stated that the Commerce Commission was particularly concerned with price representations as this was a crucial element of the purchasing decision. On-line commerce facilitated this type of misrepresentation, for example, ‘hidden’ postage and packaging costs on web pages. The unfair practices outlined by Dr. Bollard included pyramid selling, chain letters bait advertising and misrepresentations about business activities. However, the Commerce Commission concentrated their efforts on matters where there was widespread and significant consumer loss, repeat breaches, the need for clarification of law and issues where the most impact could be achieved through effective use of resources. Dr. Bollard then outlined methods of enforcement, such as the dissemination of information, settlements with offending traders and, as a last resort, prosecution. He then informed delegates that the Fair Trading Act applied to traders based both in New Zealand and outside if the trader is carrying on business in New Zealand by supplying goods and services or granting interests in land within the country. Whilst difficulties arose with overseas traders, they were not insurmountable. Dr. Bollard went on to propose a method of self-regulating compliance that required Internet Service Providers to police their own web pages. If they were not forthcoming, injunctions against providers or broadcasters could be sought. Dr. Bollard completed his address by highlighting the benefits the Commerce Commission will gain through technology, such as the ease of dissemination of information to traders and the use of e-mail and telephone and video conferencing between national enforcement agencies.   Warwick Denby Director of Marketing and Programming, Saturn Communications Jeff Bennett Director of Programming, First Media   Examining the Impact that Cable TV will have on the Electronic Consumer   Mr Denby began by stating that Saturn were operators of wireless and wireline Pay TV and Telephony businesses. At present, Saturn provides cable service to 120,000 Wellington homes with plans to cover 40% of the Wellington area in the next 4-5 years. He briefly outlined the cable network technology and then focused on the services provided such as cable TV, telephone and Internet services. Whilst Internet growth had been tremendous over the past year, Mr Denby pointed out that inhibitors to further growth existed, such as speed, content, price and cost of PCs. Fibre-coax networks would help with speed by providing high-speed local loops and new cable modems. Cable modems enable data to be transmitted so fast, that where previously a video file had taken 23 minutes to be delivered, it would now only take 3-4 seconds. Mr Denby then outlined various network devices such as PCs, Web TV and Cable TV Set Top Boxes and their respective capabilities. He concluded by suggesting the potential services cable could offer, for example, video conferencing, on-line banking, teleworking and travel services. Mr Bennett began by stating that the services and technology offered by First Media were comparable to that of Saturn. He detailed the interactive nature of the movie and music channels - both forms of pay per view services. He noted that more pay per view and pay per use services would be required to finance a change from an analogue to digital network. Mr Bennett concluded by stating three keys to cable success - it must be for everyone, easy to use and not technology driven. Both speakers then commented on the possibilities of education and shopping channels in the future, highlighting that demand was not high enough now. The speakers also outlined the benefits of cable over satellite technology, issues such as higher bandwidth, two-way on-line traffic and the ability to obtain multiple products from one supplier.   Mark Yeoman Manager Electronic Commerce, Telecom Internet Services   Capitalising on Internet Opportunities: the Business as a Consumer   Mr Yeoman opened by highlighting the ‘players’ in Internet commerce, including consumers, businesses, Internet Service Providers, broadcasters, hard and software vendors, certification bodies and banks. He then outlined the different uses of the Internet, for instance, as a channel to the market, a communication or media channel and as a disintermediation tool. He explained this as a method of getting directly from the supply to the market, hopping over the various points of disintermediation. Mr Yeoman then outlined the benefits for business - the opening of new markets to new consumers and the ability to rationalise the paper chase. Looking at the business as a consumer, Mr Yeoman touched upon the integration of business processes, such as order, payment and inventory and the recognition of business as a consumer. He went on to question why businesses should enter the electronic commerce arena when it is not easy to identify the revenue, cost, customers or protection. He asserted that businesses must integrate the new technology with their existing processes. For example, it must not be possible for consumers to withdraw money from the Internet and then from an ATM without the prior transaction immediately updating the consumer’s balance. Mr Yeoman then mentioned that the timing of going on-line was critical for a business, particularly in competitive markets. Being the first to a market held both benefits and risks and the ‘toe in the water approach’ was probably the most advantageous.   Alan Mayo Development Manager of Electronic Banking, ASB Bank   New Electronic Banking and Financial Services: Investigating PC and Internet On-Line Banking, Digital Cash and Smart Cards   Mr Mayo began by outlining the current retail payment methods, such as cash, cheque, credit card, direct credit and EFT-POS. He described the characteristics of payments - settlement, risk of non-payment, security and cost - and how these determine the suitability of different methods for different transactions. The characteristics required for electronic commerce mean that the only suitable method available currently is the credit card. This offers a reasonable level of security, can function easily across borders and is not currency dependent. Mr Mayo then went on to describe the development of new technologies in the payment arena. Secure Transmission (SSL) is a method currently used to make secure encrypted transactions via the Internet. Digital Signatures use encryption just on the signature to secure the identity of the parties and requires the issuing of certificates from a certification authority. Mr Mayo added that VISA and Mastercards SET (Secure Electronic Transaction) systems are undergoing pilots in Europe. Smart cards, Mr Mayo said, are cards that have a stored value on an integrated chip and can be used as an alternative to cash. He detailed the Mondex scheme and indicated that six New Zealand banks have purchased the franchise rights. He envisaged that the cards would be best suited in New Zealand to situations where EFT-POS was not used, i.e. for parking meters, payphones, vending machines and transport. The cards also had the potential to be used in PC’s adapted with card-readers. The cards were constructed with two security schemes - when the first is broken, cards will be reissued with schemes 2 and 3. Mr Mayo stated that the cards must have a security level two years ahead of the criminals, otherwise consumer confidence will not be sufficient to make the launch successful. Mr Mayo concluded by outlining the smart card of the future - a combination of ID card, loyalty card, credit card and Mondex card.   Glen McCauley Electronic Commerce Consultant - Hewlett-Packard NZ Ltd.   Understanding the Future for Electronic Cash and Source On-Line Payment Transactions   Mr McCauley began his address by detailing the need for security on the Internet. He stated that hackers could employ various methods to alter and steal transactions, steal information, plant viruses and even use your own machines to attack your internal network. Mr McCauley went on to detail encryption technology and described how encryption transforms data into some unreadable form to ensure privacy. Information is encrypted and decrypted using a combination of public and private keys held by users and certification bodies. Information can be encrypted using either of the keys but can only be decrypted using the other key in the pair. Mr McCauley went on to discuss the role of authentication. He noted that, to be successful, the public must have confidence in the certification authority’s credibility and the certificate must not last too long. Mr McCauley then outlined the basic categories of transaction and message security. The two most popular methods of general message security are Netscape’s Secure Socket Layer and EIT’s Secure Hypertext Transport Protocol. Both use encryption, digital signatures and require certification. Digital signatures have a person’s signature encrypted using a private key and is decrypted by using their public key. The need for certification of this system means that electronic payments are not automated and the transactions are not anonymous. Debit and credit card security, Mr McCauley said, are facilitated by standards such as VISA and Mastercard’s SET. This standard involves the verification of the customer and merchant, certificates with the certification authority and then the interchange of payment details with the bank. Although payments are secure as they are encrypted and authentication correctly identifies the parties, the problem of the merchant using details without authority still exists. Other concerns include the lack of anonymity and the high cost and complexity of the scheme disallows micropayments. Mr McCauley said that micropayments enabled per unit payment and existed in forms of either digital currency, e.g. Digicash or digital payment systems, e.g. Cybercash and First Virtual Banks. Digicash is a truly virtual currency, untraceable and consisting of individually signed tokens of various value. It enables withdrawal of funds from banks and purchases from both merchants and individuals. However, Digicash is only available between parties who use the same bank. Mr McCauley concluded by noting that the solutions to many on-line payment security problems will come in the near future.   Shayne Bates Director, SP Bates and Associates   Information Security: Evaluating and Implementing Appropriate Systems to Secure Commerce, Information and Data Transfer   Mr Bates began by outlining some methods used by computer hackers to gain access and destroy systems. He pointed out that hackers cannot only get into one system and create havoc, but can then use that system to break into another network. He went on to describe steps that organisations should take to limit the ease of access into networks. These included virus scanning and removal, the use of firewalls and one-time passwords and the employment of security people. Mr Bates concluded by describing the US Government’s export policy on encryption technology. He indicated that the US had developed 64 bit encryption techniques but did not allow this to be exported due to concerns of terrorist organisations using the technology. Currently, only 40 bit encryption can be exported. He stated, however, that "the policy is changing and the Government will allow 64 bit exports with the proviso that the US security agencies are informed of the last 24 bits."

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