Fighting Fraud: How the Wild Wild Web was won

Deterring internet fraud is close to the heart of the Interactive Media in Retail Group (IMRG). It represents a global e-tail community (it uses the term e-retail) for whom any lack of confidence in online transactions is a concern. Here, James Roper, chief executive IMRG outlines the way forward...

IMRG welcomes silicon.com's Fighting Fraud campaign. Our e-retailing community has for years been flagging the missing elements that businesses and consumers need to be confident about e-retailing, so we embrace all help to encourage, or even shame into action if necessary, the government and payments industry. Without their active co-operation, no effective e-trust solution is possible. Three or four years ago trust marks and self-regulation offered a low entry-cost opportunity to create an ecommerce trust mechanism. That opportunity was missed. Now nothing short of an industry-strength trust mechanism can match the ecommerce industry's needs. In short, we need the government to seed-fund an ecommerce trust body and have the payments industry collect transaction-based revenue to fund it. This body can then advise the relevant enforcement agencies - for example Trading Standards or the police - to take remedial action, as appropriate. It should require all parties to adopt the core principles that apply to all trading through any channel - that they be honest, legal, decent, fair and truthful. While there is much nonsense talked about a consumer confidence crisis, on an 'overall risk' scale of 1 (low) to 10 (high), the key e-retailing participants and their associated risks are: the media (0), capital markets (0), consumers (1), governments (3), banks (4), employees (6), national economies (7), manufacturers (8) and retailers (10). Rogue consumers are currently the primary threat to ecommerce. Europe has actually experienced little e-fraud so far, but all of the old favourite crimes are moving online, and internet fraud seems set to replace gas station crime as the crime of choice, particularly among the young. Coming soon to a computer near you are theft, hacking, deception, use of stolen payment cards, denial of receipt, ordering for delivery to false addresses, e-vandalism, and all the rest. But our primary concern is the new generation of tricks that is constantly being invented and enabled by the internet. What will the cyber-fraudsters dream up next? Typical of the type of problem on its way to Europe and already plaguing the US is widespread validity checking of stolen credit cards on internet sex sites. If cards work there - on the most sophisticated online payments systems available - they will work almost anywhere. And with the advent of mobile internet services, thieves are immediately able to check a card's validity, then go shopping with confidence, either online or in the high street, knowing that their stolen payment card is not yet barred or registered on the 'hot files'. Whereas the elements required to facilitate confidence in ecommerce are obvious enough - deterrence and capture, reporting and resolution, communication and awareness, operating standards and training, e-tuned legislation and taxation - it is far from obvious how these elements can seamlessly be put in place and funded without the government and payments industry taking leading roles. silicon.com is quite right in lobbying for the creation of a single, industry-funded body where instances of online fraud can be reported, information shared and action taken. But whereas industry will inevitably pay for it, in one way or another, how can industry be expected to fund setting it up? One after another, ecommerce funding models based on first mover advantage (for example Netscape), advertising (Yahoo!), channel innovation (Napster) and so forth, have imploded. The delinquent behaviour of the technology capital markets during the past two years has deeply undermined the ecommerce industry's capability to fund almost anything. Amazon.com's profits remain a mirage, and even the largest technology firms are in disarray. It should be obvious that none of these players are well placed to contribute significantly to the large capital sum required to establish an effective complaints reporting and resolution mechanism. The e-retail industry has been doing its best to tackle the trust challenge for years. An effective industry network exists, with a track record of successfully resolving interactive retail conflicts, and a long-established code of practice for e-retailing provides real protection to both consumers and merchants. To broaden awareness of best practice, the e-retail industry is about to launch a web-based training programme - 'The IMRG Guide to Practical e-Retailing' - produced by Ufi / learndirect and based on the IMRG Code. But Europe's four-year-old e-retail market is still relatively small in value, somewhat flaky, susceptible to generating unhelpful peaky demand and, as yet, a fairly poor distribution channel for overstocks and ends-of-range. It is plagued by hysterical media reporting, suffers a dire human resource shortage, and is undermined by inappropriate regulation. Instead of helping, the banks duck their responsibilities and hit merchants with highly unpredictable charge-backs while governments advise retailers that they're on their own and pass more laws to protect consumers who were not at risk anyway. Apart from that, and growing consumer fraud, the situation for e-retailers isn't too bad. However, to expect e-retailers to put up the capital for an ecommerce protection infrastructure is unrealistic. National economies are now deeply threatened by the impact of globalisation - already trade, tax revenues and jobs are being lost. So, given governments' propensity to act only when forced, it is a matter of great concern that they have so little exposure to risk associated with their own decisions. This is largely due to the opportunities provided to politicians by the long gestation period of ecommerce to retire or rewrite history before the effects of their action (or inaction) comes to light. (Think about it - when were the decisions made that led to Britain's current transport infrastructure collapse?) An old Scottish proverb says: "Hang a thief when he's young, and he'll no' steal when he's auld." Real criminals do not like getting caught. Fear of being caught, or being unsuccessful in perpetrating fraud in the first instance, will always be the fraudster's greatest deterrent. We hope silicon.com's campaign is successful in helping to establish a vehicle to enable industry and government to work together to remove the online fraudster's opportunities, and so hang this particular thief in his infancy. James Roper and the IMRG can be contacted using james@imrg.org or http://www.imrg.org or 07000 46 46 74.