Is the new C2C transaction secure enough for its users?
An Analysis of whether the Current Solution in Online Auction Websites and C2C Payment Intermediary is Sufficient Enough for Dealing with Current Problem and Suggest Possible Strategies that Might Solve the Problem*
Thiti Susaoraj [FN1]
The internet is the most sophisticated global medium, which always produces new types of players and new type of transactions. The rapid rise of Consumer-to-Consumer transactions such as online auction websites or PayPal is one of most obvious changes on the Internet nowadays. As can be seen, eBay now has around 150 million registered users worldwide1 while the new payment intermediary like PayPal now makes billions of dollars in payment in volume of transactions this year between individuals.2 However, the rapid growth contribute not only benefit, it also results in significant numbers of a new problem e.g. online auction websites put their users at risk of new types of fraud violation or other erroneous transactions in their system. Furthermore, the participants still lack legal protection which presents a serious gap in all the legislation all over the world.
This paper focuses firstly on aspects of the new business process requirements caused by the CMR import system, concentrating on the compliance aspects that traders are now facing. The inability of the ACS to implement a smooth transition has left a number of businesses and service providers with serious problems. The new requirements also demand fundamental business process changes in the area of Self-Assessed Clearance (SAC) declarations that never existed before. Secondly, the impact of the import CMR system in terms of its effect on business continuity and its financial implications is considered. As the discussion focuses on contemporary issues, reliance is made on current resource material.
Of course, these desperate problems present weaknesses of current existing . protection schemes in these transactions and reflect the level of attention that has been
pain of risk involvement to participants. In other words, it reflects that there are not many attempts in order to develop remedies in this area of transaction. Inevitably, this raises the crucial question to regulators around the world that whether or not now we should begin to take serious view of this new transaction before the problem has gone too far.
This paper responds to challenge of the problem in this new C2C transaction. The analysis proceeds in three steps. In Chapter 2, 1 will first provide a summary of the background of this new Consumer-to-Consumer transaction (C2C) mechanism and how the internet user attracts to this kind of transaction. Then, in Chapter 3, I will examine some existing problems that occur in the C2C mechanism such as problems that occur in online auction websites and will also examine existing solutions, which are currently in existence. Furthermore, this chapter will criticize on how effective in existing regulation. The last chapter will suggest some alternative solutions in order to solve the problems and reduce the gap in existence solution.
2.The emergence of the new kind of transaction and a shift of behavior In online transactions
A. Online Auction website
The magic of the internet creates at least two specific features. One feature is
that the internet serves as a facilitator of the new thoughts and the new ideas of a small firm. In Other words, the Internet enables these small firms to use less capital in entering the market. Another feature is that the internet also serves as a medium to provide the ?community', where the user can exchange the goods and services to each other.3
Combined with these internet features, French-born Pierre Omidya come up with a good idea and designed his own website in 1995. His aim was to create a simple online system in which a group of the people could trade their goods on a small site called an Auction Web. In other words, he meant to establish the `community' for a group of people in which to trade their goods. The boom started far beyond what he first thought after the Auction Web started receiving larger numbers of users and started charging a small percentage per finalized transaction.
By early 1996 he had earned $1000 and the figure started doubleling daily .4 His auction website changed the name to the now famous online auction website called ?e-Bay.' It is now the largest auction online site in the world. In this year, eBay have registered around 1 50 millions users and 60 million of them are active by having bid for or listed items within the past year and also 160 million items listed were sold during the quarter of the year .5 Furthermore, e-Bay is on course to make annual profits of around $1 billion in this year .6 From the research, in the established market like the United State the e-Bay account for one-quarter of all e-commerce sales, excluding groceries and travel. As can be seen, more than 500,000 American nowadays rely on e-Bay as their part of living in trading on e-Bay. Not only has eBay grown incredibly in the established countries like the United States, but has also grown exceptionally in European countries like German. 12% of German spend online via local e-Bay's site there and also the British are not far behind than Germans in their use of e-Bay.co.uk.7
The success does not stop in the Atlantic continents like Europe or America. Recently, e-Bay headed their empire into big Asian markets like China. As Meg Whitman, e-Bay's current Chief executive said "China will expect to become the company's biggest market in five or ten years".
As a result of the success of this online auction, the precedent player or big online giants like Amazon, Yahoo or Google also seize the opportunities by providing their services parallel to this new kind of online business. These three gigantic online are offering more buying and selling services. For example Yahoo and Amazon now launch auction service on their own websites and Google also recently launched a new kind of their service called "Froogle" which allow the online consumers to search for links to whatever they demanded to buy.8 Of course, this shows that the recent forward trend of e-commerce business is online auction which provides a service that brings the buyers and seller to the `community' where they can trade more easily than ever.
B. "New payment intermediary"
As more and more online business is turning to the new kind of transaction like online auctions, inevitably, it provides a new environment for payment systems on the internet in order to serve with the nature of this online auction transaction. From this point, there are three distinctive elements of the online auction that encourages development of a new payment intermediary. The first element is the needs of a consumer to conclude the contract immediately. In other words, the nature of the online auction is fast purchasing of the product. Sellers need the payment immediately and buyers also want the goods to arrive at their premise as soon as possible. Another element is the participant of the online auction. As we can perceive, the online auction always consists of small businesses or individuals that are selling or purchasing. This makes transactions vulnerable to traditional
payment method like credit cards because the individual seller or small companies are not able to accept credit cards.9 The last element is that the online auction usually does not require buyers and sellers to have any sort of prior relationship between each other.10 With this element, this makes the other traditional methods of payment like money or cheque seems impossible because they cannot determine the reliability or even identity one other.11 Even with credit card payments the seller, of course, is unlikely to accept the credit card from the one whose financial status is unknown.12
In response to the distinctive nature of online auctions,'there is great number of effort in creating new internet-based payment mechanisms to deal with it. The first attempt can be seen in the non-bank service providers such as DigiCash BC (DigiCash) and First Virtual holding Inc. (First Virtual), these non-bank services introduce the new payment option to the internet user by offering a new micro payment system.13 However, those efforts have disappeared after failing to gain sufficient acceptance. For instance DigiCash was filed lawsuit for bankruptcy under Chapter 11 .14 The successful attempt was clearly seen in the introduction of the company in 1998 called PayPal. PayPal is often called "e-mail” money" 15 or peer-to-peer payment (P2P).
* Thammasat University (LLB.), Monash University (LLM.) (intellectual property law), London School of Economics (LLM. in Commercial law), Judge Trainee.
1. A special report eBay, The Economist, June 11 '" 2005 p71.
2. eBaynews.com, P2P payment provider activity, 2001 -2005 at <http: //www.epaynews.com /statistics/ purchases.html>access on 7/7/2005 this report show that in this year there are more than 1.4 billion payment in PayPal. See also Ronald J Mann, Regulate internet payment intermediaries 82 Texas Law Review 681.
3. Andre Guadamuz Gonzalez, eBay Law: the Legal implication of the CK electronic commerce model (2003) 19(6) Computer & Security law Report 468, 467.
4. Bundell, D, and Luecke, R. The eBay Phenomenon. Newyork; John Wisley, 2000, p 25.
5. Cohen, A., The Perfect Store : Inside eBay, Boston : Little, Brown & Co : 2002, pl0.
6.A special report eBay, The Economist, June 1 1 `" 2005 p71.
9. Carl Kaminski, Online Peer to peer Payment: Paypal primes the pump, will bank follow, 7 North Carolina Banking Institute 375 cited Joseph I Rosenbaum, Preparing for the world of E-payment; Practice of Electronic Money Transfer Gain Resposibility- and Scrutiny NY. U June U June, 10, 2002 at s8.
10. Jeffrey P/Tart, Internet Based Payment Systems: An overview of the regulatory and Compliance issues (2002)56
Consumer Fin Law Quarterly Report 42.
11. Ibid 14.
12. Ibid 15.
13. First Virtual offer to prospect purchaser from the Internet vendors a trusted third-party, escrow-like secutity for their credit card number. The customer uses the First virtual account number instead of their credit card number in the online-transaction and First Virtual Charge the Customer's credit cards account for Authorization, DigiCash offer the potential Internet purchaser buy their electronic coins and pay for then by downloading value from their electronic wallet. See Sarah Jane Huges, A call for international legal standard for emerging retail electronic, (1996) 15 Annual Review of Banking Law 197, 206.
14. See Tim Clark, DigiCash file chapter 11, CnetNews.com at < httP//news.com.com/2100-1001 -217 527.html? legacy=cnet>access> access on 30/6/2005.
15. Andre Guanamuz Gonzalez, PayPal : the legal status of C2C payment systems (2004) 20(4) Computer Law & Security Report 293.