Newspaper Articles

This collection of articles was published in the Detroit Legal News from 1995-1997. All were written in the infancy of the modern Internet, before the landscape surrounding Internet legal and business issues began to develop. Access to the Internet largely consisted of dial-up connections on a 14.4 kbs modem or slower. Both the technology and state of the law have evolved considerably since these were first published.

Commerce Goes Internet

Originally published August 7, 1996

The check's in the e-mail. While somewhat tongue-in-cheek, the concept is not as far-fetched as it sounds. A number of payment mechanisms designed to facilitate electronic commerce over the Internet, including e-mail based funds transfer, are currently in place or under consideration.

These payment schemes are constantly evolving as businesses and individuals turn to the Internet for commercial activities.

Modern economic transactions are supported by a number of payment alternatives. Cash, personal or traveler's checks, credit cards, money orders, debit cards, wire transfers, prepaid cards, tokens and barter arrangements are among the available options.

The appropriate or desirable form of payment is a function of the size and type of' transaction and a host of other factors. A common form of payment in one setting may be inappropriate or unacceptable in another.

The Internet is a growing market for the electronic sale or purchase of goods, services and information with prices ranging from a few pennies to thousands of dollars. In many cases, consumer anonymity may be essential to the conclusion of a transaction. The success of the Internet as an electronic marketplace will depend in large measure on the availability of convenient, secure, private, fast and nonrefutable payment mechanisms.

Most Internet transactions are conducted in the same fashion as a traditional mail order business. An Internet web site is used as an electronic catalogue or advertisement. The consumer calls a phone number (typically an 800 numbers and the order is processed by the operator who orally collects billing information. Payment is made via verified credit card or through mailing in the payment amount.

The traditional mail order method of securing payment is proven and poses the least amount of risk. Most consumers who would never dream of using their credit card over an electronic network will freely provide the information over the telephone.

On the other hand, the process is time-consuming and may exclude classes of consumers. Also, because of processing fees associated with credit card usage, transactions involving small charges are not economically feasible. Finally, there is no privacy or anonymity in credit card based purchases.

The next common Internet payment scheme is the club account. Club accounts must register and designate how they will make payments before they are able to purchase a particular product or service. The registrants are given a password or ID number to identify them when they enter a particular service or desire to make a purchase. Club accounts can suffer from the same shortcomings as mail-order type arrangements.

Electronic transmission of credit cards is gaining in popularity as Internet payment scheme. Consumers fill out a Web-based CGI form with personal information and a credit card number. The information is encrypted using technology such as Netscape's Secure Sockets Layer (SSL) and sent to the intended recipient. Traditional credit card verification is used to curtail fraud.

While use of encrypted information solves some of the time problems inherent in credit card payment schemes, there is at least a wide (if unfounded) perception that electronic transmission of credit card information is risky, particularly when dealing with unknown Web merchants. Many consumers don't trust or understand encryption. In addition, compatible software must be used to engage in the encrypted transaction.

The newest payment tools for Internet based commerce fall under the general heading of digital payment systems. Digital payment systems frequently rely on public-key cryptography to provide transaction security. Digital payment systems currently available or under development include various forms of electronic or net-cash, electronic credit cards, and electronic checks.

Electronic or net-cash systems typically involve an entity that serves as an intermediary in the commercial transaction.

The consumer purchases a certain amount of buying power from an organization such as Net Bank. The consumer receives one or more "bank notes" or tokens containing blocks of numbers and letters representing certain dollar amounts.

When spending the net-cash, the consumer sends the merchant an encrypted email identifying the bank notes in exchange for the particular product or service. The merchant, in turn, sends the electronic cash to the intermediary and is paid or credited with the appropriate dollar amount. Product delivery is handled electronically or through other delivery methods.

Electronic credit cards are similar to traditional credit cards but the merchant does not receive a credit card number. Rather, the merchant receives an identifier or token. The token is passed on by the merchant to the credit card company using Secure Electronic Transaction technology, an encryption standard developed by the major credit card companies. The credit card company authorizes the transaction and provides the merchant with an authorization number. The entire transaction is encrypted using public key cryptography to ensure security and authenticity.

Finally, electronic checks involve something as simple as e-mailing a merchant a message authorizing them to withdraw funds from an account. Again, public key encryption and digital signatures are at the root of the technology. While still in its infancy, CheckFree, NetCheque, NetChex and others are leading the race in the development of check-type payment systems.

Digital payment systems may be the future of the Internet, but they are currently far from the mainstream in terms of popularity and usage. Problems include inconvenience, lack of compatibility among various users of the systems and the absence of industry standards. Such systems also require a fundamental change in the way people engage in commerce. Absent a change in individual preferences and attitudes toward electronic purchasing, it may be a long time before the check is really in the e-mail.