Select Committee on European Union Minutes of Evidence

Examination of Witness (Questions 560 - 580)




  560. My question to you is, you partly answered it, what do you do to get your view into Brussels, into the Commission? Do you occasionally make a trip there?

  A. To be honest with you, we have not actually lifted our head up from the flotation. When Freeserve floated there were sixteen of us and there are now 147, we are only just coming out of that period where we are saying, "There are things and areas which we need to look at." We have only just started to try to assimilate these issues for ourselves as a business. We are coming to it rather fresh and, perhaps, rather late.

  561. How would you define a trade body? The Commission might say there are appropriate trade bodies to whom they turn for advice, but you seem to feel there is not one sufficiently specialised.

  A. I think it is probably a self-criticism, in a way. If one looks in the United Kingdom I was previously a Director of the British Retail Consortium so I know the BRC fairly well. The BRC is not represented by e-commerce, it is a representative body of established retailers in the United Kingdom. Those of us who are in this new sector find it very difficult to get the time and turn up to their meetings and provide them with the information they need to help them influence. I know the BRC have an e-commerce initiative and they are working very hard in that area. I think it will get better over time. Certainly I see the BRC as the leading trade association for retailers. In terms of an Internet service provider, there is something called the Internet Service Providers Association, ISPA.

  562. Is that in the United Kingdom or in Europe?

  A. That is in the United Kingdom. We tend to look at the telecom side through our relationship with Energis and Planet, rather than doing it directly ourselves.

Baroness O'Cathain

  563. Do you really think that going through the trade association route is necessarily the right way of doing it? I know you say you do, but it does tend to be the lowest common denominator.

  A. In my experience not necessarily the lowest common dominator. At the end of the day I do not think there is any substitute for direct contact.


  564. We now have this E-Envoy and the Department of Trade, surely this could be a role put on them in order to make them feel good and warm that they are able to achieve something in e-commerce?

  A. I would like to see that emerge from the DTI because I would find that extremely helpful. The DTI come out with some very helpful consultation papers when we try to implement these directives.

Baroness O'Cathain

  565. Do you have a regular meeting with the E-Envoy or people within the DTI?

  A. My boss has met Patricia Hewitt once. We have a list of people to see but we have not got out of the chair, rang them up and said, "Here is an issue we would like to come and talk to you about," we just have not had the time.

Lord Woolmer

  566. Turning to directors gain, you mentioned two or three other figures in your notes, can I look at advertising first? You said that there are particular difficulties in applying EU advertising to the Internet. What are the difficulties and why? What would you like to see done about that?

  A. I think advertising is probably the best example of an area where the law and the regulations have been developed without necessarily understanding or completely understanding the medium to which they are going to be applied. It is partly our fault because when we launched our business we had no idea of the breadth and diversity of the range of products and services that we would aspire to offer to our users, so we took a consent from our users under the Data Protection Act to deal with the information they provide us with in a particular way. It has meant that when one looked back at the e-commerce Directive that, for example, e-mails which we send to our users, which are intended to update them on a range and breadth of services available to them, are now deemed to be marketing material and if the consumer has opted out of receiving marketing material it cannot be sent to them. It is not marketing material in the sense that I am trying to sell them something, it is marketing material in the sense of I want to tell them about what is now available on their service. To try to overcome that we then started to think, maybe we will call them members, we will plug the AOL type of approach and perhaps that will help us overcome these problems. I scratched my head and said, "I do not really think it does because membership gives you slightly more of an advantage." I mentioned the women's channel that we have, where we offer access to health information and we need an entirely different range of consents to enable that information to be received and looked after and in some instances passed on to third parties who pay for advertising placements on that site. That is just one aspect. It is extremely difficult to apply legislation which, let us face it, has its roots in the women's rights environment not just the environment of privacy of data protection, to what we need to do to communicate contact with our suppliers. If you think about it from an advertising perspective as well, there are new technologies emerging everyday which allow information to transfer between the consumer, the Internet, the service provider and, for example, the advertising agency, which set out in fairly good detail, not to the extent that one can be personally identified, but actually explain which sites have been visited and how long those sites have been visited for. Sometimes this is done through "cookies" and sometimes it is done through "add server" technology, which picks up on the fact that a button has been clicked and a deposit has been made on on the server. That information can then be used by the admin agency in theory in much the same way as in some supermarkets there is an American product called Catalina, which is a software product, which when I turned up at the till and passed to here through a jar of Kenco coffee up would pop a Nescafe voucher because they wanted to encourage me to switch from Kenco to Nescafe. In much the same way the "add server" allows information to pass to a competitor. This person is doing this, they have used this site and they have bought this product and you might think about serving them an add for your product at the same time. This market is emerging and with things like the Alta Vista proposition, which is encouraging the dependence on advertising, increasingly one wonders, in a sense, where it will end. If you then try and apply that environment to the Data Protection Directive you come up against what is essentially a brick wall. In the absence of a positive consent to do something one sits back and says, "I am sorry I cannot do it." So I as general counsel am constantly getting beaten-up by the market director who just wants to do these things and I turn around and say, "You cannot. You cannot do it to comply with the terms of our privacy offer."

  567. Are you saying that the move away from significant revenues from shared telecommunications charges to advertising, not just for you but for a lot of other providers, is going to, if anything, increase the potential conflict between the rights of privacy of individuals and the marketing and commercial interests of the providers?

  A. Yes, I think that is not an unlikely summary.

  568. You guys are pressing for freedom within that and somebody somewhere is going to think about the rights of the privacy of the individual.

  A. Exactly. What it means, because one is looking to encourage this environment, obviously from our perspective, is very careful application of the new law and it is a classic example of an area which is very subjective in some instances, which could lead to different applications and judgments being made in the United Kingdom as opposed to France, Germany or anywhere else. It is a classic recipe for an uneven application and that is what I expect to see. It is an uneven application even now in the United Kingdom. The next time you are on the Internet what I suggest is, find somebody who will offer you a competition, "click on this button to win two free seats to Paris". I have done that with one fairly well known company and since I did that I have been bombarded with e-mails. I think I became a subscriber. There was nothing on that site to indicate consent from me and no matter how many times I fire back `unsubscribe' e-mails to those people they still come back.

  569. Who is monitoring this? Having got these Directives and regulations who will monitor whether they are being applied and who is breaking what?

  A. At the moment I have to say I do not think anybody is monitoring. We are waiting for the introduction of the e-mail preference service from the Direct Marketing Association which may provide some comfort.


  570. We are coming to the end now, going back to the bullet point paper to us you said that you are prepared to share with us your experience regarding e-commerce on a number of issues and one of them was the cost of a credit card transaction. What would you like to say to us on that?

  A. This is an extremely interesting issue. When we talked to small retailers and when we bought new SMEs on to the market place one of the reasons they cited for not coming online was, first of all, their inability to get a credit card company to take them on because they do not necessarily have a track record and the volume to justify it. Secondly, the level of transaction charges that the credit card company was going to charge them. Then they got into the difficulty of building a website, hosting it and managing it. When we therefore established the market place we knew that we had to strike up a relationship with a third party that would offer competitive transaction charges and we have been able to do that. That third party had to be prepared to take on companies who conventionality would never have got access to a credit card for the purpose of doing that. That came as a big surprise to us. We thought that credit card companies would be falling over themselves to get into this new environment, it was quite the opposite. That is point number one, the whole question of getting access to a credit card transaction basis. This was picked up in a report last week. The second matter is the potential offer by digital signatures. As an ex-retailer one of the biggest burdens on retailers is credit card fraud and fraud which is then passed back to the retailer on the basis that the credit cardholder was not present at the time of the transaction. It seems to me that the cardholder not present argument disappears out of the window if the transaction has been delivered off the basis of two key inscription processes. It just strikes me as a fairly obvious point and I have not heard that debated yet. I think the banks are holding on to the fact that the cardholder not present will be dealt with in exactly the same way as it is presently and it really ought not to be. There seems to be no reason at all. It is also not surprising that the banks themselves are busy producing digital signature technology trying to get in there first and, perhaps, why not.

  571. To conclude on this point, was there not a business opportunity for someone to come in to support these SMEs who did not have access to setting up credit card facilities?

  A. I hope that is what we are doing. The other business opportunity for broader e-commerce which should never have been a business opportunity in the first place was when we launched our own online credit card. We launched it in conjunction with HSBC and we called it Marbles. We launched it off the back of an advertising campaign which we got some stick for because we simply reminded the consumer they have rights under the Consumer Credit Act. If they transact using this credit card and if for one reason or another the product does not work or for one reason or another the number has been used in an unauthorised way, the Consumer Credit Act gives them consumer protection. It struck us as an obvious point.

  572. Where was the stick from? Where did you take the stick from?

  A. From banks and other financial services and companies who said, "Why are you doing this?" I remember the Director General of the Office of Fair Trading, Mr Bridge, making a point to me four or five years ago, he could not understand why banks had not waved their credit cards in front of the consumer and said, "Look at the rights you have." The reason they do not is because they do not want the consumer to realise it.

  573. Does there continue to be resistance from the major credit card companies to let the consumer know about their rights in these areas? This is a form of protection and we should encourage the growth of e-commerce. If something goes wrong when you are using your credit card, refuse to pay the bill when it comes through.

  A. I am not a great fan but I do subscribe to Which Consumer Association and the Consumers Association did a survey in November or December last year which was a survey based on looking at credit card rights and how banks reacted to consumers and it was not very favourable. I think their conclusion was that banks are not doing enough, not only are they not doing enough to draw attention to the consumers but when consumers try to exercise their rights as many barriers as possible are put in the way of the consumer.

  574. There may be something here for this Committee to look at that could possibly help to enjoin confidence amongst consumers if we draw attention to this point.

  A. Those rights need to be across to debit cards as well, it should not just be restricted to credit cards.

Viscount Brookeborough

  575. Can I ask, what are the level of charges, the percentage level on sales by credit card?

  A. I can tell what they vary, they vary between 3 per cent and 7 per cent.

  576. Are you lower than the 3 per cent?

  A. No, but it is at the lower end of the range. I cannot tell you what the price is but we are at the lower end of the range. Underneath that is the interchange fee, which is the cost of moving the payment around the payment transaction system, which is 1 per cent, which is essentially a sales charge.


  577. As an agency acting between the customer and the retailer and also using a credit card, do you take a cut from the credit card?

  A. On our auction site we hold the funds until the consumer has received the goods and confirmed that they are okay and they are happy with them and then the funds are released and we get the interest on those funds. We do take a slice but we do it in a way which is part of the process of ensuring that the consumer gets what the consumer wants.

  578. If I buy £50 worth of books from Amazon and pay by my visa card do you take anything from that?

  A. Yes, I think we do take a small slice.

  579. This has been a very interesting session and sorry we have kept you so long, that is an indication of the interest that you have generated. Finally, you said when you were coming in, first of all, you took issue with one or two of the points made by Mr Casey, it is some time since you made that statement and I am wondering whether you can recall what they were?

  A. There were two points, the first was the sense that and its equivalent is not a genuine e-commerce business. It represents and occupies a sector which takes up 30 per cent of our traffic, travel and that type of promotional activity. It is one of the things that consumers on the Net use and I do not think it could be described as theory or non-substantial business. It is one which is very easy to replicate and one which may look very different in two or three years' time. As far as a business that represents current usage is concerned there is no doubt that it does. The second point was to agree with the speaker about the potential for businesses and business communities. Freeserve itself is actively engaged in developing business support services to enable small businesses to trade online and to enable them to take advantage of procurement, to get advice. It is not getting online that is the problem for the small business, it is all of the rules and regulations and bits and pieces of running your business that causes a problem. Our approach to business and the small business sector is to provide an Internet solution for that sector, which takes some of the burden of operating that sector away from their shoulders. That is an area we think is extremely exciting and offers potentially very significant rewards.

  580. Are you working with small businesses on that?

  A. We have not, but we should be.

  Chairman: Thank you very much indeed. If there is anything on reflection you feel you would like to put to us please feel free to e-mail us. Thank you very much.

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