Examination of Witness (Questions 1000
WEDNESDAY 7 JUNE 2000
1000. Because the chance of fraud in this is
A. It probably is but they have the huge experience
of doing it in the States. They are not going into an area that
they do not know, the experience is there.
1001. Except for the laws from one country to
A. Sure, but if there is a certain willingness,
and this is something we have seen in this whole e-commerce area.
I have noticed that in countries where credit cards are not well
developed, say in Germany where it is for historical reasons,
people want to maximise what e-commerce is bringing about. There
is a certain openness here to start doing things and I think there
will be a knock-on effect because the competitiveness of saying
"look, if I can buy something from the United Kingdom, I
can use my credit card" is going to make people orientate
around areas like this. Suppliers want to be able to offer services
but they want to be able to reassure customers on things like
this and what they are able to provide and this will open the
1002. This is an area where we could truly establish
a better relationship with European taxpayers and consumers if
you could make a break through.
A. Yes. Again, going on the States, the amount
of business that takes place over the web, 90 per cent is business
to business and generally businesses are able to look after themselves.
Then you are looking at what is the real potential for individual
consumer development in the use of the web. Here you have a number
of factors, not least being linguistic, access to computers and
all these types of things which take much longer to come. The
more sophisticated players can use the web, they know what they
want to do, but if you are talking about more of a mass market
it is going to take time. The confidence is going to have to be
there so it has this trickle down effect of people feeling "yes,
I can do business over the web". That is why I think you
are going to have to have these other factors in place. You are
going to have to have the Web Trust, you are going to have to
have the credit card companies offering these services. For example,
the banks see themselves as being able to offer something in terms
of guarantees, a bit like the old travel agent guarantee that
you will get your money back. Banks want to be able to offer services
that they can sell to companies saying "we will underwrite
your transactions, we guarantee this". There are various
things that will come on there. For the individual consumer it
will take time before it is more widespread.
1003. But the framework that you can provide
is very important indeed in this context because you have got
an overarching role?
A. Precisely. This is where we feel that what
we want to do is basically to be at least the catalyst in providing
this and hopefully by the end of the year we will be saying "look,
this looks all right. This is shaping up well. There are enough
things out there that will help consumer confidence in e-commerce".
1004. Are the national governments weighing
in with you on this one or is there anything that we can say that
might be helpful?
A. We have informed Consumer Councils, we have
talked to all of the various groups. We are not in dialogue with
Member States as such because we are doing it with groups of stakeholders,
reporting back to Member States in terms of what is going on.
The political risk of this, of course, is Parliament very much
feels that they are out of the loop on this. Again, for the moment
we feel that it may not be necessary to get into hard legislation
and if that is the situation all well and good, you have to take
the consequences of that, that it can be done through soft legislation,
1005. One further complication we have compared
with the US, of course, is single currency, or lack of single
currency. How are talks progressing with the banks for levelling
the charges for changes in currency, whatever? We were talking
to the banks the other day and they do not yet have the facility
on the web to convert an exchange into a different currency to
enable the buyer on the web to know exactly how much prior to
purchase it is costing in his own currency, including bank charges.
For instance, the other day I filled up with diesel across the
border in the Republic and before I actually made the transfer
the first thing which came up out of the machine was "this
will cost you in pounds sterling". Are the banks progressing
A. I think there are a couple of aspects here.
One, you have the euro 11 where immediately you can have your
international currency, that is not a problem. For the countries
that are outside the euro 11, or the States and things like this,
the best they can do at this stage is to quote what the equivalent
is in a currency and to say "depending on how you are paying
for this, there may be additional charges involved". If you
are paying with your credit card you know what the charges are
on your credit card transaction. The problem comes if you have
to use some other form of payment, like credit transfer or something
else like that, that is a huge problem area. We published a report
a couple of weeks ago where we pointed out that there are huge
discrepancies in the various charges that banks put down. You
have this whole problem of double charging. You can go into your
bank and say, for example, "I want to transfer money to France,
I want the charges here", but you may be double charged for
the recipient at the other end. It is still an enormous problem.
The banks have always used the argument that for small payments
it is not worthwhile putting a network in place to handle small
payments but that has now changed and they are now doing this
because of the euro. In 2002 it will all be operating in euros,
so from that point of view they may have to have a system in place
to be able to handle these small payments.
Lord Faulkner of Worcester
1006. Can anything be done about the variety
in the exchange rates which you find with the credit cards? It
does seem to vary at what rate a foreign transaction is converted
back into home currency. I get the feeling that there are bank
rip-offs there but it is very hard to pin down because it is not
at all clear quite often what basis they use for the exchange
A. I honestly do not know a lot about it, I
can only tell you what the situation is in Belgium. If you take
out a credit card here the credit card companies have to tell
you how they calculate their exchange rates. You are told that
the rate is calculated on whatever rate may be in force at a certain
date and they have to specify the additional charges that would
apply. From a consumer point of view often what is problematical
is the real rate of interest you are charged on your credit card.
This is where you find huge, huge differences. A lot of the so-called
credit cards that are in operation here on the Continent are not
real credit cards in terms of what you would understand in the
United Kingdom. The Visa card that I use here is cleared off every
month, it is a bit like the American Express card. If I can say,
there is a lot of strong consumer preference not to allow a large
amount of credit to be built up on a credit card. That is still
very strong in Belgium, France, Germany, there are still very,
very strong controls in that area.
1007. Martin, if I may just come back to this
issue of credit cards. When we were in the States we were very
impressed with the way that there was underwriting by the credit
card companies on e-business for the consumer and the way it was
run. We came back and we had a look at the evidence which had
been put in to us by the banks. We heard from Freeserve, the biggest
ISP in the United Kingdom, who said that they had been anxious
to publicise the facilities that were available for consumers
if they got into difficulties to go back to their Visa cards and
Mastercards and get redress there but they had been under pressure
not to publicise what was available to them. We then had Barclaycard
come and see us and they sought to reassure us very quickly indeed
about what they were offering in the United Kingdom. They did
set out a stall and reassure us. I find it interesting that you
are having a conversation primarily with the consumer organisations
but if the Government is anxious itself, each State Government,
to have consumer confidence in trading on the Internet, why are
they not themselves involved with you in trying to pressurise
centrally in Brussels the banks to have a common line right the
way through the whole of Europe?
A. Sure. I think, one, I honestly do not know
1008. I am not looking for a Directive or legislation.
A. No, no, but I do not know yet how much individual
governments have focused on this. We have been trying to address
it because of our overall centralised position in this. As I said
to you what David Byrne has been doing is he has gone around each
of the credit card companies and said "I will find it extremely
helpful". We are going to go back to them again some time
before the summer break and say "how far have you got in
your thinking, are you now going to do this?" because we
have already launched this with Member States through the consumer
councils. We have said we think this will be good for consumers.
We think we should move forward on this but I do not know what
the individual Member States are doing. You know the Consumer
and the Internal Market Councils are merging together which I
think is a very good thing. For the next one, which I think is
the end of September, early October, we would intend to come back
and start turning up the heat a little bit on the banks, if they
have not moved then themselves, to give some commitment themselves
that they are going to go down this route.
1009. Could I suggest you also try and pull
the governments in as well?
A. Yes, I will.
1010. Lord Chairman, I find it confusing. On
the one hand, let us say with Visa or Mastercard, you have hundreds
of banking companies who issue that card but then a consumer would
expect that same Visa card would have the same charges, but they
A. Of course.
1011. Is there no way of putting something together?
Here the consumer does believe in all probability it is the same
for same but in the end it is not.
A. No, but I think even in the States you have
hundreds of banks issuing Visa cards and the charges that they
make are very different for the same type of card. At that stage
it is a question of providing information so that a consumer,
if he subscribes for it, should have very clear information on
what the precise costs associated with that card are. Now where
you are in a single currency area that is much easier because
they can then say "Fine, if you use your transaction if you
do not pay at the end of the month this is how the thing operates".
What has been problematic in Europe is because we have gone from
having different currencies, and therefore you have had all the
current exchange costs and things like this that were always far
less transparent in terms of transactions. Those have gone in
so far as the Euro-zone is concerned. Now you are still going
to have the problem in terms of countries outside Euro-zone and,
again, I think it is more a question of what national legislation
is going to provide for consumers in this area.
1012. I was told that the consumer does not
realise he has to negotiate or check this before getting a card
issued in the same currency.
A. Yes. You are in an area where, if I can say,
the role of the EU, the role of the Commission as such is probably
not as clear as vis-a"-vis national legislation because
the cards have been based up to now on national legislation. What
is the role for doing something at EU level? If there are problems
say with transparency, if there are problems say with people moving
around, they are charged more for using a card in the United Kingdom
than they are elsewhere and there are things which need to be
provided to people just because of the existence of the internal
market. There may well be something. But I would come back to
say the main thing for consumers is that the charges are clear
and upfront and that this information is available. I think that
1013. I think what we are looking for are guarantees
for the business that is transacted on the Internet across the
whole of Europe.
Chairman: I think we must move on to some of
the other questions.
Lord Faulkner of Worcester
1014. It follows from that because it is about
protecting the consumers on the quality of goods and disputes
that arise as a result of ordering on the Internet. You said something
earlier on about widening the practice of credit card companies
taking responsibility for quality and in the end in disputes they
are the ones who are in the front line. Can you elaborate a little
bit on that and say whether the Commission has got plans for making
that mandatory through the Union?
A. At this stage certainly we do not have plans
for making it mandatory through the Union. What we are trying
to do is we are trying to see if the banks themselves or the credit
card companies will voluntarily bring in systems like they have
in the US. We feel that this is the minimum they can offer to
consumers in Europe, they same type of service they provide to
consumers in the US. Now, how far they go down the road of saying
"If I buy something, I buy an article of clothing, this is
not quite the quality that I thought, I am sending it back",
how far the credit card companies will say "Well, look, that
is in our remit" or "that is not in our remit".
What is important at that stage, regardless of whether the credit
card companies do something or not, is that the company you have
done business with has the procedures whereby either they have
agreed under the Web Trustmark that if you are not satisfied you
will be reimbursed or whether then you have through that company
access to some Alternative Dispute Resolution mechanism, whether
this is an independent thing, which I think in most companies
it will be, or other companies when they are big enough will have
their own system in place to be able to deal with this. Now, there
are a lot of independent organisations. You have people setting
up online dispute resolution mechanisms whereby they will offer
services so you, as a company, can say "Fine, I engage you
like my solicitor and if there is a dispute it goes off to this
company and we agree, as a company, we will be bound by this independent
1015. And you sort it out?
A. Yes. It goes to the arbitration. You as a
customer are not bound by it because as a customer you would always
have the right to go to court, that is the bottom line at the
end of the day. At least you have been through a certain process
which will have given some preliminary assessment.
1016. There is a proposed Brussels regulation
on mutual recognition and enforcement of judgments.
1017. Do you think that perhaps that is putting
the cart before the horse? Should that not be delayed?
A. I have never understood the practical argument
for the delay. I have seen a political one saying "look,
before all this comes into place, let us all try to get in place
good ADR mechanisms". I do not believe it matters at the
end of the day. If Parliament has given its advice, and hopefully
it will by, let us say, the summer break, it will then have to
be agreed by Ministers, it will then have to be translated into
national law, and that usually takes 18 months. The Brussels Convention
will not be part of Community law before some time in 2002. There
is enough time between now and thenand this is what we
want to doto be able to say "look, things are working
pretty well, businesses and consumers themselves feel there are
enough things out there to solve disputes, we do not care".
Businesses have said that it will hold back the development of
small and medium sized enterprises because they will not have
access to what the laws are in 15 Member States. This is the wrong
attitude to have. If you are going to do business on e-commerce
you have to be of a service mentality. You have to get more on
the lines of American businesses who say "can do, will do".
If that is what the customer wants, that is what the customer
is going to get. If you are going to be "I am only looking
within my own borders" you can forget about it, you are not
going to expand outside your own borders. You have to create a
different attitude and it has to be the service attitude which
is not well developed in Europe.
1018. Can we just stay on the international
scene, and you have picked out the States again but, as I say,
I think the States are a little bit different from the states
of Europe. I will not go back over that one. Earlier on we picked
up the safe harbours and the negotiations that have been taking
place there on data protection. When we were in the States they
were complaining about what we were doing and in turn we were
saying "we will have problems if you do not do something".
We detected that there is a ground swell of unease and unhappiness
about their reputation there and they are going to have to do
something about it. There are other people in other parts of the
world which the Internet now brings us into contact with beyond
the States, are you having discussions with others on the wider
A. We have had some tentative discussions with
the States. David Byrne was over in February/March, he met Pivtoski
and other people in the FTC. We have people over there this week,
there is a big conference that the FTC is organising on this international
aspect of e-commerce. There is the work in the OECD as well. The
wider thing will probably have to take place in some forum like
the OECD which brings together most of the main players in terms
of trying to put down some common rules. It is going to be a big
problem, there is no doubt, it is there already. A lot of people
in the United Kingdom do business with the States, less so in
the rest of Europe. How are dispute resolutions going to be solved
in this type of way? It very much depends on the credentials of
the company that you are dealing with. A problem that has arisen,
and you are probably more aware of it than I am now, in terms
of people who are doing business with the US is, of course, the
US advertise prices net of taxes and when the goods are delivered
in the United Kingdom suddenly the price is bumped up. There are
all of these types of issues and these are things that have to
be sorted out.
Lord Faulkner of Worcester
1019. Even when you pay for it in the shop in
the States you find that the price is dramatically more than you
A. Because of the tax issue, yes. It is more
of a surprise when you buy over the net because you say "oh,
gosh, $30" but by the time it arrives you are paying $60.