Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 274 - 279)




  274. Good afternoon. We are very pleased indeed that you have come to join us and spared us the time. I was asked before you came in to describe you, Mr Bruce, and I said that you were a Conservative and somebody said, "What's wrong with that?", and I said there is nothing wrong with that given that we have a Conservative majority on this Committee!

  (Mr Bruce) I am glad I am among friends. I am not going to do a lot of speaking. It is very strange for a Back Bench MP to be on this side of a Select Committee. It will be an interesting experience for me. The committee, of which I am Vice Chairman (and Lord Renwick, who was one of your colleagues up until a certain vote a little while ago, is the Chairman of that group), try to get together facts and opinions and bring them together in such a format that we can help Parliament, help the Commission, help Ministers to come to decisions. I am going to do what I do as the Vice Chairman and say very little and take the opinions and facts that we are getting from our more professional team. I will introduce them. Philip Virgo is the Secretary General of EURIM and he tells me he has had a bit of a count up and he has been in the politics of the Information Society for over 27 years. Richard Wales is the Chairman of one of our working parties, namely the Network Governance Working Party and he has 40 years in the financial services industry and in his latest guise he has been involved in a global initiative for electronic trading in the commercial insurance field. I have already said that I am the Vice Chairman of EURIM. I am also the Vice Chairman of PITCOM, the Parliamentary Information Technology Committee, and I am the President of the Conservative Technology Forum and I should declare an interest, which is that I professionally advise the Telecommunications Managers' Association. With your permission, my Lord Chairman, we will be asking Philip Virgo to field most of the questions because he gets paid to do it and he will try and give you as much of an overview as possible from EURIM's point of view and what we have been able to do. Richard will then pitch in with any specifics from his own intimate knowledge of industry and commerce and then if I feel that there ought to be a political comment at all I might just pitch in right at the end, but generally you are going to get your answers from these two gentlemen.

  275. Thank you very much indeed. I was trying to recall which constituency you represent.
  (Mr Bruce) South Dorset. I am the alter ego of Lord Cranborne who was my predecessor. I do not pretend to have his intellectual breadth or charm, but I try to emulate all the things that he has done for this House.

  Baroness O'Cathain: Close!


  276. You are doing extraordinarily well. One of the things which I think is characterising this scrutiny all the time is the speed of change that we are encountering and the sheer volume of the issues that we are trying to tackle. I am not quite sure when we have a look at all papers we have received from you whether you have helped us a great deal in simplifying issues. One of the topics that I hear coming through in some quarters—and we have not given you advance notice of—is information overload and I was wondering if you might make a mention of information overload and say if you have had a look at the problem which is arising and if you see any areas in which it might be addressed because it is one that is starting to burden us without any question and we are at the edge in comparison with some people.
  (Mr Bruce) I have been sent by your Lordships a form to fill in for my expenses. I have been sent it by fax through an electronic fax machine and I have had it e-mailed to me from two different sources, both as an attachment and as an e-mail in itself, which demonstrates not only do we have information overload but we also have routes of delivery overload which causes even more problems.

  277. Yes, but I think you will only be paid once!
  (Mr Bruce) Sadly, my shoe leather did not get worn out coming here!

  278. I think I found your appendix G especially helpful for us in addressing issues in Brussels, which is one of the core topics where we are seeking to establish whether or not current structures are right or wrong and that is helpful. Given the volume of documentation you had, I was wondering whether you could summarise in priority order what needs to be done to promote confidence and trust in e-commerce?
  (Mr Virgo) If I may lead off, my Lord Chairman. The issue is not so much confidence and trust in e-commerce because e-commerce has been around for somewhere over 100 years. The first case on whether a cable authentication is a signature is well over 100 years old. What the debate is about is confidence in "any-to-any" packet-switched services as they are being promoted by various Internet service providers. It is that area where there is the lack of confidence because when you come to the big business-to-business e-commerce services, the trading services of the city, the services that authenticate international trade, the EDI supply chains of the aerospace industry, the motor trade, all of those are e-commerce, they are massive, they have been there for 20 or 30 years in some cases, there does not seem to be a problem of trust in those. It is the area of low cost "any-to-any" e-mail and low cost web sites and the various cheap/free services being promoted for consumers where there is a problem of confidence. That is effectively a subset of the Internet. The Internet is rather like an iceberg. There is ten per cent of candy floss that everybody is talking about, which includes the "any-to-any" consumer-type issues, but 90 per cent of the Internet is below the water: the private networks, the structured networks. They happen to use Internet protocols but they are using dial-up lines, leased lines, high security and they have linked the US aerospace industry for 20 or 30 years. They are also part of the Internet. But the debate is about confidence in the little bit that is above the water. If one takes the iceberg analogy a little further and focuses the debate on the problems of "any-to-any" e-commerce, it is rather like debating what tunes the band on the Titanic should be playing. Before we have resolved them the markets will almost certainly have moved on. For example, yesterday, the Financial Times was reporting forecasts that more consumer e-commerce is likely to be done in the UK over digital TV before the year is out than will be done over PCs and browsers. I will give you another example. You could be fairly certain that whatever technology is used for Her Majesty to apply an electronic signature to the E-Commerce Bill will almost certainly be rated as unfit for secure contracts within four or five years. Things are moving very rapidly, hence the need for policy to be technology and business model independent. The problems of confidence are the lack of confidence amongst small firms and consumers in what is currently being widely promoted. Here a number of journalists covering the backlash against the failures over Christmas of the various e-retail sites (and I have got some articles on those) showed that those that want to promote confidence at that end actually have to address reliability of delivery and performance, security of payment and also privacy for those who want privacy and there are a lot of different levels of desire for privacy. On reliability of delivery and performance, an analogy is that the Post Office runs panels to check reliability, speed of delivery for letters and parcels and they also provide recorded delivery, registered mail for those who want to know if the letter is delivered and compensation if it is not. Most suppliers of traditional e-commerce services provide that kind of back up as well, but the Internet service providers, the "Freeserves", etc do not because their business models will not cover the costs of providing that kind of service. There are lots of ways of improving delivery reliability, but they actually require the deployment of the premium cost services which the 90 per cent business-to-business, the below the water level part of the iceberg, make their money on. It changes the business models. It says you cannot have "Freeserve" cheap, but you have security, reliability, provenance and all the other things. Visa have said that the Internet accounts for under one per cent of transactions but over 47 per cent of "card not present" recharges. The Credit Card Research Group says that anywhere between five and ten per cent of the Internet-based consumer transactions are fraudulent compared with their estimates of about half a per cent for traditional retail, which really is a big difference. One can say that consumers are genuinely more at risk of having their credit card copied at a garage or a restaurant than during a transaction over the Net, but there are a lot of Net sites which exist quite explicitly to collect authorisation details and it is said that a lot of the things up on the auction sites are actually there primarily to get a bid and then collect the payment authorisation details. The fraud is not random, it is systematic. There are also the various players operating credit card roulette where they generate lots of transactions at $19.99, which is below the checking levels, so they get their money. I think Visa has a case where they are trying to get $30 million back from somebody who they have identified but have not yet been able to find out how to charge them. There is a problem in UK law which the Law Commission has raised with regard to defrauding a machine as opposed to using a machine to defraud people. There are a lot of issues of that kind. The banks and the credit card companies have made massive investments to try and address those issues. There is the other problem on privacy where I think the debate is changing. Until recently most of the business models assumed that you are going to get a big revenue stream from advertising or from collecting your customer details and selling them to somebody else. It is becoming apparent that the revenue streams from advertising are not really that attractive and those who actually spend big money do not like that kind of thing. So, if you are going to get money from subscription services and a commission on transactions, then providing much better privacy for your customers is actually a better business proposition. That says that the trust side and the issues of trust are focused in on the consumer market and they are things that the industry needs to address. There is also a big issue to do with doing things that damage trust in traditional e-commerce terms where there is a century of trust built up and here I would like to pass over to Richard to address those.
  (Mr Wales) Before I do, I would just like to go back to this question of trust from the point of view of the ordinary consumer and the above the water transactions. As I see it there are two levels of trust involved here. The first is trust in the technology itself and to quite a large extent that is a generation issue. Young people today have been through the school system and have used computers since before they could write and have absolutely no problem with technology. I would guess one of the reasons that digital TV will take off is that the older generation, who are now used to TVs and using remote controls and so on will take to it much more easily than to a PC. In the end it is familiarity that will do the trick there. The other level is the transaction itself. Here I do not see there is a problem if the counter-party is a trusted name. If you were to try and buy something over the Internet from John Lewis I do not think most people would have a problem there. You might think that that would be a barrier to entry, that only established traders would be able to operate over the Internet, but I think trusts can be built up very quickly, as we have seen with, which is a household name worldwide, over the space of a few years which underlines the point about speed of change. Also, if I could turn to the reliability and performance issues that Philip is talking about, they are important and they do not only apply to the technology of the Internet itself; poorly designed consumer interfaces on web sites often slow down transactions dramatically, so much so that if you have read yesterday's Financial Times you will know there was a strong criticism of much of the Internet banking as having been far too slow. It is just poor design which is the problem here.

  279. Or BT failures.
  (Mr Wales) Another one is that if they are too sophisticated the process becomes very memory hungry in the user's computer and can bring it to a halt because it happens to be something somebody bought as a bargain two years' ago and the average consumer cannot afford to upgrade his computer every year to keep pace with technology. The other one is the message which says, "Sorry, come back later because we are updating our files", or, "Sorry, we are updating our software", which is one I have encountered.

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