Examination of Witness (Questions 560
WEDNESDAY 22 MARCH 2000
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
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
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.
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
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
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.
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.
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
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
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.
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 lastminute.com 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
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.