Electronic Commerce and the New Zealand Consumer

Robyn McDonald Consumer Affairs

This discussion paper reports on the results of work the Ministry has done, as of August 1997, in respect to Electronic Commerce and the New Zealand Consumer.

The paper will form the basis for the development of further work by the
Ministry in this area over the next 2-3 years. I would like to thank Tony
Leverton for the role he has played in leading the Ministry's work in the
Electronic Commerce area.

If you wish to discuss anything in the paper, or simply provide comments
about issues that you think need to be addressed, please do not hesitate to
contact the Ministry.

Keith Manch
General Manger

EXECUTIVE SUMMARY

INTRODUCTION

The Ministry of Consumer Affairs works to ensure that there
is a fair and informed marketplace. We provide advice to the Government on key
laws, practices and policies affecting consumers, and develop information,
education and advice programmes to enable consumers to function effectively and
equitably in the marketplace. We are also responsible for the administration and
enforcement of trade measurement legislation and for consumer safety functions
under the Fair Trading Act.

The Ministry has identified the development of electronic commerce as a key
area of focus over the next three years and beyond, for a number of reasons.

  1. It is changing the way consumers and business relate to each other
    domestically and internationally.
  2. It can provide New Zealand consumers with opportunities to access a wider
    range of goods and services, potentially at cheaper prices, within New Zealand
    and across borders.
  3. For New Zealand consumers to take full advantage of these opportunities,
    they will need to have confidence in matters such as the use of personal
    information provided, the security of transactions, the quality of goods and
    services available, and the availability of redress if things go wrong.
  4. For the Ministry to fulfil its responsibilities to New Zealand consumers it
    is necessary to:
    • understand the changes that are occurring;
    • assess whether current consumer protection mechanisms are relevant to new
      and emerging ways of doing business (and take appropriate action where they are
      not);
    • educate and inform consumers about relevant issues.

INTERNATIONAL DEVELOPMENTS

Recent international conferences and
activities have aimed at identifying the issues raised by electronic commerce.

Activities that the Ministry has been directly involved in are summarised
below.

  1. New Zealand and Australian consumer agencies have identified electronic
    commerce as a priority issue for action in the workplan of the Ministerial
    Council of Consumer Affairs.
  2. The OECD:
    • has released its draft guidelines on Chargebacks and Distant Selling. These
      set guidelines for standards by which codes of practice could be drafted to
      ensure international harmonisation;
    • is developing a project to generate consumer protection guidelines to be
      submitted to the OECD Council for approval as a council recommendation;
    • has been addressing issues such as the deregulation of postal systems and
      the efficiency and cost of customs procedures, both of which can create barriers
      to consumers taking part in the global marketplace;
    • is reviewing safety labelling in the global marketplace as a result of
      concerns that there is a proliferation of safety and conformity marks, and a
      lack of understanding by consumers and business as to what these marks stand
      for.
  3. Consumers International has established a network of members to deal with
    consumer issues in the information society. The Ministry is part of that
    network. Consumers International recently held a conference in New Dehli.
  4. The International Marketing Supervision Network (IMSN) is focussing on
    electronic commerce issues.

All of the above serve to highlight that
there is much work going on internationally to deal with electronic commerce
issues from a consumer perspective. This list includes only the issues that the
Ministry is involved in. One challenge is simply to remain aware of developments
so that they can be built on appropriately for New Zealand consumers.

ELECTRONIC COMMERCE ISSUES -
CONSUMER PROTECTION ISSUES, ANALYSIS AND
STRATEGIES FOR THE MINISTRY OF CONSUMER AFFAIRS

Consumer protection issues
arise in respect to Internet and telephone technology, Internet payment systems,
smartcards, creditcards and debit cards, etc.

At a domestic level not much changes. Current laws and self regulatory
frameworks in New Zealand tend to apply regardless of the way consumers relate
to businesses. The real challenge is in the increased amount of cross border
trade.

THE WAY FORWARD

The Ministry's role is to promote a fair and informed
marketplace, for the benefit of all New Zealanders. Where fair and informed
markets do not exist, the Ministry is committed to examining all options, from
education, through self-regulation, to formal government regulation, to find the
most effective and efficient solutions to address consumer problems.

There are a number of issues that suggest solutions to any problems in the
electronic marketplace will stop short of developing formal government
regulation. The issues are:

  • The electronic marketplace is in its early stages. Any problems may be
    described as potential or emerging to a large degree;
  • The electronic marketplace is a global phenomenon. Any solutions to problems
    will need to be global;
  • The electronic marketplace is developing rapidly. Legislation, even if
    appropriate for other reasons, could probably not be developed, modified or
    removed quickly enough to meet the needs of the marketplace;
  • It is in the interests of participants to work out ways around most
    problems. Every day news reports indicate a new development designed to increase
    security or confidence in the electronic marketplace.

The Ministry will therefore focus on four broad areas which
are outlined below.

Consumer education/information activities

Educate and inform consumers on their rights and responsibilities in electronic commerce.

Inform consumers of the potential dangers in buying from traders who do not commit to accepted codes of practice.

Monitor traders operating at a standard lower than code / regulatory requirements, and seek appropriate compliance action.

Ensure consumer representation in the development of self regulatory mechanisms.

International networking activities

Participate in discussion and development of international codes, bi-lateral and multi-lateral mutual recognition, harmonisation of rules, and enforcement activities.

Participate in discussion and development of international agreements, guidelines and standards relating to electronic commerce.

Business self-regulatory activities

Liaise with industry groups, business and
government agencies to establish or improve industry codes of practice.

Assist industry in the promotion and awareness of codes to consumers.

Encourage the use of seal-of-approval schemes.

Monitoring market developments, market solutions and international activities

We will
formalise our monitoring processes for gathering information about developments
in the international marketplace.

Maintain an up to date understanding of developing issues so that they can be
appropriately addressed.

Undertake market research on consumer responses to electronic commerce over a
period of time.

The Ministry of Consumer Affairs works to ensure that there is a fair and
informed marketplace. We provide advice to the Government on key laws, practices
and policies affecting consumers, and develop information, education and advice
programmes to enable consumers to function effectively and equitably in the
marketplace. We are also responsible for the administration and enforcement of
trade measurement functions under the Weights and Measures Act 1987, and for
consumer safety functions under the Fair Trading Act 1986.

The Ministry has identified the development of electronic commerce as a key
area of focus over the next three years and beyond, for a number of reasons.

  1. It is changing the way consumers and business relate to each other
    domestically and internationally. The emergence of an electronic marketplace in
    recent years has brought goods, services and information from across the country
    and around the world at the click of a button.
  2. It can provide New Zealand consumers with opportunities to access a wider
    range of goods and services, potentially at cheaper prices, within New Zealand
    and across borders. There is no doubt that an on-line marketplace brings
    benefits to businesses and consumers. These benefits include the consumer
    convenience of round-the-clock access from and to almost anywhere, rapid
    communications, world-wide linkage, search and evaluation ability, personalised
    attention, greater innovation, minimised handling, and reduced costs. The
    convenience for businesses includes ready, constant access to a global
    marketplace, customer and product information management, instant
    funds/information transfer, and savings in a wide range of overheads (rental,
    wages, security, warehousing etc).
  3. For New Zealand consumers to take full advantage of these opportunities they
    will need to have confidence in matters such as the use of personal information
    provided, the security of transactions, the quality of goods and services
    available and the availability of redress if things go wrong.
  4. For the Ministry to fulfill its responsibilities to New Zealand consumers it
    is necessary to:
    • understand the changes that are occurring;
    • assess whether current consumer protection mechanisms are relevant to new
      and emerging ways of doing business (and take appropriate action where they are
      not);
    • and educate and inform consumers about relevant issues.

In 1996, the Ministry of Consumer Affairs commenced a project entitled "The
Electronic Consumer". The objective of this project is to assist New Zealand
consumers by:

  • providing greater publicity about, and knowledge of, the consumer
    perspective in electronic commerce;
  • improving business understanding of consumer issues;
  • informing the policy advice given to Government on key national and
    international consumer policy issues in electronic commerce; and
  • identifying education priorities on electronic commerce for consumers.

Initially the Ministry held two workshops to identify issues, both
domestic and international. A paper was released outlining the consumer and
business issues identified by these workshops: "The Electronic Consumer - Issues
for Businesses and Consumers into the Twenty-First Century".

Following these workshops, and building on the issues identified and
discussed, the Ministry, in conjunction with the Institute for International
Research, organised a two-day public conference in Wellington. "The Electronic
Consumer" conference was held on 17 and 18 March 1997, with delegates attending
from the commerce, industry and government sectors.

This conference followed an international OECD conference on similar issues,
that was attended by the Minister of Consumer Affairs, and at which she
delivered a key- note paper calling for a self regulatory approach to ensure
consumer issues were dealt with appropriately as electronic commerce developed.

The Ministry has also been involved in a range of international developments,
and is now in the process of developing a plan for action over the next 1-3
years. This will draw from and build on work already done.

This paper:

  • reports on international developments that the Ministry is involved in;
  • identifies some of the main issues raised by electronic commerce that the
    Ministry will work on;
  • provides a brief analysis of those issues;
  • identifies strategies for dealing with them; and
  • reports on the proceedings of the Ministry's conference - the speakers"
    addresses have been summarised and are attached as an Annex to this paper.

In identifying and analysing the issues, and setting out strategies
for dealing with them, the paper provides more ideas for action than it does
answers. This is deliberate as, given the pace of change occurring in this area,
the paper can provide little more than a resource for reference in the
development of strategies, at this point in time.

Additionally, the issues are broad and many fall outside of areas that the
Ministry can directly impact upon. Further, many issues, and particularly those
raised by the increased ability to undertake transactions internationally,
cannot be dealt with by action just within New Zealand, such as the introduction
of a new piece of domestic legislation.

The development of electronic commerce calls for integrated action by a
mixture of government and non-government agencies, domestically and
internationally; a careful balance between protectionism and progress; and a
clear focus on education and information as a means of assisting consumers to
take full advantage of the changing marketplace.

INTERNATIONAL DEVELOPMENTS

Recent international
conferences held in Ireland , New Delhi and Paris have aimed to identify the
issues raised by electronic commerce. In addition, the United States Government
has released a draft paper which proposes five fundamental principles and a
strategy of government action , the OECD and the European Union are actively
studying the issues, and the Australian Federal Bureau of Consumer Affairs
released an Issues Paper in March 1997 .

There have also been other international developments in areas directly
affecting electronic commerce. Those that the Ministry has been directly
involved in.are summarised below.

 

  1. New Zealand and Australian consumer agencies have identified electronic
    commerce as a priority issue for action in the workplan of the Ministerial
    Council of Consumer Affairs - a Council which includes the New Zealand Minister
    of Consumer Affairs and Australian Federal, State and Territory Ministers, and
    their agencies. The Ministry will work on a number of issues in this forum.
  2. The OECD has released its draft guidelines on Chargebacks and Distant
    Selling. These set guidelines for standards by which codes of practice could be
    drafted to ensure international harmonisation . The Ministry circulated these
    draft papers at its March conference, has provided comments on the draft to the
    OECD (including feedback received from people who attended the March conference)
    and will be actively promoting the guidelines in New Zealand when they are
    completed.
  3. The OECD is developing a project to generate consumer protection guidelines
    to be submitted to the OECD Council for approval as a Council recommendation.
    These guidelines could serve member through:
    • promoting the development of industry-driven initiatives on electronic
      commerce;
    • providing governments with instructive principles for both applying existing
      laws and developing new ones, if necessary, as they work to establish consumer
      protection mechanisms for electronic commerce;
    • harmonising approaches to consumer protection in electronic commerce, both
      at national, regional, and global levels;
    • creating a consumer protection information network, comprised of government
      officials, consumer and private sector representatives, and academics, enabling
      them to exchange information within the scope of the guidelines;
    • fostering international co-operation in the enforcement of laws against
      fraudulent and misleading conduct.

    The Ministry of Consumer Affairs will be actively participating in these
    developments.

  4. The OECD has been addressing issues such as the deregulation of postal
    systems and the efficiency and cost of customs procedures, both of which can
    create barriers to consumers taking part in the global marketplace. The Ministry
    has facilitated the involvement of relevant New Zealand agencies in these
    projects.
  5. The OECD is reviewing safety labelling in the global marketplace as a result
    of concerns that there is a proliferation of safety and conformity marks, and a
    lack of understanding by consumers and business as to what these marks stand
    for. This is one activity designed to assist consumers around the world to
    understand the quality, safety and appropriate use of products they might buy
    across borders. The Ministry has contributed to this project and will continue
    to do so, with a view to promoting its results in New Zealand and helping to
    develop a greater understanding amongst consumers of the meaning of various
    marks.
  6. The Internet Industry Association of Australia has drafted an Internet
    Industry Code of Conduct .
  7. Consumers International* has established a network of members to deal with
    consumer issues in the information society. The Ministry is part of that
    network. Consumers International recently held a conference in New Delhi. One of
    the primary goals of the conference was to adopt a model consumer law for the
    Asia Pacific region. The principles for this were drawn largely from the
    Australian Trade Practices Act and New Zealand Fair Trading Act. They also
    reflect New Zealand's Consumer Guarantees Act which was described by a respected
    commentator at the conference as "state of the art legislation" in providing
    guarantees in respect of the supply of goods and services.

    Another goal was to develop a network of government agencies in the Asia
    Pacific region. A network was established that will be co-ordinated in its
    inaugural year by the Indian Government. The purpose of the network is to share
    experiences and co-ordinate approaches to issues affecting consumers across the
    region.

    Both of these actions are relevant to the development of electronic commerce
    in the Asia Pacific region.

  8. The International Marketing Supervision Network (IMSN) is focusing on
    electronic commerce issues. Its relevance to New Zealand is that it provides
    direct access to consumer enforcement agencies in a range of countries from
    which businesses that operate, but are not resident in New Zealand, might be
    situated. This is particularly important with the development of electronic
    commerce.
  9. The Uniform Commercial Code of Conduct (UCC), which codifies state laws, has
    been developed in the United States of America .

* Consumers International is a global organisation of consumer organisations whose objectives in the Asia Pacific region are to: consider trade and economics, food and health issues, as they affect consumers; provide support for consumer organisations in the region; influence global policy institutions to develop policy taking account of the interests of consumers in the region.

The IMSN is an informal network of consumer enforcement agencies that works to deal with international marketing problems. It might be more correctly
referred to as a consumer protection network.

All of the above serve to highlight that there is much work going on
internationally to deal with electronic commerce issues from a consumer
perspective. This list includes only the issues that the Ministry is involved
in. One challenge is simply to remain aware of developments so that they can be
built on appropriately for New Zealand consumers.

Issues

The issues raised that the Ministry will work on fall into four broad categories:

  • Consumer Protection
  • Security of electronic payment systems
  • Privacy
  • Access

In discussing these issues, the paper deliberately avoids detailed references to specific products and services that make up the electronic marketplace. Consumer protection, security, privacy and access issues arise in respect to Internet and telephone technology, Internet payment systems, smartcards, credit cards and debit cards, etc. Therefore the paper seeks to focus on the generic issues that will arise and looks at the broad strategies that will be required to deal with them. The detail will come as specific plans are developed to action the strategies identified.

Consumer protection issues

Dealing with consumer protection issues is possibly the most significant area for the Ministry, given its role. This involves the development of appropriate consumer protection mechanisms for consumers taking part in the electronic marketplace. At a domestic level not much changes. Current laws and self regulatory frameworks in New Zealand tend to apply regardless of the way consumers relate to businesses. The real challenge is in the increased amount of cross border trade.

The most significant consumer protection issues are interrelated and are set out below.

Misleading and Deceptive Practices and False
Representations

Issues

How can misleading and deceptive practices, and false representations be
prevented in electronic marketing and selling?

What standards should prevail in terms of advertising practices, and how
should they be enforced (if at all)? How can the consumer protection provisions
of the Fair Trading Act (or their equivalent overseas) be enforced in a simple
and low cost way for New Zealand consumers?

Analysis

The Fair Trading Act 1986 prohibits false, misleading and deceptive
practices. It relates to goods and services supplied in New Zealand and extends
to engaging in conduct by persons either resident, or carrying on business, in
New Zealand (where that conduct relates to activity within New Zealand). The Act
therefore covers businesses operating inside the country, and may cover
businesses outside the country if a consumer in New Zealand acts on information
sent electronically from overseas.

However, enforcement is a practical problem. Even if an overseas based
company is prosecuted and penalised, or subject to orders to stop contravening
behaviour, this may not be able to be enforced.

Where an overseas company selling in New Zealand is also breaching similar
legislation in its own country, action may be possible by enforcement agencies
in that country. This will require the development of networks, understandings
and arrangements with agencies in those countries. It may also be dependant on
law being the same or similar.

In addition to this approach, codes of practice can be used to set standards
of behaviour in this area. It would be possible for code participants to agree
to standards that exceed the law in their own country. Thus codes could be used
to develop international standards based on the best available legislation.

Strategies for action

  1. Promote the creation of, and compliance with, codes and other
    self-regulatory initiatives internationally and across markets, with reference
    to the OECD principles for distant selling codes - when completed. For markets
    or industries where associations do not exist, their development will be
    encouraged. For industries too small to warrant associations, or for businesses
    which do not wish to be members of industry associations, broad-based business
    associations could be set up. Seal of approval schemes could be run, similar to
    the Better Business Bureaux in the USA.
  2. Network with international industry and agency market regulators to promote
    the adoption of codes, standards or seals so that consumers can identify the
    safest businesses to deal with.
  3. Ensure all self regulatory mechanisms are adapted to include electronic
    commerce issues, where appropriate.
  4. Consider the possibility of the appointment of trans-national Ombudsman
    schemes to oversee the operation of multi-national industries.
  5. Through discussion and advice overseas, promote the consumer protections and
    safeguards operating in New Zealand (which are in turn often based on good
    quality international approaches) as minimum operating principles and practices
    for other countries. If overseas domestic legislation mirrors that of New
    Zealand, this will enhance the possibility that overseas based businesses will
    operate to similar standards that consumers in New Zealand enjoy.
  6. Work effectively with the International Market Supervision Network, and the
    network of agencies in Australia and New Zealand, to further develop
    co-operative procedures for pursuing breaches of consumer legislation.
  7. Evaluate the possibility of each country's enforcement agency prosecuting
    domestic traders breaching domestic consumer laws, but while operating outside
    the home country.
  8. Develop education strategies to highlight the need for cross border
    consumers to take care, and where possible deal with businesses who are members
    of codes, etc.
  9. Develop and enhance agency publicised scam alerts, including co-operation
    with Australia, and a scam alert code of practice.

Redress

Issues

Under what circumstances can New Zealand tribunals and courts hear claims
relating to traders operating from outside New Zealand?

What consideration should be given to effects of differing judicial
interpretations, and the application of common and civil law, in different
countries?

Could alternative international redress systems offer remedies to consumers
which are speedy, cheap and effective?

Analysis

As above, the Fair Trading Act provides for action against overseas based
traders doing business in New Zealand. However, even if orders are made by a New
Zealand tribunal or court, enforcing those orders overseas may not be
cost-effective for most consumers, or for New Zealand based enforcement
agencies.

Taking action in the country where the trader is based may not be effective.
The law of another country may not offer the same protection as New Zealand law,
and once again the cost would be prohibitive for most consumers or agencies.

Note: Currently, the High Court hears cases only if the contract is made or
entered into in New Zealand, or if the Court determines the consequences were
felt entirely in New Zealand, and the natural forum for the case should be in
New Zealand.

This suggests that some form of self regulation is most appropriate. Issues
of redress can be included in codes developed for application in the domestic
and international marketplace.

Credit card companies already offer "chargeback" policies for purchases made
by credit card. These can afford some access to redress depending on the company
policy. They may not be well known.

Strategies for action

  1. Monitor cases (if any) where tribunals or courts do make orders for redress
    which are subsequently enforced, to assist in the development of consumer and
    business understanding.
  2. Promote the inclusion of redress provisions in international codes.
  3. Promote the development of chargeback provisions, consumer understanding of
    the provisions, and the use of chargeback policies where problems occur.

Location and identification of businesses

Issues

As is already the case with traditional mail order, electronic commerce
implies more transactions where there is no direct contact between the consumer
and the business.

How can a consumer be satisfied that the business is legitimate?

How will a consumer find the business in the event of a dispute?

Should electronic traders be required to provide details of their physical
location in case of a dispute?

What should be the responsibilities of those providing the medium for
electronic marketing, such as Internet Service Providers, to consumers in
dispute with an electronic trader who has failed to provide a physical address?

Analysis

It is not mandatory for businesses to provide information of their physical
location or to establish their bona fides. In the event of a dispute, consumers
may not know how to locate a trader to seek redress, they may not be aware that
a business is located overseas, or that the business is little more than a
website.

This is no different to the current situation with mail order businesses or
telephone based sellers. To require those who provide the medium for such
businesses to police this may be excessive. This does not mean that co-operative
relationships can not be formed between regulatory authorities and service
providers, through which action can be taken to stop businesses that are
breaking the law.

In cases where service providers continue to support businesses who they know
are breaking consumer laws, the providers themselves may face liability under
the law.

Strategies for action

  1. Encourage consumers to deal only with businesses that provide details of
    location, and /or information to satisfy questions about the substance or
    legitimacy of their operation, for example by demonstrating membership of an
    industry organisation or code.
  2. Participate in the preparation of, and promote, relevant codes of practice
    in the distant selling area, and seek to have included a requirement for
    advertisers to divulge a physical location.
  3. Monitor the significance of this as an issue for consumers, to provide
    information to assist in the development of a consumer information standard to
    disclose country of origin for electronically sourced goods and services should
    that become necessary.

Contract

Issues

Who makes the offer and who accepts?

Is the contract made when it is accepted or when notification of acceptance
is received?

Is there a way to preserve, for legal purposes, the conditions of the
contract as agreed between consumer and trader?

Can digital signatures be sufficiently robust so as to guarantee the identity
of the parties?

Analysis

Unless expressly set out in the contract, when a contract is made may be
unclear. The law to be used in the event of a dispute may be set out in
contract. If the jurisdiction is not defined in a contract, the court will
determine the "proper" law of the contract by inferring the intention of the
parties. The trail left by an electronic commerce transaction may be
insufficient. Computer printouts may not be admissible as evidence. They can
also be unreliable. A contract agreed on-line could be altered before printed
out.

The United Nations Commission on International Trade Law (UNCITRAL) has
developed a Model Law on Electronic Commerce. It proposes the legal admission of
a signature in relation to a data message if a method is used to identify the
person and indicate that person's approval, and the method used is as reliable
as appropriate for the purpose of the data message in light of all the
circumstances .

Strategies for action

  1. Monitor international developments in this area.
  2. Monitor cases to obtain clarification and decisions on contract formation,
    in New Zealand, Australia and elsewhere.
  3. Work with the Ministry of Commerce on a project to investigate the legal
    status of digital signatures in the context of electronic transactions,
    including consideration of the digitised signature proposals of the UNCITRAL
    Model Law on Electronic Commerce.

Safety Standards

Issues

How can New Zealand consumers be satisfied the products they are buying
internationally meet appropriate standards of safety?

Analysis

Different countries set different standards and have different labelling
requirements. We tend to regard our minimum safety needs as being those
expressed currently through the Fair Trading Act 1986 and associated consumer
safety legislation.

The existence of more rigorous safety standards elsewhere may not be a
problem, although New Zealand consumers may be asked to pay extra for these
higher standards. However, in those countries where safety standards are lower
than New Zealand, unwary consumers (and particularly children) may buy products
that cause injury, or loss.

Strategies for action

 

  1. Investigate, report on, and publicise the use and meaning of different
    international safety and conformance markings so that consumers are able to be
    discerning in their choices (see reference to OECD project above).
  2. Network internationally and nationally to identify unsafe products,
    determine if they are available in New Zealand and take appropriate action (for
    example to remove them from the market, under the product safety provisions of
    the Fair Trading Act). Note: The Ministry has recently developed and is
    responsible for an international product safety notification system initially to
    be operated by OECD member delegates of the committee on consumer policy. This
    will be expanded to cover other agencies with an interest in product safety
    issues.

Security of electronic payment systems

Consumer confidence in
payment systems, including the avoidance of fraud, are key issues in the
development of the electronic marketplace. This is equally significant for
domestic transactions as it is for cross border transactions.

Issues

Who carries the cost of alternative payment systems?

How secure are they?

Who carries the risk and costs of fraud?

Analysis

Security issues are being dealt with in a number of ways:

 

  • Authentication - certificates are granted by a certification body which
    verifies the identity of both parties. VISA and Mastercard use a system of
    authentication in their Secure Electronic Transaction (SET) protocol.
  • Encryption - details of bankcards are encrypted. SET also uses a system of
    public key encryption.

These market developments are rapid and will likely be in place to provide
consumer confidence in the short term.

Strategies for action

 

  1. Promote the early establishment of a certification process for
    authenticating New Zealand suppliers, for the benefit of both consumers and
    business.
  2. Seek to have payment systems operators inform consumers on the capabilities
    and the terms and conditions of payment systems, and about their liability and
    redress processes in the event of disputes.
  3. Undertake international co-operation among business, consumers and
    government agencies in creating electronic payments frameworks, seal of approval
    schemes and security services such as certification bodies and public key
    issuers.

Privacy

Privacy issues in New Zealand are dealt with by the
Privacy Commissioner. The Commissioner has said that "the use and capacity of
computers has enabled the manipulation of vast quantities of information quickly
and economically. However, the privacy problems created are not new issues, just
new privacy applications". Domestic privacy laws provide a firm basis for the
protection of the electronic consumer. New Zealanders, however, should be made
aware that other jurisdictions do not afford the same protection.

Issues

Electronic commerce systems offer a relatively low level of data transmission
security.

Personal information may be used to create user profiles for marketing
purposes.

New Zealand privacy law does not extend to persons or organisations operating
outside New Zealand jurisdiction. New Zealanders do not know what level of
privacy they are afforded by persons or organisations outside New Zealand
jurisdiction.

Analysis

Current New Zealand privacy legislation requires:

 

  • full disclosure to individuals in relation to the collection, content,
    handling and use of information;
  • agencies to ensure personal information is protected by security safeguards
    against loss, access, use, modification or disclosure by unauthorised persons,
    and other misuse.

This applies to databases, not just the technology itself - i.e. smart cards.
Encryption, authentication and identity protectors can be used to ensure that
these requirements are met.

However, consumers in New Zealand cannot be sure that similar principles will
be followed by businesses they deal with outside of New Zealand unless those
businesses offer positive proof (seals of approval or code membership) that they
comply to similar principles.

Strategies for action

 

  1. Promote inclusion of privacy principles of similar quality to those that
    operate in New Zealand, in relevant codes.
  2. Educate consumers about the potential threats of giving information to
    organisations which do not guarantee privacy or security.

Access

The Ministry does not have as its core focus issues of
whether or not consumers can have access to different goods or services. It is
however, a relevant and important issue. Consumers who do not have access to the
means necessary to take part in the electronic marketplace will accordingly not
have direct access to the benefits of greater choice and lower prices.

This is an issue for agencies other than the Ministry and may not currently
be considered pressing, as the hype about the electronic marketplace may be seen
presently to be greater than the reality. Nevertheless, it is an issue that
deserves recognition and consideration at an early stage.

Issues

Taking part in the electronic marketplace requires access to the right
technology. This has cost and information implications. Will all New Zealanders
be able to afford, or have the knowledge, to operate in the electronic
marketplace?

Will lack of access increase the gap between the haves and the have nots?

Analysis

Access to all electronic technology in commerce is likely to reflect the
trends in Internet uptake. That is, the less skilled, the less well-off, women
and the elderly will be more likely to obtain the benefits of electronic
commerce later, if at all.

Although the requirements for specialist skills may reduce in time, as
advancing technology simplifies user responsibilities, the possession of such
skills would enable a consumer to exploit all aspects of the technology to
further advantage.

The means of information transmission will need to be affordable in some form
for all socio-economic groups.

Strategies for action

 

  1. Initiate intra-Governmental discussion on all aspects of consumers" /
    citizens" access to global communications technology, including affordability,
    community facilities and targeted user education.
  2. Monitor the development of new technologies and their spread and uptake
    amongst New Zealand consumers.
  3. Discuss consumer access needs with the Internet Society of New Zealand which
    is developing an Internet Service Providers" Code of Practice.

ANALYSIS AND STRATEGIES FOR THE MINISTRY OF CONSUMER AFFAIRS

There are many other issues, not identified above, such as:

 

  • implications for tax collection generally;
  • the impact of GST on costs of domestic products against those purchased
    outside New Zealand and valued under the threshold for collecting GST;
  • the social impact of electronic shopping - if it develops significantly;
  • intellectual property issues;
  • and many more.

They are beyond the scope of this paper and the work of the Ministry of
Consumer Affairs. Clearly all New Zealand government agencies and interested
parties should engage in dialogue and discussion about all of the issues in a
co-ordinated way. The Ministry will encourage and participate in this where
possible.

 

THE WAY FORWARD

The Ministry's role is to promote a fair
and informed marketplace, for the benefit of all New Zealanders. Where fair and
informed markets do not exist, the Ministry is committed to examining all
options from education, through self-regulation, to formal government regulation
to find the most effective and efficient solutions to address consumer problems.

Therefore the Ministry is focused on producing strategies to make markets
work fairly and more efficiently. The Ministry's policy and operational
activities address deficiencies in the operation of the market through:

 

  • developing formal government regulation to deal with serious, systemic, or
    chronic incidents of market failure;
  • encouraging market self-regulation to deal with problems within a specific
    market, or with particular business activities;
  • educating and informing to enhance consumer and trader understanding of
    acceptable trading standards.

There are a number of issues that suggest that solutions to problems in the
electronic marketplace will stop short of developing formal government
regulation. The issues are:

 

  • The electronic marketplace is in its early stages. Any problems may be
    described as potential or emerging to a large degree;
  • The electronic marketplace is a global phenomenon. Any solutions to problems
    will need to be global;
  • The electronic marketplace is developing rapidly. Legislation, even if
    appropriate for other reasons, could probably not be developed, modified or
    removed quickly enough to meet the needs of the marketplace;
  • It is in the interests of participants to work out ways around most
    problems. Every day, news reports indicate a new development designed to
    increase security or confidence in the electronic marketplace.

The
Ministry will therefore focus on developing the strategies outlined, in four
broad areas:

 

  1. Consumer education/information activities

     

    1. Educate and inform consumers on their rights and responsibilities in
      electronic commerce.
    2. Inform consumers of the potential dangers in buying from traders who do not
      commit to accepted codes of practice.
    3. Monitor traders operating at a standard lower than code / regulatory
      requirements, and seek appropriate compliance action.
    4. Ensure consumer representation in the development of self-regulatory
      mechanisms.

  2. International networking activities

     

    1. Participate in discussion and development of international codes, bi-lateral
      and multi-lateral mutual recognition, harmonisation of rules, and enforcement
      activities.
    2. Participate in discussion and development of international agreements,
      guidelines and standards relating to electronic commerce.

  3. Business self-regulatory activities

     

    1. Liaise with industry groups, business and government agencies to establish
      or improve industry codes of practice.
    2. Assist industry in the promotion and awareness of codes to consumers.
    3. Encourage the use of seal-of-approval schemes.

  4. Monitoring market developments, market solutions and international
    activities

     

    1. Formalise our monitoring processes for gathering information about
      developments in the international marketplace.
    2. Maintain an up to date understanding of developing issues so that they can
      be appropriately addressed.
    3. Undertake market research on consumer responses to electronic commerce over
      a period of time.


 

ENDNOTES

  1. The European Consumer Forum; The Consumer and the Information Society;
    Dublin, 3 & 4 September 1996
  2. Consumers International Regional Office for Asia and the Pacific and
    Consumer Unity and Trust Society; Consumers in the Global Age. International
    Conference on Consumer Protection; New Delhi, 22-24 January 1997
  3. OECD Committee on Consumer Policy; Gateways to the Global Market: Consumers
    and Electronic Commerce; Paris, 3&4 March 1997
  4. US Government Working Group; A Framework for Global Electronic Commerce;
    viewable on http://www.iitf.nist.gov/eleccomm/glo_comm.htm

  5. Federal Bureau of Consumer Affairs; Untangling the Web, Electronic Commerce
    and the Consumer;Issues Paper, March 1997

  6. OECD Papers DAFFE/CP (97) 1/REV1-DRAFT and DAFFE/CP (97)8-DRAFT

  7. Federal Bureau of Consumer Affairs, as above.

  8. US Fair Trading Commission; Anticipating the 21st Century; Spring 1997; viewable on www.ftc.gov/
  9. United Nations Commission on International trade law, UNCITRAL model law on
    electronic commerce; viewable on www.un.or.at/

Speakers' Summaries

Hon Robyn McDonald
Minister of Consumer Affairs

 

Outlining the Government's Consumer-Related Interests in Electronic
Commerce

    The Minister began by highlighting the importance of electronic commerce to
    New Zealand's economic development. Access to an immediate global marketplace
    increases the potential for trade and the utilisation of New Zealand's skills.
    However, Ms McDonald pointed out that such trade could only exist within a fair
    environment and the high level of consumer protection enjoyed by New Zealanders
    at present must also extend to cross-border electronic commerce. She advocated
    an International Code of Conduct as a way forward to international co-operation.

Scott Smith
Director - Digital Commerce Group,
Jupiter Communications

 

Drivers of the Future, Rapid Growth and New Technology

    Mr Smith reminded delegates that electronic commerce was not a new
    phenomenon - the financial markets had been moving money electronically for
    years. However, the capacity of the Internet was growing rapidly with massive
    investment from telecommunications companies and Internet Service Providers. Mr
    Smith identified future technologies that included personal desk top ATMs, home
    LANs and the increased mobilization of current technology.

    "Unfortunately, the rapid growth of technology is outstripping the consumers"
    ability to keep up", he said. "Larger "brand name" retailers, too, are waiting
    for technology to drift down to their level fearing that jumping too soon may
    damage their name."

    Mr Smith then pointed out key development areas in the Internet such as
    financial and educational services, games and retailing. He highlighted the
    adverse effect different cross-border laws have on worldwide gambling and
    banking. Mr Smith concluded by calling for international rules that protect
    consumers without quashing new technologies.

Roscoe B Starek III
Commissioner, US Federal
Trade Commission

 

Consumer Protection Policy in the New High-Tech, Global Marketplace - United
States of America

    Mr Starek began by outlining the role of the Federal Trade Commission in
    prohibiting unfair or deceptive acts. He noted that current US consumer
    protection law is directly applicable to electronic commerce, such as the
    Electronic Fund Transfer Act and the Fair Credit Billing Act. He informed
    delegates of the FTC hearings and workshops that had been held in connection
    with electronic commerce. The hearings and workshops had addressed such issues
    as the new opportunities for fraud, privacy and identity fraud.

    Mr Starek continued by outlining the various enforcement actions taken by the
    FTC involving electronic commerce. One case involved a programme which illegally
    altered an individual's credit rating. Other cases included misrepresentations
    about the earning potential of business opportunities, traditional pyramid
    schemes and innovative long distance billing scams. Mr Starek suggested that the
    existence of these fraudulent and deceptive practices discouraged consumers from
    participating in on-line commerce, therefore harming legitimate businesses.

    He then explained some non-regulatory methods used to protect the electronic
    consumer. These included the production and dissemination of publications for
    consumers and business and on-line contact regarding the latest scams and
    potential non-compliance. He also outlined an on-line seal of approval programme
    which authorised the use of an encrypted seal for members of the Better Business
    Bureaux. Such use of seals has also extended to the privacy area with vendors
    using logos which guarantee various levels of privacy protections.

    Mr Starek finished by suggesting some potential enforcement challenges as a
    result of electronic commerce. These included the obscurity of disclaimers, the
    use of on-line tools such as registration screens as methods of unfairly
    collecting and using information, how unsolicited e-mail may incur downloading
    costs for consumers and ISPs, and how jurisdiction problems pose barriers to
    effective law enforcement.

Allan Asher
Deputy Chairperson, Australian
Competition and Consumer Commission

 

International Trade: Consumers" Access to Justice - Australia

    Mr Asher opened his conference address by briefly outlining the new
    technologies observed in electronic commerce such as home shopping, banking and
    entertainment, smart cards, call centres and cable television. He pointed out,
    though, that the use of on-line technology was still restricted to that of an
    information provider due to concerns about security, operating speed and search
    tools.

    "The opportunities electronic commerce present are numerous," Mr Asher said.
    "Increasing competition by lowering barriers and introducing more suppliers into
    the market delivers consumer gains as to price, quality and service. Small and
    medium enterprises can compete on a level playing field with large organisations
    by using cheap service delivery, having low overheads and by exploiting niche
    markets." Mr Asher also observed that "on-line commerce actioned from a single
    point expands consumer access to information, increasing choice and decreasing
    the cost of physically gathering and processing information."

    "However, commerce in a global environment also presents a range of
    challenges for market participants and regulators," Mr Asher said. These were
    identified as being competition, consumer protection and enforcement issues.
    Competition concerns included monopolies and mergers between financial services
    and information technology and telecommunication companies, price fixing and
    limited access for consumers. Mr Asher identified numerous consumer protection
    issues including security of payments and information, the collection, use and
    storage of information, consumer redress and disputes resolution, product safety
    standards. Global marketplaces present difficulties in enforcement. Identifying
    and locating operators presents evidential problems, whilst cross-border
    transactions highlight jurisdictional issues and require a choice of law. Mr
    Asher also believed that court systems do not provide understanding of the
    nature of business records relating to electronic commerce.

    Mr Asher then addressed the issue of how to meet these challenges. He said
    that self- and co-regulation on an international scale were required. "Soft
    law", i.e. the use of codes of conduct and agreements between international
    industry associations, will provide an important solution to extending consumer
    protection. Large organisations should take responsibility for vetting business
    access to the payments networks and encryption services. Brand names and good
    reputation will eventually determine the players in the market and information
    on the reputations of traders could be disseminated by consumer interest groups
    and consumers themselves. With the market and business regulating itself through
    adherence to codes of conduct, Mr Asher saw the role of regulators as
    facilitating, monitoring and improving these arrangements. He reiterated that
    these measures must be taken on a global scale with more formal co-operation and
    information sharing between nation based regulators needed.

Neil Russ
Buddle Findlay

 

Focusing on the Tax Implications of National and International Trade

    Mr Russ began by stating the two primary ways the Internet is being used for
    commercial purposes. Firstly, the Web is being used to disseminate information
    by retailers and wholesalers. Secondly, the Internet is used to actually sell
    products and services. These may be delivered at a later date or directly
    on-line, such as the downloading of software or the use of banking facilities.

    Mr Russ then went on to highlight how Internet commerce presented new
    challenges to revenue authorities. He stated that "as tax is imposed on the
    basis of both the source of the income and residence of the person earning it,
    the location of the parties is of vital importance. Internet "addresses" are not
    reliable indicators of location and the use of "mirror" sites in different
    countries exaggerates the difficulties in determining location." Mr Russ said
    that the nature of the Internet and development of electronic money did not
    promote good audit trails for revenue authorities to track commercial
    transactions.

    More specific issues included the non-payment of Goods and Service Tax and
    Non-Resident Withholding Tax on downloaded software and the possible solutions
    provided by new US proposals. The exportation of goods and services via the
    Internet to "unknown" locations may force New Zealand companies to place
    themselves in non-competitive positions so as not to risk breaking New Zealand
    tax laws. Mr Russ then went on to discuss the definition of "permanent
    establishment" and whether the definition covered web sites or servers for the
    purposes of determining source-based income. He concluded by suggesting that New
    Zealand tax law must be reviewed and new taxation techniques developed to
    counter these trans-national issues.

Dr. Allan Bollard
Chairman, Commerce
Commission

 

Understanding the Fair Trading Act and its Impact on Electronic Marketing,
Sales and Production Description

    Dr. Bollard began by informing delegates that the Commerce Commission are
    finding the issues that occur are the same regardless of the nature of the
    transmission. He continued by outlining the scope of the Fair Trading Act in
    that it prohibited misleading and deceptive conduct and unfair practices. It
    also provided for standards and mandatory product recalls.

    Dr. Bollard noted that the most frequently raised misrepresentation already
    concerned electronic commerce, and that was the misrepresentation as to price in
    the use of bar code scanners. He stated that the Commerce Commission was
    particularly concerned with price representations as this was a crucial element
    of the purchasing decision. On-line commerce facilitated this type of
    misrepresentation, for example, "hidden" postage and packaging costs on web
    pages.

    The unfair practices outlined by Dr. Bollard included pyramid selling, chain
    letters bait advertising and misrepresentations about business activities.
    However, the Commerce Commission concentrated their efforts on matters where
    there was widespread and significant consumer loss, repeat breaches, the need
    for clarification of law and issues where the most impact could be achieved
    through effective use of resources.

    Dr. Bollard then outlined methods of enforcement, such as the dissemination
    of information, settlements with offending traders and, as a last resort,
    prosecution. He then informed delegates that the Fair Trading Act applied to
    traders based both in New Zealand and outside if the trader is carrying on
    business in New Zealand by supplying goods and services or granting interests in
    land within the country. Whilst difficulties arose with overseas traders, they
    were not insurmountable.

    Dr. Bollard went on to propose a method of self-regulating compliance that
    required Internet Service Providers to police their own web pages. If they were
    not forthcoming, injunctions against providers or broadcasters could be sought.
    Dr. Bollard completed his address by highlighting the benefits the Commerce
    Commission will gain through technology, such as the ease of dissemination of
    information to traders and the use of e-mail and telephone and video
    conferencing between national enforcement agencies.

Warwick Denby
Director of Marketing and
Programming, Saturn Communications

Jeff Bennett
Director of Programming, First
Media

 

Examining the Impact that Cable TV will have on the Electronic Consumer

    Mr Denby began by stating that Saturn were operators of wireless and
    wireline Pay TV and Telephony businesses. At present, Saturn provides cable
    service to 120,000 Wellington homes with plans to cover 40% of the Wellington
    area in the next 4-5 years. He briefly outlined the cable network technology and
    then focused on the services provided such as cable TV, telephone and Internet
    services.

    Whilst Internet growth had been tremendous over the past year, Mr Denby
    pointed out that inhibitors to further growth existed, such as speed, content,
    price and cost of PCs. Fibre-coax networks would help with speed by providing
    high-speed local loops and new cable modems. Cable modems enable data to be
    transmitted so fast, that where previously a video file had taken 23 minutes to
    be delivered, it would now only take 3-4 seconds. Mr Denby then outlined various
    network devices such as PCs, Web TV and Cable TV Set Top Boxes and their
    respective capabilities. He concluded by suggesting the potential services cable
    could offer, for example, video conferencing, on-line banking, teleworking and
    travel services.

    Mr Bennett began by stating that the services and technology offered by First
    Media were comparable to that of Saturn. He detailed the interactive nature of
    the movie and music channels - both forms of pay per view services. He noted
    that more pay per view and pay per use services would be required to finance a
    change from an analogue to digital network. Mr Bennett concluded by stating
    three keys to cable success - it must be for everyone, easy to use and not
    technology driven.

    Both speakers then commented on the possibilities of education and shopping
    channels in the future, highlighting that demand was not high enough now. The
    speakers also outlined the benefits of cable over satellite technology, issues
    such as higher bandwidth, two-way on-line traffic and the ability to obtain
    multiple products from one supplier.

Mark Yeoman
Manager Electronic Commerce, Telecom
Internet Services

 

Capitalising on Internet Opportunities: the Business as a Consumer

    Mr Yeoman opened by highlighting the "players" in Internet commerce,
    including consumers, businesses, Internet Service Providers, broadcasters, hard
    and software vendors, certification bodies and banks. He then outlined the
    different uses of the Internet, for instance, as a channel to the market, a
    communication or media channel and as a disintermediation tool. He explained
    this as a method of getting directly from the supply to the market, hopping over
    the various points of disintermediation.

    Mr Yeoman then outlined the benefits for business - the opening of new
    markets to new consumers and the ability to rationalise the paper chase. Looking
    at the business as a consumer, Mr Yeoman touched upon the integration of
    business processes, such as order, payment and inventory and the recognition of
    business as a consumer. He went on to question why businesses should enter the
    electronic commerce arena when it is not easy to identify the revenue, cost,
    customers or protection. He asserted that businesses must integrate the new
    technology with their existing processes. For example, it must not be possible
    for consumers to withdraw money from the Internet and then from an ATM without
    the prior transaction immediately updating the consumer's balance.

    Mr Yeoman then mentioned that the timing of going on-line was critical for a
    business, particularly in competitive markets. Being the first to a market held
    both benefits and risks and the "toe in the water approach" was probably the
    most advantageous.

Alan Mayo
Development Manager of Electronic
Banking, ASB Bank

 

New Electronic Banking and Financial Services: Investigating PC and Internet
On-Line Banking, Digital Cash and Smart Cards

    Mr Mayo began by outlining the current retail payment methods, such as cash,
    cheque, credit card, direct credit and EFT-POS. He described the characteristics
    of payments - settlement, risk of non-payment, security and cost - and how these
    determine the suitability of different methods for different transactions. The
    characteristics required for electronic commerce mean that the only suitable
    method available currently is the credit card. This offers a reasonable level of
    security, can function easily across borders and is not currency dependent.

    Mr Mayo then went on to describe the development of new technologies in the
    payment arena. Secure Transmission (SSL) is a method currently used to make
    secure encrypted transactions via the Internet. Digital Signatures use
    encryption just on the signature to secure the identity of the parties and
    requires the issuing of certificates from a certification authority. Mr Mayo
    added that VISA and Mastercards SET (Secure Electronic Transaction) systems are
    undergoing pilots in Europe.

    Smart cards, Mr Mayo said, are cards that have a stored value on an
    integrated chip and can be used as an alternative to cash. He detailed the
    Mondex scheme and indicated that six New Zealand banks have purchased the
    franchise rights. He envisaged that the cards would be best suited in New
    Zealand to situations where EFT-POS was not used, i.e. for parking meters,
    payphones, vending machines and transport. The cards also had the potential to
    be used in PC's adapted with card-readers. The cards were constructed with two
    security schemes - when the first is broken, cards will be reissued with schemes
    2 and 3.

    Mr Mayo stated that the cards must have a security level two years ahead of
    the criminals, otherwise consumer confidence will not be sufficient to make the
    launch successful. Mr Mayo concluded by outlining the smart card of the future -
    a combination of ID card, loyalty card, credit card and Mondex card.

Glen McCauley
Electronic Commerce Consultant -
Hewlett-Packard NZ Ltd.

 

Understanding the Future for Electronic Cash and Source On-Line Payment
Transactions

    Mr McCauley began his address by detailing the need for security on the
    Internet. He stated that hackers could employ various methods to alter and steal
    transactions, steal information, plant viruses and even use your own machines to
    attack your internal network.

    Mr McCauley went on to detail encryption technology and described how
    encryption transforms data into some unreadable form to ensure privacy.
    Information is encrypted and decrypted using a combination of public and private
    keys held by users and certification bodies. Information can be encrypted using
    either of the keys but can only be decrypted using the other key in the pair. Mr
    McCauley went on to discuss the role of authentication. He noted that, to be
    successful, the public must have confidence in the certification authority's
    credibility and the certificate must not last too long.

    Mr McCauley then outlined the basic categories of transaction and message
    security. The two most popular methods of general message security are
    Netscape's Secure

    Socket Layer and EIT's Secure Hypertext Transport Protocol. Both use
    encryption, digital signatures and require certification. Digital signatures
    have a person's signature encrypted using a private key and is decrypted by
    using their public key. The need for certification of this system means that
    electronic payments are not automated and the transactions are not anonymous.

    Debit and credit card security, Mr McCauley said, are facilitated by
    standards such as VISA and Mastercard's SET. This standard involves the
    verification of the customer and merchant, certificates with the certification
    authority and then the interchange of payment details with the bank. Although
    payments are secure as they are encrypted and authentication correctly
    identifies the parties, the problem of the merchant using details without
    authority still exists. Other concerns include the lack of anonymity and the
    high cost and complexity of the scheme disallows micropayments.

    Mr McCauley said that micropayments enabled per unit payment and existed in
    forms of either digital currency, e.g. Digicash or digital payment systems, e.g.
    Cybercash and First Virtual Banks. Digicash is a truly virtual currency,
    untraceable and consisting of individually signed tokens of various value. It
    enables withdrawal of funds from banks and purchases from both merchants and
    individuals. However, Digicash is only available between parties who use the
    same bank.

    Mr McCauley concluded by noting that the solutions to many on-line payment
    security problems will come in the near future.

Shayne Bates
Director, SP Bates and
Associates

 

Information Security: Evaluating and Implementing Appropriate Systems to
Secure Commerce, Information and Data Transfer

    Mr Bates began by outlining some methods used by computer hackers to gain
    access and destroy systems. He pointed out that hackers cannot only get into one
    system and create havoc, but can then use that system to break into another
    network. He went on to describe steps that organisations should take to limit
    the ease of access into networks. These included virus scanning and removal, the
    use of firewalls and one-time passwords and the employment of security people.

    Mr Bates concluded by describing the US Government's export policy on
    encryption technology. He indicated that the US had developed 64 bit encryption
    techniques but did not allow this to be exported due to concerns of terrorist
    organisations using the technology. Currently, only 40 bit encryption can be
    exported. He stated, however, that "the policy is changing and the Government
    will allow 64 bit exports with the proviso that the US security agencies are
    informed of the last 24 bits."

Michael Dunn
Research Executive, AGB McNair

Analysing the Latest National and International Access/Usage Patterns

    Mr Dunn provided delegates with an Internet user profile based on statistics
    gained in 1996. He stated that, "whilst 19% of the population has Internet
    access at any location, only 7% of them have used it within the four weeks prior
    to being surveyed. 40% of users earn $19,999 or less which currently accounts
    for 60% of the population."

    Not surprisingly, Mr Dunn pointed out, users are over-represented in the
    higher income groups. Nearly two-thirds of users are male and over half of users
    are aged 35 - 54 years. Geographically, users are over-represented in Auckland,
    but even more so in Wellington. Mr Dunn stated that Internet users were less
    likely to watch television and listen to the radio than non-users and more
    likely to read and enjoy sports and activities such as opera and theatre going.

    On an international level, New Zealanders have the third highest home access
    per capita in the world. Mr Dunn stated that the majority of users in New
    Zealand used the Internet to look for information. For example, 48% used the
    Internet to search for products and services whilst only 7% actually purchased
    goods and services on-line. In 1996 there had been a 30% growth in access and a
    45% growth in usage in the last 4 weeks. Mr Dunn stated that growth had been
    high due to the introduction of Telecom Xtra. The gap between access and use was
    narrowing. By 2000 Mr Dunn expected half of the number of those with access to
    be regular users.

Brett Martin
Lecturer in Marketing, University
of Otago

Understanding Consumer Behaviour and the Underlying Factor Influencing
Acceptance and Use of Electronic Technology

    Mr Martin began by outlining consumer behaviour characteristics and how they
    are important to marketers. He indicated that, by understanding what affects a
    purchase, organisations can co-ordinate their activities to achieve their
    business objectives. He noted that consumer behaviour has an effect on
    electronic commerce just as it does on traditional purchasing experiences.

    Research has highlighted a number of factors specific to on-line shopping. Mr
    Martin stated that "consumer attitude towards personal computers and in-home
    shopping has a positive and direct influence on consumer attitude toward
    Interactive Marketing Technology. This, in turn, has a positive and direct
    influence on purchase intentions."

    Mr Martin then explained the research conducted on downloading and waiting
    time. He stated that "consumers prefer to wait in one long period of time than
    short, interrupted periods as this enables them to plan. Consumers only want to
    wait short lengths of time when they are only on-line a short time." Mr Martin
    explained the implications of this research as needing to reduce waiting time,
    integrating waiting time periods and trying to provide distractions.

    Mr Martin went on to state that web surfers are like shop browsers who had
    limited exposure to content and outlined strategies for "catching" them. He
    described consumer purchasing behaviour in computer mediated environments and
    the predominant factors for in-home shopping. These were convenience and the
    perceived risk of buying by description.

    The best strategies for successful Internet marketing, he said, included
    using repeat advertising in different media and using retrieval cues, for
    example, using the label on the product as the advertisement on the Internet. Mr
    Martin then described how marketers can use knowledge of how consumers process
    information to design Web sites. He suggested the use of heuristics, such as
    awards given to products, branding and price and using self-referent
    language.

Keith Manch General Manager, Ministry of Consumer
Affairs

What Happens if Things Go Wrong? Getting to Grips with Consumer Redress

    Mr Manch began by outlining the Ministry's roles within the contract, safety
    and weights and measures aspects of consumer protection laws. He noted that the
    domestic approach to ensure consumers rights will not work in a global
    marketplace and that the only way forward was through co-operative partnerships
    between business, consumers and governments.

    Mr Manch then outlined the scope of the Consumer Guarantees Act and the
    warranties the Act provides. These include that goods should be of acceptable
    quality, fit for their purpose and be as described. Services should be carried
    out with reasonable care and skill, be fit for their purpose and, if not
    previously agreed, be completed in a reasonable time and at a reasonable price.
    Mr Manch said that this applied not only to goods and services purchased
    electronically but also to the service provision itself, i.e. access to the
    Internet, software, payment systems, etc. He went on to highlight the remedies
    available if the warranties were breached.

    Mr Manch then went on to speak about cross-border commerce. He stated that it
    suffered the same problems already experienced through distance selling, such as
    non-delivery and delivery of faulty goods. However, finding traders overseas may
    be more difficult and traders may be located in a country that did not have
    extensive consumer protection laws.

    Mr Manch went on to suggest that international codes, certification and
    informal networks of co-operation will provide many of the solutions. He turned
    then to two specific sources of international agreement. Firstly, the OECD draft
    paper on Chargebacks sets out principles that enable cardholders to dispute
    transactions for goods or services through the payment card issuer. The
    principles represent a baseline for redress and card issuers are encouraged,
    through competitive means, to raise the standard of protection. Secondly, the
    OECD draft paper on distant selling in a global marketplace sets out principles
    that ensure consumers are provided with information, redress and privacy. Both
    sets of principles will be developed and promoted domestically for international
    effect.

    Mr Manch then outlined the OECD's work in the area of product safety
    standards. The OECD is looking at conformance marks, testing requirements and
    other stipulations in standards on a sample of products to identify the issues
    raised by having different national standards. Mr Manch concluded by
    highlighting the need for international co-operation to ensure adequate
    protection for consumers in the global market.

Bruce Slane
Privacy Commissioner

Keith Norris
Chief Executive, Direct Marketing
Association

Liz Brown
Banking Ombudsman

Terry Weir
Insurance and Savings Ombudsman

Protecting the Electronic Consumer: Understanding the Rules and Enforcement
of Industry Codes of Practice

    Mr Slane began by outlining the development of Privacy laws in New Zealand.
    He stated that "the Guidelines for the Protection of Privacy and Transborder
    Flows of Personal Data were recommended by the Council of the OECD in 1980. In
    New Zealand the guidelines have become twelve information privacy principles
    which control the collection, storage and security, retention, use and disposal
    of information. The principles also create the right to access and correct
    personal information."

    Mr Slane noted that, by establishing principles instead of rules, the Act has
    provided flexibility for a vast range of situations. The Act provides for the
    enactment of codes of practice which allow the principles to be modified to suit
    particular groups. However, Mr Slane added that no codes have been enacted as
    the principles have been flexible enough to accommodate all sectors. Mr Slane
    spoke about self-regulation in the absence of these codes and provided that
    Ombudsmen solved many problems at industry level. He noted that this did not
    provide all the answers, for example, the Banking Ombudsman can not award
    general damages. He added that there would always be a need for a statutory
    backstop.

    Mr Slane went on to highlight the relationship between privacy and the
    electronic consumer. He stated that "the use and capacity of computers has
    enabled the manipulation of vast quantities of information quickly and
    economically. However, the privacy problems created are not new issues, just new
    privacy applications". Mr Slane then outlined the specifics of Principle 3. This
    requires full disclosure to individuals in relation to the collection, content,
    handling and use of information. Principle 5 requires agencies to ensure
    personal information is protected by security safeguards against loss, access,
    use, modification or disclosure by unauthorised persons, and other misuse. Mr
    Slane noted that this also applied to the databases, not just the technology
    itself - i.e. smart cards. He highlighted various methods to ensure compliance
    with Principle 5, including encryption, authentication and identity protectors.

    Mr Slane then informed delegates of international privacy laws. He indicated
    that the European Union had noted the dangers of trading in markets with no
    privacy protections. A 1998 directive prevents the transfer of personal
    information from Europe to jurisdictions with inadequate laws unless measures to
    ensure privacy are taken. Mr Slane concluded that domestic privacy laws provided
    a firm basis for the protection of the electronic consumer. New Zealanders,
    however, should be made aware that other jurisdictions do not afford the same
    protection.

    Mr Norris began by highlighting some statutes that protect the New Zealand
    consumer, such as the Consumer Guarantees Act and the Privacy Act. He noted
    that, in addition to these laws, consumers were protected by a number of
    self-regulatory codes of practice, governed by respected business organisations.
    He offered the Advertising Standards Authority as an example and pointed out
    that the organisation was totally supported by all aspects of the industry.

    Mr Norris went on to explain how the Direct Marketing Association operated
    codes of practice which govern mail order trading, telemarketing and mailing
    lists and has codes for direct response television and electronic media under
    development. In addition, the Direct Marketing Association operates a Seal of
    Approval scheme for reputable traders and is a signatory to the worldwide mail
    and telephone preference service. Mr Norris concluded by stating that
    "responsible organisations do not need more laws to make them honest.
    Irresponsible and dishonest traders will ignore the law anyway so more
    legislation is of no benefit." In a global marketplace," he said, "The only
    answer lay in international co-operation with other self-regulatory bodies."

    Ms Brown began by confirming that the problems posed by electronic commerce
    were not new ones and there was no need for a radical departure from existing
    institutions or principles. She noted, however, that today's commercial
    environment favours self-regulation through industry agreements, in particular,
    codes of practice.

    Ms Brown detailed the Code of Banking Practice and stated that it takes the
    general protection afforded by the Fair Trading Act and translates it into a
    more specific commitment to provide certain types of information. If a bank has
    not met its

    obligations, a customer can take a complaint to the Banking Ombudsman. Ms
    Brown stated that the Ombudsman is cheaper and faster than the courts and it is
    capable of awarding up to $1000 in compensation. She said that whilst a mixture
    of statutory regulation and self-regulation had definite advantages, the
    contrary was also true. She said that no organisation can be compelled to
    observe a voluntary code and some companies may choose not to belong to the
    industry organisation.

    Ms Brown outlined a number of cases the Ombudsman had dealt with involving
    electronic commerce. The cases highlighted the current issues involved with
    cross-border trade which had previously been identified in the conference.

    Mr Weir began by outlining the 1993 report by the Ministry of Consumer
    Affairs into the insurance industry which ultimately lead to the development of
    the Insurance and Savings Ombudsman Scheme. He said that "the scheme intends to
    provide an independent dispute resolution service for consumers." In addition,
    the industry association have developed codes of practice. The self-regulatory
    measures exist within a framework of consumer protection and industry specific
    legislation. Mr Weir said that statutory provisions do not always work, as they
    often require enforcement by the consumer and knowledge of rights and
    obligations in the first place.

    Mr Weir went on to outline the benefits of self-regulation, stating that the
    Ombudsman scheme was typically cheaper, quicker and simpler than court action
    and that it played an important role in promoting improved practices. He went on
    to provide that codes of practice did not give consumers new or improved rights
    but gave access to a standard service throughout the industry. In suggesting
    possible disadvantages, Mr Weir touched upon the question of independence and
    effectiveness of non-statutory, voluntary schemes like the Ombudsman and codes
    of practice. He noted that the development of self-regulation should be
    monitored and such schemes scrutinized.

    Relating the insurance industry to electronic commerce, Mr Weir noted that
    there was a strong possibility that insurance could become a virtual service. It
    was common practice to sign up to insurance over the phone, at the bank, through
    credit cards or travel agents and these services could be conducted on the
    Internet. Electronic commerce, however, may exacerbate existing problems, Mr
    Weir said. "Inadequate disclosure is already a major issue with problems arising
    over telephone contracts." Mr Weir concluded that insurers may have to design
    sophisticated electronic proposal systems or forego many of their traditional
    rules and practices.

    The panel then took questions from the floor. Debate centred mainly around
    the effectiveness of codes. Mr Norris was asked what he believed was the
    essential element in codes that made them effective. He said that, whilst he was
    confident that codes were superior to legislation, they were by no means the
    total answer. He believed the Direct Marketing Association system worked because
    there were associations in each country that dealt with domestic problems and
    co-operation between all Associations to deal with international issues.

    Mr Norris was then asked how the Direct Marketing Association code was
    enforced. He submitted that the Association had not had to deal with a situation
    that required "enforcement" as yet. "The Direct Marketing Association", he said,
    "Are reviewing their disciplinary procedures as current sanctions are only
    suspension or expulsions. These forms of ultimate sanctions are
    counterproductive and merely place such traders even further outside control
    measures." He concluded by identifying commercially significant sanctions, like
    corrective advertisements, as being viable disciplinary methods.

Andrew Faris
Managing Director, Ad Pacifica -
On-line Retail Systems

Investigating How Ad Pacifica is Planning to Optimise the Potential of Home
Shopping Through the Great New Zealand Shopping Mall

    Mr Faris began by detailing the background to the Great New Zealand Shopping
    Mall. He stated that "it began in March 1995 and offers supermarket shopping
    from PC's to a select pilot group of 100 households." Ad Pacifica chose
    supermarketing as a starting point as it wanted to give a tangible benefit to
    consumers. Mr Faris then accessed the shopping mall and entered Woolworth's. At
    this point he stated that "consumers are given a profile so that their
    likes/dislikes/preferences are detailed and items can be selected according
    their preference. Advertisements can also be structured to this profile."

    Mr Faris stated that "the virtual supermarket was modelled on real
    retailers". This was evidenced by promotion aisles and end of aisle gondolas. He
    added that a successful mall would need to be localised for meaningful
    interaction, i.e. local vets in the mall.

    After selecting a shopping list, Mr Faris sent his order down line to
    Woolworth's. He stated that Ad Pacifica has its own Enterprise Server. The
    server has every retail function built in. For example, it completes the
    transaction, sends the order to the store, informs the delivery company and
    finalises the banking. This is arranged through direct debit off-line. Consumers
    can step off the Enterprise Server at any time straight on to the Internet. The
    system can also serve cable and Web-TV users."

    Mr Faris concluded by stating that "the system must be as real as possible.
    To be successful, malls need large brand names to instill consumer confidence."
    In response to questions, Mr Faris spoke about delivery. He stated that NZ
    Courier Post had three time slots for delivery. The cost was a set price plus a
    percentage of the order. Pricing for rural areas would be greater.

John Fellet
Chief Operating Officer, Sky
Television New Zealand

Examining Sky Television's Perspective of the Future Electronic Consumer and
Home Entertainment

Mr Fellet began by outlining the satellite television technology. He stated
that satellite television was capable of offering Internet service and two
companies in the United States plan to do so in the next few years. He said that
the digital decoders in the system contained modems which enabled Internet
usage.

"Demand is increasing," Mr Fellet stated. Universities wanted to make MBA's
available via satellite and there was also a potential for boat tracking systems
to use satellite technology. He concluded by outlining the future changeover
from an analogue to digital network.

Laurence Greig
Director, Key Information
Services

Touchscreen Kiosks: Critical Challenges That Will Determine Their Success and Consumer Acceptance

Mr Greig began by reviewing the direction electronic commerce was heading.
He stated that "the services and information that are delivered, while more and
more likely to be presented across some medium that will have electronic
support, are no better than they are when delivered in more traditional means.
Kiosks, for example, were little more than a clever, interactive version of a
magazine," he said.

However, kiosks had many benefits. Primarily, the content and style of the
information and advertisements in kiosks were controlled by the service
provider, unlike the Internet. Kiosks could be placed at locations of major
public access, bringing services such as banking, insurance and ticketing to the
public. Mr Greig said "the information given will be relevant to the location of
the kiosk, unlike the Internet where consumers can drown in all manners of
information."

Mr Greig went on to speak about the actual kiosk technology. He indicated
that it must be designed for use both by computer literate and non-literate
consumers. Key Information Services were taking the approach of utilising
graphics and audio to create intuitively interactive screens. He then suggested
that the experience for the user should be fun and ultimately deliver
information they actually want. Mr Greig concluded by asserting that kiosks had
not yet had their day. This was partly due to the high cost of hardware and
multimedia developer charges. However, he said, "if kiosks present the right
information in the right manner, they will be here for a long time to
come."

Wendy Bussen
Director, Information Services,
Auckland Institute of Technology

John Blakey
Head of School Communications, Auckland
Institute of Technology

Selling Interactive Educational Services and Training to the Electronic Consumer

Mr Blakey opened his address by stating that "on-line educational services will allow students to study in their own time, own space and own place without the problems associated with having to physically attend university, such as overcrowding, travelling and parking. On-line education means quality interactive learning resources and research are available and students can have access to the libraries, art galleries, etc, of the world."

Mrs Bussen continued by outlining courses AIT is offering where some educational services are provided over the Internet. These included Science and Engineering, Journalism and Business degrees. She stated that "AIT has set itself up as an Internet Service Provider and offers students and lecturers reduced service costs." AIT were also experimenting with interactivity. However, this requires a higher bandwidth than available with standard PC's. So that the on-line service was accessible to students, AIT are keeping interactivity to a minimum.

Mr Blakey stated that "some commentators believe the traditional university
will soon cease to exist, being replaced by virtual universities." He offered
the Western Governors University in the US as an example of a new virtual
university. Mr Blakey believed that if traditional universities did not address
the issue by offering Internet services, then they may be left behind. He stated
that "funding from Government currently constitutes less than half of AIT's
funding and this is set to decrease. Universities are under both economic and
competitive pressures to find other methods of providing education at a low
price."

Mr Blakey went on to consider how on-line games and on-line education will
interface. He outlined a Cybercity on the Internet which enabled children to
learn about the world by playing with it and in it. Mr Blakey concluded by
stating that "if we are to have a full multi-media interactive education system,
we must be able to rely on alliances made between the media and publicity
institutions. Such a system will only be available if a significant number of
consumers want it." When questioned as to whether students preferred the
provision of education on-line, Mr Blakey answered that lecturers found students
were better prepared for tutorials as they had increased accessibility and
reliability of information.