Viewpoint - Trust On The Internet

Dec. 21, 2004
Whether it's bids or ballots, online transactions are worthless without integrity.

The recently publicized troubles that some online auctions continue to experience, with people purchasing goods that don't exist or are fake, or with others placing phony bids in an effort to drive up prices, underscore one of the biggest pitfalls of Internet-based commerce: a lack of trust. Trust, of course, is the bedrock of all business. Without it, commerce comes to a screeching halt. If I order a fly rod from Orvis over the Web and pay for it with my credit card, I expect the product will be delivered to my house within a matter of days, a week or two at the very outside. If it isn't, I want my money back. Orvis, in turn, is depending on my credit card for payment. If the retailer learns that, for instance, I'm using a stolen credit card, they're not going to sell to me. However, assuming my card is good, we are trusting one another to honor our respective commitments. They'll ship me the fly rod, and I'll pay for it. The same holds true with business-to-business e-commerce. Unfortunately, the Internet, by its very nature, is fragmented and largely unregulated. The only way to hold a party accountable over the Web is to take that person or entity -- assuming he or she or it can be identified -- to court. In most cases, there's no one standing around checking, making sure the person or entity you're dealing with is who or what they claim to be. eBay Inc.'s business depends on people trusting its Web site. Buyers must believe that sellers have the product or item they are offering, and sellers must believe that prospective buyers are, in fact, legitimate bidders. False bidders are a problem at any auction, but perhaps more so in the online versions. At least the so-called "shill" at a live auction has to appear in person to make a phony bid, thereby pushing up the price for the seller, who employs the shill for this purpose. But in the online auction, all the shills have to do is get on the auction Web site and place higher and higher bids. Often the shill is simply a relative whose job is to drive up the price of an object. If no one else bids higher, the seller merely puts the item up for auction again a few days later. When caught by eBay, such sellers have been suspended from dealing on the site for 30 days. Perhaps even more disturbing to potential eBay customers was the revelation in May that a seller made false statements that ultimately led to a buyer believing that the painting he was purchasing for $135,805 was by the late artist Richard Diebenkorn, when in fact, it wasn't. eBay suspended the seller, who, curiously, showed little or no contrition. In the more common scams, buyers simply sent their winning-bid amounts to the sellers and received either nothing in return, or else received shabby goods that were worth far less than claimed. E-Bay now insures all auction items for up to $200 and has convened a fraud team consisting of 100 investigators directed by a former federal prosecutor. Even so, many users of online auctions may not want more rules to protect them. According to a Web site that monitors eBay activity, a plan to verify the creditworthiness of buyers or sellers was not welcomed by either group, and in fact led to something of a backlash. Trust is required for B2B e-commerce as well, and vendors are springing up to help businesses deal with the trust issue online. One company,, offers business verification services over its Global Financing Network. Based in Dedham, Mass., enables suppliers to authenticate the identity of buyers in online negotiations that take part on its exchange, protecting sellers of goods from potential fraud. Metal Suppliers Online, a B2B metals industry Web site for buying and selling metals, is using to verify both the identity of customers and their creditworthiness. "With, companies doing business on our exchange will never have to extend trade credit again, offering them the assurance that they will be paid promptly and allowing them to concentrate on selling products rather than managing risk," says Alan Gamble, CEO and founder of Metal Suppliers Online. In a similar fashion, some companies doing business online are working with financial institutions to help manage the risk. For instance, e-Steel Corp. has aligned with First International Bank to offer a wide range of credit products available to members of its online exchange. This includes 14 types of commercial and international loans, with the bank funding loans up to $5 million per transaction on the e-Steel exchange. The bank uses Riscope, its proprietary commercial-credit scoring system, to quickly underwrite loans up to $5 million, regardless of where the applicant is located anywhere in the world or the complexity of the loan. The goal, though, is to ensure trust in the transaction -- trust that the buyer is who he promises and that he is, in fact, creditworthy for the amount of the purchase. Nor is the cyber-trust issue limited to e-commerce. With voter participation in local, state, and national elections on the decline, there is a strong move afoot to allow citizens to vote online. Several states and the federal government are looking into cyber-voting. It sounds like an excellent means to encourage greater participatory democracy, particularly among younger citizens who, compared with other age groups, vote the least. But casting one's ballot on a keyboard in the privacy of one's home -- or from an airport lounge, for that matter -- raises several serious concerns over possible abuses of the electoral system. A key objection to cyber-voting is the insecurity of the Internet. Issues of voter fraud, privacy, and even malicious hacking come to the fore. Some people simply find the notion of sitting at home and using a mouse to indicate one's political choices just plain objectionable. To them, going to the polls to vote is one of the last remaining rituals of democracy. Yet another issue is the so-called "digital divide," the gap in computer and Internet access available to certain economically disadvantaged groups and the cyber-affluent. That was at issue in Arizona, where a lawsuit was filed over that state's decision to allow Internet voting in the state's party primary election in March. The court found in favor of allowing Internet voting. Regardless of the potential pitfalls, it seems inevitable that online voting -- like e-commerce -- will one day soon come to a precinct near you. In order to make the system secure, though, you may have to use a special CD-ROM for elections, or possibly a special device that would connect with your PC. The Internet may change the playing fields for business and democracy, but the need for trust isn't going away anytime soon. Doug Bartholomew is an IndustryWeek senior editor based in San Francisco.

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