Who Protects the Merchants?

The fact that old technology may have decided the U.S. presidential election is sad, for the losers. (The rest of us will get by somehow.)

The fact that old technology may decide whether your online business lives or dies, on the other hand, is a tragedy.

It didn’t have to be this way. Processors have been making a big noise about secure electronic transactions (SET) since I first came on this beat in the mid-1990s.

With SET, consumers as well as merchants have their own digital IDs or personal encryption keys. The identity of a buyer can be verified, and you have what those in the transaction processing industry call a “card present” transaction: When the consumer passes you his or her key, it’s like signing a credit slip.

Unfortunately, getting digital IDs into the hands of American consumers turns out to be even harder than agreeing on a manual recount of dimpled ballots in Florida. VeriSign, which has been banging the SET drum for years, cares more about selling (and reselling) domain names these days.

What we’re left with is an old technology called secure sockets layer (SSL), fully implemented back in 1996, which puts the merchant on the hook for every transaction but doesn’t really commit the consumer to anything.

Banks, meanwhile, are falling over one another to give consumers even more protection (and merchants less). Private PaymentsSM from American Express is just one example.

A disposable credit card number may protect the honest consumer, but what protects the honest merchant? As more merchants throw in the towel because consumers abuse charge backs (on average, they’re no higher online than in direct mail, by the way), banks use the same line they’ve always used. A merchant agreement is an unsecured line of credit because you get paid before consumers pay their credit card bills. Since it’s a convenience and service to you, banks have a right to make the rules that suit them.

That is true as far as it goes. But it doesn’t go very far. The fact has always been that merchants have as much to fear in any transaction as consumers. While technology has advanced by leaps and bounds on behalf of online consumers, it has not gone forward an inch on behalf of online merchants.

This is an ongoing scandal. SET, or something like it, should have been implemented years ago. It’s your fees and balances that keep the banking and credit card processing systems running. It takes two sides to make any transaction.

It’s too late for anything to happen this holiday season, but it can be as easy to get into an online business as it is to get out of one. If you have a good business in the real world, you can really afford to wait for this problem to be solved.

If you can’t, however, you need to stand up. We have a Consumers Union, we have hundreds of labor unions, and it’s about time we had a merchants’ union. Fair online processing rules will be our first demand.

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