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False Alarm: Credit Card 

Almost every day I read newspaper articles claiming that the biggest barrier to consumer purchasing on the Net is people's fear that someone will steal their credit card numbers. Most recently, October 16th's Business Week warned, "People's willingness to engage in online transactions requires a perception of security." Conferences and symposiums are held almost weekly on the subject - I know, I just spoke at one in Washington, DC - and pretty much everywhere you go you hear this constant mantra about how consumers supposedly won't shop online until credit card security is assured.

This is such bullpuckie!

I mean, consumers shell out more than US$57 billion a year - that's $57 billion - to buy products from catalog firms. And they don't have any problem at all giving their credit card numbers to some $6-an-hour clerk at the other end of those insecure toll-free telephone lines.

And what about the millions of restaurant patrons who hand over their credit cards every day to some surly waiter who then disappears with it before returning with a receipt to sign? Or the tens of millions of shoppers who gladly give their credit cards to store clerks without a second thought?

In short, all this talk of credit card security being a prerequisite to online commerce is bogus - an excuse cooked up by Internet shopping concerns and the media to try to explain why consumers still aren't buying much of anything online.

The real reason people aren't buying very much online yet is that there's nothing much to buy online that can't be bought more easily or less expensively and with better service in more familiar surroundings - i.e., in stores and catalogs. There are a few product categories for which online shopping has advantages. These include flower delivery, since buyers can see arrangements online before choosing them, and wine, because shoppers can read detailed descriptions of wine as they choose. But, outside of such specific groups of products, where's the truly compelling, value-added reason to go online to shop?

The truth is, there isn't much of one yet. That's the real hurdle Net-shopping entrepreneurs have to overcome. And no amount of cryptographic magic is going to bring consumers into those online malls until they can derive some major added value by doing so.

Historically, every new sales channel has faced the same challenge. In the early days of the catalog industry, for example, firms touted the convenience of shopping from home but most consumers remained understandably hesitant to buy anything they couldn't see or touch first. What if they didn't like what they bought when it arrived?

So what did the catalog firms do? First, they offered consumers toll-free phone numbers to call, making the whole process even easier than mail (let alone having to traipse downtown to the department store). Then they offered returns policies that were equal or superior to those of stores. And gradually, as consumers gained confidence in the quality of service, convenience, and reliability of this new channel, the catalog industry took off.

The same thing will happen to the Internet shopping industry only when people see that they can save significant amounts of time or money or hassle by shopping online. And when they can, consumers won't care a whole lot whether their credit card numbers are encrypted or not.

Now don't get me wrong. I'm not saying encryption isn't a good idea - I'm simply saying that, with the exception of home banking, it's not all that critical to spurring consumer acceptance of this new commercial medium. Just like merchants in real-world stores, tomorrow's online merchants will need to have trusty credit card readers and "burglar alarms" on their virtual doors. But people don't go to stores to check out the burglar alarms. They go to stores that either offer products that can't be found elsewhere, or that offer them at better prices and with better service than anywhere else.

It's that simple - so simple, in fact, that even an encryption expert can understand it. Which is exactly what happened during a panel discussion about transaction security at last week's Vanstar Washington Summit, attended by 100 executives mostly from the reseller and OEM industries.

The discussion began calmly enough. Ray Kammer, deputy director of the National Institute of Standards and Technology spoke about the fed's key escrow plan. Doug Miller of the Software Publisher's Association linked transaction security to his organization's commitment to copyright protection. And Ed Scheidt, CEO of the information security firm TECSEC, spoke about his cryptography products.

Then I got up and opened my speech by quoting Intuit's CEO Scott Cook on credit card security.

"A red herring," was what Cook told me. And that's what I told them. And within a few minutes everyone in the room - including the panel of encryption experts - were nodding their heads in agreement. It was as if everyone knew the security issue was basically irrelevant but were they just waiting for someone to give them permission to admit it.

And so it goes. Last summer, the media "crisis" du jour that sent everyone into a frightened tizzy over the Internet was "cyberporn." Now it's credit card security. What's next?


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