Cybermediaries that drive consumers to the online commerce site include the popular search engines, online access providers (AOL, MSN, Prodigy etc.), online publishers and Emalls. These intermediaries attract a large audience that online businesses wish to sell their products to. By sponsoring sites with banner advertisements, developing co-marketing deals like UPS's recent deal with three major search engines, or partnering with an Emall, online commerce sites are getting access to larger audiences. Search engines are becoming very aggressive in developing business models that don't rely solely on banner advertisement sponsorship, these deals may include revenue sharing from online business transactions in the future. Cybermediaries, in this instance, are therefore used to attract large target audiences for online businesses to market to.
Cybermediaries also facilitate online transactions for online retailers. eTRUST or similar companies endorse sites that protect consumers' privacy. This will assure customers that information they divulge will be used appropriately. By creating such assurances, eTRUST is helping facilitate online transactions. First Virtual and CyberCash are cybermediaries that are positioning themselves to help facilitate the actual transfer of electronic funds (discussed in detail later). Cybermediaries also include delivery companies such as UPS and Federal Express that enable customers to track the status of the delivery of products offline.
While encryption seems to be the appropriate technology to insure the integrity of the transaction, the U.S. government has issues with its full implementation (export), since encryption can be used inappropriately by anti-government agencies! The government says it needs the ability to crack strong encryption to catch criminals and terrorists. A few companies, including IBM, have obtained export licences for strong encryption (56-bit programs vs. 40-bit programs), many high-tech companies still haven't. The most recent U.S. government policy requires that companies incorporate features within the next two years such that the government can crack the codes with software keys.
While it is very important to make sure that messages cannot be intercepted etc., this is a very small part of the security problems that must be resolved to help develop online commerce. Those interested in perpetrating online crimes will be more interested in breaking into a commercial site than intercepting individual transactions. Businesses develop firewalls that are designed to allow access to the site by those who should have access, and to block access to those who should not have access (the thief). A firewall is a computer equipped with software that is supposed to let only legitimate traffic pass. Firewalls should be developed to protect at the outside of the site, as well as within the site, to stop intruders from causing further havoc, once inside. Once inside a site, a "thief" can pose as the business and continue the business while diverting the revenue. The thief can access information about customers (credit card numbers etc.) that the business has collected, and change the information on the web, a particular problem for news services perhaps. Computers on WWW are so vulnerable because they are trying to handle too many tasks from one host. Servers are trying to be Web, news, nameservice, ftp and other types of servers. Employees also use the same computers for general purpose activities such as Email and web browsing. A secure host needs to be simple. Using a host for more than one function (being a web server and a mail hub) creates tremendous security problems. A second problem is that a secure host at one point in time does not make it secure in the future. According to Dan Farmer, a security system on a computer is compromised in direct proportion to its amount of use.
The internet and its computer mediated environment allows for anonymity. Although this offers many benefits it can be a problem for online commerce. Consumers need to be very sure they know who they are conducting business with (is this site really the site for Dell Computers?), and businesses also need to be sure that they are conducting business with the consumer whose information they are receiving. This can be achieved with encryption. Encryption allows for the integrity of the transaction as well as the authentication of the transaction. This is a seperate, but very important issue. By encrypting digital signatures, the vendor can be assured (as long as the encryption isn't compromised) that the consumer is who s/he says s/he is.
SET's projected launch date has been pushed back a number of times as issues need to be resolved. Originally SET was scheduled to debut in 1996 Fall. In January the launch date was supposed to be April 14. The current date is proposed to be May 31, 1997. If SET is successful, then customers should start to feel comfortable using credit cards for online transactions. This will challenge the other online payment schemes to develop a significant reason for their presence, and enable WWW retailing to compete on a stronger level with other non-store retailing media such as mail order and TV shopping.
"Smart" cards may become a viable payment scheme. Smart cards are similar (in appearance) to credit cards, but include a microchip that allows users to store money, acquired from their bank account, and pay for products by inserting the card into a reader to swipe. The consumer has a unique Personal Identification Number (PIN) for the Smart card, thus money cannot be stolen. Although smart cards have become popular in europe, they have yet to have proven popular in the U.S. They would also require each consumer to have a reader on the PC in order to execute the transaction. If SET is successful, then it will be hard to argue for a compelling reason for smart cards to also be successful for online commerce. The areas that they could prove valuable is for small transactions (under $10) that are not economically viable for credit card transactions, and for online retailers who do not accept credit cards.
New payment schemes have been developed specifically for online commerce. Examples include First Virtual and CyberCash. First Virtual was a pioneer in providing a secure transaction system for WWW. Customers give their credit card details over the telephone to First Virtual, they are then able to execute transactions online with merchants that are members of First Virtual's system, using a unique PIN. CyberCash targets "micropayments" for online services. Using an online account consumers are able to pay as little as 25 cents for online services. This may prove very valuable for small publishers and software developers. Both companies have struggled since they went public. CyberCash reported $50,646 in revenue for the quarter ended December 31, and lost $8 million. For the entire 1996, CyberCash lost $26.5 million, on revenue of $127,000. First Virtual lost $4.7 million in the fourth quarter of 1996 on revenue of $198,000. It lost $10.7 million on revenue of $696,000. At current levels, neither company has long to develop an economically viable system (less than a year before the cash generated from the IPOs runs dry).
The success of SET increases the chances of the schemes becoming a thing of internet history. SET has still not proven successful yet however. Encryption, while making it more difficult for thieves to compromise online transactions, has still to prove that it is a full proof system. As long as encrypted messages can be intercepted and manipulated, then a system like First Virtual, which does not use the Internet to communicate sensitive data (credit card numbers etc.) may develop a significant presence. If encryption does become full proof, then like smart cards, the areas that they may be able to develop a niche are for small transactions, and for businesses that do not accept credit cards. This market may become significant in size as WWW becomes an accepted medium for commerce. The barriers to entry for doing businesses are insignificant, allowing a new breed of businesses access to online commerce.