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Tracey S. Roth

Dot Com Commerce

Managing Editor, C@LL CENTER CRM Solutions

[September 6, 2000]

Sending Money To Cyberstrangers

I bought a book off eBay last week. It's a first edition of a novel, and it's slated to be a gift for a friend. I'm waiting for a gentleman in Minnesota to send the book to me, as I dutifully mailed him a check for $15. Let me repeat that in a slightly different way: I sent a $15 check to a total stranger last week, for an item I've never seen and cannot be sure really exists. I'm assuming:

  1. He has the book in question in his possession;
  2. He is going to send it to me;
  3. The post office will deliver it to me; and
  4. If the stranger in Minnesota doesn't send me the book, he won't cash my check.

Granted, I'm only taking a chance with $15. I'm not buying a first edition of Pride And Prejudice or a personally autographed copy of the Canterbury Tales from Geoffrey Chaucer's last book promo tour.

That got me wondering. What do people buying big ticket items do? Furniture, rare collectibles, gemstone jewelry and artwork all show up on most auction sites. As I write, I've located an original Milton Avery drawing and a Louis XIV walnut armoire. As far as I'm concerned, anyone willing to mail a $30,000 check to a stranger for a piece of art that may or may not be original (or even exist) is completely out of his tree. According to IDG, of the thousands of e-commerce fraud complaints filed last year with the National Consumers' League, 87 percent were filed against online auction sites. Though most of the large auction sites have some safeguards in place -- such as a rating system for sellers that allows buyers to evaluate the seller's previous transactions -- it's just too easy for a low-rated seller to create a new account and start his or her shady practices afresh.

Security issues aside, what about the plain inconvenience? Consider very low-priced items, as well. A collector might buy antique bronze coins or rough, uncut gemstones. Some of these items might retail for a dollar a piece. (Additionally, I can't resist mentioning the interesting individual attempting to sell his used socks for three dollars or the reality-challenged guy who is offering to sell a U.S. penny forwell, a penny.) Do collectors in the market for low-priced items really write out multitudes of checks for a dollar apiece?

It seems so, as until recently, the majority of person-to-person online transactions were conducted via the low-tech route of a check in the mail. Individuals, obviously, cannot accept credit cards and the fees charged by credit card companies may be prohibitive for many small businesses. It is surprising that it took so long to come up with solutions to these problems.

Enter PayPal, a service offered by online financial services company X.com. PayPal works by allowing its users to send money via secure e-mail transactions. Enter a recipient's e-mail address and a dollar amount into a PC or PDA; the money is charged to your PayPal account and is then sent to the recipient's account. If the recipient does not have a PayPal account, he or she is prompted to register and the money is credited to his or her account.

To build an account, a user authorizes PayPal to debit his or her major credit card account (or a debit card issued by one of the major credit card companies). You can also use a traditional check or money order, though with this route you must wait until the check is delivered via postal mail and the funds clear before you can be up and running. Receiving money via PayPal comes in the form of a direct deposit to a checking account, or, if you prefer, a paper check. Online auctions aside, consider the wonderful practical uses of a service such as PayPal. Parents can e-mail cash to kids at school, for example. You can reimburse your friend Fred for the three rounds of drinks he bought the other night when you had no cashremember?

As convenient as a service like PayPal is, though, it may only protect the seller by guaranteeing that there are funds in the buyer's account. What about the buyer who is expecting, for instance, a Louis XIV walnut armoire and instead receives a pair of used socks? A slightly more sophisticated service than PayPal is the emerging online escrow market. Such companies will, in essence, mediate the online purchase and throw in a few of its own guarantees to protect all parties. It might work as follows:

  • Dick has a valuable Scooby Doo lunchbox to sell, and Jane decides to buy it.
  • Jane creates an account with an online escrow company.
  • The company then informs Dick that the funds are viable and available.
  • Dick ships the Scooby Doo lunchbox to Jane, who inspects it carefully.
  • Jane informs the online escrow company that the lunchbox meets her expectations.
  • The company then clears the funds from Jane's account into Dick's account.

If you regularly buy and sell off the Internet on a person-to-person basis, you may want to consider using an online escrow company. A few to check out are Internet Clearing Corporation, SecureTrades.com, Qpass and iEscrow. These companies will typically take a small percentage of the purchase price as a fee in exchange for the guarantees they offer. The good ones are licensed, bonded and regularly audit funds. Soon, we will begin to see the rise of online escrow companies that specialize in certain goods: antiques, for example. Instead of leaving the inspection of a purchase to the buyer, the item might be actually shipped to the escrow company itself for inspection by an on-staff antiques expert who can add an extra layer of guarantee that the buyer is getting what he or she paid for.

There will always be a few risks, even with the services described above. All that cash bouncing around via the Internet will undoubtedly attract the attention of cybercriminals. But at least now there is one more set of checks and balances in place that can guarantee that you at least get what you pay for.

The author, who is wondering what ever became of her Scooby Doo lunchbox, may be contacted at troth@tmcnet.com.

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