net.wars: All paid up

by Wendy M Grossman | posted on 01 August 2008

"His checks keep bouncing because his signature varies," says a CIA operative (Sam Waterston) admiringly of the movie's retired spy hero Miles Kendig (Walter Matthau) in the 1980 movie Hopscotch. "He's a class act."

Wendy M Grossman

These days, Kendig would be using credit cards. And he'd be having the same problem: the role of his signature would be played by a newcomer to the spy business - his usage patterns as seen by the credit card company's computers.

This would be doubly true if he used Amazon's Marketplace sellers. It seems – or so Barclaycard tells me every time they block my card – that putting through several purchases through Amazon Marketplace and then, a few days later, buying something larger like a plane ticket or a digital recorder exactly fits one of the fraud patterns their computers are programmed to look for.

Buy a dozen items in a day on eBay (go on, I dare you), and your statement will show a dozen transactions – but they'll all be from Paypal. Buy a dozen items in a single shopping basket on Amazon, and you'll get a dozen transactions all from different unknown sellers. To the computer what seems to you to be a single Amazon purchase looks exactly like someone testing the card with a dozen small transactions to see if it's a) live and b) possessed of available credit. Then, y'see, when the card has passed the test, the fraudster goes for the big one – that airplane ticket or digital recorder.

It's not clear to me why Barclaycard's computer doesn't recognize this pattern as typical after the first outing or two (I fly one route, but my Barclaycard will not buy me a plane ticket.) Nor is it clear to me why it doesn't occur to the Barclaycard computer that as frauds go buying a digital recorder or a plane ticket for delivery to the cardholder's name and address ranks as fairly incompetent. Why doesn't it check that point before causing trouble?

You might ask a similar question of one of my US cards, which trips the fraud meter any time it's used outside the US. Even though they know I live in… London.

This week Amazon announced that it's offering its payment system, including One-Click, to third party sellers as one of its Web services offerings. Much of the early press coverage of Amazon's decision seems to be characterising Amazon Checkout, along with Google Checkout, as a competitor to Paypal.

In fact, things are more complicated than that. Paypal, before it was bought by eBay, was one of the oldest businesses on the Net. Its roots, which still show every time you go through the intricate procedure of opting to use a credit card instead of a bank transfer, are in making it possible for anyone to send cash to anyone with an email address. Its first competitor was Western Union; its long tail business opportunity was online sellers who couldn't get credit card authorisations because they were too small. For eBay, buying Paypal meant being able to integrate payments into its ecology with some additional control over fraud - while making extra money off each transaction.

Paypal is being adopted as an alternative payment method by all sorts of third parties, and as much of a pain as Paypal is (it can't cope with multinational people and you cannot opt out of giving it a bank account to verify) this is useful for consumers. Its security is generally well regarded by both banks and credit card companies and surely it's better to store financial details with one known company than with dozens of less familiar ones you may only trade with once.

Given the choice, however, I'd far rather have that single account with the much-pleasanter-to-use Amazon. It's clear, though, that if you're offering a platform for others to build businesses on, as Amazon is, payment services are an obvious tool you want to include. Most likely, just as many stores now display multiple credit and debit card logos, many Web sellers will offer users a choice among multiple payment aggregators. Who wants to call the whole thing off because you say Google and I say Paypal?

Unfortunately, none of this solves my actual problem, those damn fraud-detecting algorithms. If Amazon actually aggregated payments into a single transaction – which is actually what you imagine it's doing the first time you buy from Marketplace – and spat the money back out to the intended destinations, there'd be no problem. For you, that is: for Amazon, of course, it would raise a host of questions about whether it's a financial service, and how much responsibility it should assume for fraud.

Those are, of course, very much the reasons why Paypal is so unpleasant – and yet also why it offers eBay buyers insurance.

What is clear is that this is yet another step that brings Amazon and eBay into closer competiton with each other: they are increasingly alike. Amazon's recent quarterly statement notes that about 30 percent of its revenues come from Marketplace sellers – and that the profitability of a sale is roughly the same whether it's direct or indirect. On eBay 42 percent of items now are straightforward sales, not auctions, and the changes it's made - changes that favour its biggest sellers -  are making it more Wal-Mart than flea market.

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Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Readers are welcome to post here, at net.wars home, follow on Twitter or send email to netwars(at) skeptic.demon.co.uk (but please turn off HTML).