In March 1997, Wired magazine  reported that more than half of the European banks recently surveyed by management consultants at Booz-Allen & Hamilton said that they would offer banking services over the Internet within a year, and more three-quarters said they would do so within three years.

Internet banking makes good sense for financial institutions. For about £1 million, less than the cost of building a single traditional branch, a bank can set up a fully functioning operation on the Internet. Booz-Allen were reported to have estimated that the cost of depositing a cheque with a real-live bank clerk over a branch counter is around 65 pence. By post and telephone, the cost of the same transaction halves. With a dial-up PC banking service, it halves again, to about 15p. With an Internet banking system, the cost drops below 5p, and sometimes as low as 1p.

This is particularly significant because electronic commerce opportunities for small and medium sized enterprises requires a reliable and low cost electronic payment system. However, many electronic payment issues are institutional rather than technical. Creating the legal framework for a world-wide electronic payment system will require substantial co-ordination and high level priority on the agenda of monetary authorities. This framework could build upon laws governing credit card and automatic teller machine transactions. It will also need to find ways of reducing the costs of transactions and must address the technological opportunities for new ways of creating stores of value (money). The acceptance and legal status of electronic payment systems will have a major impact on confidence and trust in e-commerce.

Smartcards

The majority of respondents to a recent Motorola survey said they would feel comfortable using Smartcard technology for the following :

• As a driving licence                            73%    
• As an ID card                                      70%
• As a passport                                     64%
• As an electronic purse                       63%
• As a social security benefits card    61%

The market is therefore ready and waiting for electronic banking, whether that means using Internet Web-based online banking, or alternatively (or additionally) smartcard technology. Some services already exist : check out

• Bank of Scotland        www.bankofscotland.co.uk
• Deutsche Bank        www.deutsche-bank.de
• Estonian Savings Bank    www.esb.ee
• Lloyds Bank  and TSB    www.lloydstsb.co.uk

Minitel banking in France is potentially available to 15 million users and is on course of migration to internet compatibility. T-Line videotext in Germany has approximately 1 million users for its on-line banking services.

However, Chip Maham, chief executive officer of Security First Network Bank (SFNB) of Atlanta (www.sfnb.com/), which operates entirely on the Internet, says the Web is still too slow and clunky for some consumers. "The Web is not yet ready for prime time", he says. A survey of bankers by Grant Thornton consultants this year found that two-thirds were concerned about the security of online transactions. Half said their customers were, too.

Introducing online banking, however, does not mean that banks can eliminate all the other costly distribution channels they have built up over the years. In particular, they cannot close their branches - and shouldn't, if they want to keep their customers. "The future of e-commerce in retail banking is an AND process, not an OR process," says Tim Jones, director of retail banking at National Westminster Bank (www.natwest.co.uk/) in the UK. Nat-West is currently trimming about 250 more branches out of its network, but has no plans to go below 1,750 branches for the foreseeable future. John Cleghorn, chairman and chief executive of the Royal Bank of Canada, would agree. "We have found rapid branch closures cost you market share, guaranteed. You can make a big mistake thinking everybody wants to deal with you on a PC," he says.

Security

Security problems arise in a variety of different ways : what is perceived as the key issue varies from place to place and from business to business. Worries about "the government knowing everything I do" are surprisingly common, particularly in areas with comparatively recent histories of robust internal security forces. Worries that "the tax authorities will know how large my turnover (or sometimes even personal expenditure) is" are particularly common in areas with a thriving black economy. Most pervasive, however, are the classic business worries about assurance of payment for the seller and assurance of delivery to specification for the buyer; as a sub-set of this, there are worries about the security of both banking and trading online against the depredations and disruptions of hackers.

Typical of views about security of trading is that expressed by Rupert Gavin, who is Director of Internet and Multimedia Services for British Telecom, expressed in February 1997 :

"As the Internet matures and the number of users double monthly, businesses are keen to exploit the next natural phase - selling their goods and services to a vast audience. But trading over the World Wide Web has been hampered by a lack of trust in the security of online credit card transactions."

In the same month, a computer hackers' club in Germany gave a public demonstration of unauthorised methods of transferring money from online bank accounts, leading to the following comment from Cornelius Villis of Microsoft, responsible for the Active X security model involved : "This is going to be the first of many incidents. Users are going to have to become very security conscious. We've been much too sanguine."

A demonstration of potential fraud is very different from an achieved crime, of course, but such events both highlight the problem and also lead to fear and confusion among potential users. As a final example of the ways in which security problems can arise in quite unexpected ways, a case arose in California in 1993 in which an employee who had been dismissed, claimed that the dismissal was not for legitimate reasons but rather was the result of improper pressure applied by her alleged ex-lover, a director of the company. Her evidence was an e-mail which the court found to have been faked by her, and sent on the internal network of one of the world's largest and most successful software companies, which had (at the time) virtually no protection against fraudulent use.

Fortunately, these commonplace problems are very rapidly generating commonplace answers, sometimes in the form of commercial products or services (e.g. the Open Market Inc software for online credit card authorisation), and sometimes in the widespread use of techniques that are effectively in the public domain. (e.g. P.G.P. encryption)

Topics in Security

Each unique business has its own security aspects, although very few will have anything like the whole spectrum of issues. The listing below was provided by the ISIS project in satellite multimedia services, specifically to classify internet related security issues:-

• Server Side Security  
  -    User Authentication
  -    Firewalls
  -    Protection of Documents
• Transmission Security   
  -    Encryption
  -    Secure E-Mail
  -    Secure HTTP
  -    Secure Electronic Transaction
  -    Security and Multicasting
• Client Side Security   
  -    Viruses, Worms and Trojan Horses
  -    External Viewers
  -    Applets
  -    Privacy

Electronic Commerce will have an enormous effect on the way in which works of authorship will be created, stored, communicated to the public, distributed and paid for. Finding the means to preserve the integrity of intellectual property rights in the materials that will flow in the commerce created in this environment is a daunting challenge in the context of domestic markets, it is an even greater challenge to ensure adequate and effective protection throughout the world, and to harmonise levels of protection under disparate systems of copyright, authors' rights and neighbouring rights.

In the context of electronic commerce, the distinctions among the rights of authors, producers and performers that are the basis for the separation of copyright and neighbouring rights are rapidly becoming irrelevant.

Instead, the issues are far more concerned with the use of technical security measures and the prohibition of devices and services whose primary purpose or effect is to defeat technical security measures.

One of the most important is to define the nature of a dissemination of a work or a transmission of a work in digital form. Is it a public performance of the work or a reproduction and distribution? Can it be both at the same time?

These new issues are producing new legislation : for instance U.S. Copyright legislation has granted rights - for example, rental rights in computer programs, sound recordings, and musical works embodied in sound recordings - and has instituted a system of royalties on blank digital audio recording media and digital audio recorders.

Databases

There is concern that many valuable, factually-oriented databases may be denied copyright protection, or that courts may determine infringement in ways that severely limit the scope of copyright protection for databases. The unfair extraction right proposed in the EU database directive could protect such databases. Additionally, if multimedia works are regarded at international level as works in a new, separate category, the issue of their coverage under the existing conventions, and rules of national treatment will be open to debate. If, however, as current discussions seem to indicate, they are subsumed in the existing categories of works, establishing meaningful rules internationally will be simplified.

Sound Recordings

Many believe that the time has come to bring protection for the performers and producers of sound recordings into line with the protection afforded to the creators of other works, since there is no just reason to accord a lower level of protection to one special class of creative artists, and since the digital communications revolution - the creation of advanced information infrastructures - is erasing the distinctions among different categories of protected works and sound recordings and the uses made of them. There is also a specific issue about the extent and scope of moral rights in the world of digital communications. Some believe that the ability to modify and restructure existing works and to create new multimedia works makes moral rights more important than ever before. Others take the view that careful thought must be given tot he scope, extent, practicality and especially the waivability of moral rights in respect of digitally fixed works, sound recordings and other information products.

Rights Clearance Services

For many years, intellectual property rights holders have benefited from organisations collecting the numerous small sums that accrue from, for instance, public performance of recorded music. Electronic Commerce not only extends the issues (as above) but also helps provide solutions.

Case Studies