From: szabo@netcom.com (Nick Szabo)
Date: Tue, 11 Jan 94 04:15:13 PST
To: smb@research.att.com
Subject: Credit cards vs. digital cash
In-Reply-To: <199401102343.PAA22212@mail.netcom.com>
Message-ID: <199401111214.EAA10092@mail.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain



Steve Bellovin raises some good points about the function
of credit cards.  A couple responses:

> ...in these cases, customers have the potential to run up a
> large bill -- that is, a debt -- between interactions with the
> provider...  A vendor possessing a
> credit card number *will* be paid, with minimum hassle.  If the
> customer skips town, the card issuer eats the charge. 

Vendors should be able to get the equivalent protection by buying 
insurance against customers skipping town, for a similar price.
That, and collection enforcement, via local jurisdictions which have 
been lobbied to pass credit card fraud laws, are two of the main
functions served by credit card companies.  A third is collection
of dossiers on customers, which we would like to put under
customer control.

For online services, where the customer can be billed in near
real-time, the case where a large bill approaches the credit limit
is at least exceptional, and might be eliminated entirely.
Where the largest bill is much smaller than the credit limit,
the customer is put at much smaller risk by putting up 
a deposit then by exposing their entire credit rating
to both the vendor and snoopers who intercept the number.
Furthermore, the deposit can be made with a neutral third
party which serves the arbitrator function for disputes.

In this particular case, phone billing could be done
in very small increments, in near real-time, with digital
cash.

> But there's one more important point to consider:  U.S. law on
> disputed credit card purchases.  

This company was operating internationally; one of their customers
who posted lives in Kuwait.  Do all Internet jurisdictions have
laws protecting credit card customers?  How are these laws
enforced?  On whom lies the burden of evidence, legal costs, etc.?

I agree that the issue of customer vs. vendor assumption of risk
deserves much more attention than we have given it.  A major
goal is to minimize dependence on the maze of Internet
jurisdictions to resolve conflicts.  One interesting idea is 
an online escrow services that holds a customer deposit equal 
to the amount of the largest possible bill, and uses the escrow 
to resolve disputed billings.  The challenge is minimizing leakage 
of private information, via the escrow.

Nick Szabo				szabo@netcom.com