Discussion Paper - Report Summary

March 2000

Electronic Commerce and the New Zealand Consumer - A Status Report (and a Proposed New Zealand Model Code for Consumer Protection in Electronic Commerce)

Electronic commerce (e-commerce) is providing consumers with access to a wider range of goods and services, potentially at cheaper prices, within New Zealand and across borders.

Evidence shows that consumers worldwide are beginning to take advantage of these opportunities. New Zealanders alone are reported to have spent NZ$242 million on Internet shopping in the past year. By 2004 it is expected that New Zealanders would be spending US$2.7 billion on business and personal transactions, with the Internet user population expected to grow from 393,000 now to 1.9 million in 2004.

While this is small compared to business to business e-commerce (predicted by the Gartner Group to be US$7.9 trillion annually by 2004) it cannot be ignored.

In addition to the potential of e-commerce to provide benefits to consumers, it is changing the way businesses and consumers relate to each other. For many goods and services, face to face transactions involving people in the same neighbourhood or city can be replaced by faceless interactions across geographic borders.

Whereas domestic law applies to e-commerce transactions that occur within New Zealand, cross-border transactions provide a significant challenge (for example, which country's legislation applies to a transaction). In addition, the faceless nature of e-commerce transactions, domestically and internationally, challenges a consumer's ability to resolve disputes and seek redress (for example, their ability to physically locate a company and enforce legal rights to redress).

This creates questions about consumer confidence in e-commerce that may restrict further development if not addressed.

Recent activities by consumer agencies indicate that the majority of existing e-commerce traders have so far failed to address the elements that will ensure that consumers feel comfortable in an electronic marketplace.

In October 1999 the Ministry, along with a number of international government consumer agencies, joined forces in an International Internet Sweep Day assessing how well Internet shopping sites protect their customer’s interests.

Of over 700 sites visited:

• more than half failed to outline their payment security mechanisms
• 62 percent provided no refund or exchange policies
• 75 percent had no privacy policy
• 78 percent failed to explain how to lodge a complaint
• 90 percent failed to advise customers what laws applied to their transactions
• 25 percent showed no physical address.

This is clearly of concern and needs to be addressed. This paper proposes the adoption of a Model Code for Consumer Protection in Electronic Commerce as one possible means of addressing it. If this code is adopted and followed by New Zealand businesses they will be able to say that they are addressing consumers’ interests. It will also be a concrete example of how consumers, businesses and Government can work together to ensure consumers’ interests are met.

The code could be adhered to by businesses independently, or used to provide a basis for self-regulatory mechanisms that may be put in place. Typically the latter schemes involve members agreeing to operate to certain standards and processes that meet consumers’ interests, and displaying "seals" that signify this. The operators of the schemes then ensure that businesses do in fact adhere to the standards through audit and/or disciplinary processes.

Whether a business operates independently in accordance with such a code, or chooses to be part of a self-regulatory mechanism based on the code, it is important that effective steps are taken to ensure that consumers’ interests are met in either case, to avoid need for action by the Government.

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