Over a quarter century into the life of the consumer internet and we've managed to figure out a few things. Humans really like free stuff. Humans will pay for things. But if humans see "things" as having no cost to replicate (a.k.a. digital things), then it falls into the category of free stuff.
There's another slightly darker side to what we've figured out : that humans – some humans, anyway – really like to get away with things. Like in an insidious way that's either shady or outright illegal.
That's not any surprise to anyone of course, just that we've created more ways for people to get away with things and are only now starting to figure out how to model our digital economies in a way that isn't trying to put band aids on 20th century commerce, which is what we've been doing for the past 25 years. The next evolution will truly model digital commerce in a way that reflects what it means to interact, share, and reasonably and adequately compensate one another for the goods and services we sell.
Let's start with the first obvious challenge, and that's fraud. Recently, I ordered a pizza online (yes, once in awhile I've been known to do that) and the company's payment method had changed to allow for only VISA Checkout and Mastercard's Masterpass including 3D Secure as online payment methods. What's happened here? Given the high volume of pizza ordering, the company must have been deluged with chargebacks with the simple claim that pizza's never arrived. For a $20-30 ticket item each and using self-delivery (therefore non-registered signature delivery service) drivers, challenging every chargeback was untenable. And given that myself, I have never had a pizza go missing from this company it's more than likely that chargebacks were simply fraudulent.
On one hand there is the issue of giving fraudsters too easy an out for crying foul - i.e. the consumer-fraudster has limited accountability to their actions, they simply call out the pizza company for never having delivered the pizza. Pizza company can't fight back all the time. Free pizza for fraudster. This is the imbalance of sharing, or collaborating, the real-time anti-fraud knowledge amongst payment companies, the security measure in place by the company itself, but also of the consumer's accountability for acknowledging the transaction completion. In this case, a real person signing off of the pizza having truly arrived.
All of the technology to go a long way to solving this already exists – listen to our recent podcast on All Things Fraud. Between IP profiling, digital signatures, blacklist sharing and supply chain (blockchain) smart contracts, we already do have the ability to collaborate and make accountable every stakeholder in the supply chain to ensure that we are all living up to our part of the bargain.
Another key area of the model change is digital goods. We're talking about creative goods such as publications, music, TV shows, radio, movies etc. as distinct from a digital service such as website hosting or domain name purchase, which we perceive as having ongoing support value, a one-off purchase (or licence, purchase) we see as having no such value. In consumer's minds there is no ongoing value in that creative effort which took anywhere from 1 hour to 6 months or years to create, and who knows how much production effort, sweat and money to create.
It's not quite as simple as calling out consumers in this case. Here we have a shifting model that started with a physical good – like a CD or DVD – which acted as a proxy for the artist's creation. Easily controlled by the supply chain via the record or movie company, the creative proxy (CD or DVD as a physical good) exchanged hands just like a shirt. Either you had it in your hands, or you didn't. Easy.
Then digital sharing came along. Grab a file from a friend, or even a stranger – millions of strangers even, and your library is stocked for life. Legalities? Pfffft. Then streaming services swooped in to act as the next legitimate gateway-as-a-proxy to replace the CD or DVD. The supply chain compensation model didn't shift towards the creator, though. It shifted away from the model of the artist or creative companies' compensation. The CD, changed to streaming service, but not to creator.
Again the model of accountability for compensation and supply chain distribution is not holding up all parties to their end of the bargain. If you were to sit down a musician and a sales agent to negotiate one to one they would likely come up with some sort of agreement based on commissions for sales, not unlike many salesperson agreements. Should it be expected that a delivered product be immediately and contractually confirmed as being delivered to the right person, whether it was a pizza or a laptop? Should a buyer be validated against the payment type, account, and funds they are using to make a purchase?
In the end it's about perceived fairness. This discussion will continue to come up until all parties feel fairly treated by all other parties in digital transactions. Regardless of what you're selling, or buying, everyone wants to trust that they are spending reasonable money, for a product that will get to its destination; that they will be compensated at a market price that fits their business model reasonably, and that checks and balances are in place throughout the process to keep everyone honest and accountable.
Another important element of building a trust model that is overlooked is productivity. Most businesses currently treat dealing with trust issues like fraud, contract supply chain management and data integrity like an expense band aid burden that they must bear. Fraudulent chargebacks must be fought, supply chain deliveries must be monitored, inventory must be double entered, transactions must be manually reviewed. These are all very large hits to your bottom line when treated like grunt work 20th century policing. When you put proper systems and strategies in place to engender trust with customers and suppliers, not only do you demonstrate your understanding of the importance of trust for your entire business ecosystem, you also build speed around your delivery for contracts, delivery sign off, and transactional completion. Speed means profit.
What links together fraud prevention and digital sharing in commerce, is how we perceive and model accountability. This is accountability for the creator, the seller, the shipping, and the agreements that bind all parties in a transaction. We are moving in a direction where all parties are reshaping their relationship to one another and how we authorize the exchange of goods, the licencing, the handing-off of an item as well as the method and model of compensation. Interesting times, indeed.