Thursday, January 29, 2009

Bigger Picture: When To Trust The Bank

The hilarious story of a lawyer suing Citibank for not stopping him from losing money in Nigerian Scam is making rounds on Internet. There are many articles covering the topic, but I'm going to link to the article at TechDirt, for it makes a point that has farther reaching consequences than others (that I've read, that is).

While it's easy to mock the lawyer for getting tricked, the basic version of the scam and this more sophisticated version both rely on a very unclear part concerning check processing. Most people assume that once a check "clears" it's confirmed as valid. That's not true.

There's much wider audience that is suffering from this vulnerability in the banking process. I am talking about eBay buyers and sellers.

Side thought - unless eBay is profiting from the uncertainty, they might want to lobby the remedy to this problem, because it is costing them zillions of potential users that are not currently using eBay for the fear of being scammed.

Another side thought is how much time will pass before there will be uproar about the conflict of interest between eBay and PayPal, for eBay does collect the fees regardless of whether the buyer or the seller thinks the whole transaction is fraudulent. You can see glimpses of it in Australia, where eBay tried to make PayPal the only available payment method.

Not to single eBay out, any payment mediator is in the same situation, not necessarily for this reason. Existing Internet retail practices allow for many unfavorable race conditions to exist that allow exploits.

Back to the original point - all these things happen because of absence of a strictly defined protocol that allows the end user, the consumer, to track what is happening, when and why. Such protocols are in place for every step of the way (it wouldn't be possible to conduct business otherwise), except the "last mile" to the actual consumer.

There's an interesting problem here - similar to the famous Zen koan: those who care, see the inadequacy. Those who don't see the inadequacy, don't care. As witnessed by another recent discussion on TechDirt, there are idiots out there, and no matter what safety guards will be installed, they will keep being scammed. They will either be unable to comprehend, or simply unaware, or careless.

But I want the protocol nevertheless.

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