Legal Eye: Tech could brighten retailers' gloom

It is anything but a season of goodwill on the UK high street. The bright side? Technology might just save retailers from the worst of what faces them, says lawyer Kit Burden.

It's been a tough year for retail. Major brand names are going into administration, consumer confidence is at an all-time low and there's nothing to look forward to but a deepening recession in 2009.

It's also been a year of heightened regulatory scrutiny with several major legislative changes taking effect on retailers in both the online and offline worlds.

The two potential beneficiaries of the general retail malaise could well be technology and business process outsourcers. Financial pressures coupled with a variety of newly introduced regulations will see the retail industry become reliant upon and beholden to technology more than ever before.

Key regulations:

1. Consumer Protection from Unfair Trading Regulations 2008 - The balancing act of boosting sales without misleading consumers

2. British Banking Code - The impact of the online fraud liability shift on internet confidence

3. Payment Card Industry Data Security Standard - Keeping customer payments and details safe in line with industry standards

2008 saw a number of significant legal developments for UK retailers that will have lasting implications for technology procurement strategies. In May this year, the Office of Fair Trading launched a new set of regulations - The Consumer Protection from Unfair Trading Regulations 2008 - to better protect consumers from unscrupulous selling and forcing traders to act honestly and fairly towards their customers.

The regulations outlaw all sorts of practices from bait advertising and false claims to misleading discounts and flogging (when a company or its marketers pose as a consumer on a blog to promote the company's brands). As a result, retailers are under greater pressure than ever before to ensure their sales and marketing activities both in-store and on the internet do not breach stringent rules on the use of customer data and the positioning of brands.

Retail fraud has also been a major focus for UK regulators. Updates to the British Banking Code's treatment of internet fraud and to the Payment Card Industry Data Security Standard (PCI DSS) have both given retailers new parameters for the prevention, prosecution and compensation of card-not-present fraud.

In March, what appeared to be a minor amendment to the British Banking Code, occasioned a subtle shift in the liability of internet fraud onto consumers who fail to keep their PCs adequately secure. The code has always advised customers to "use up-to-date antivirus and spyware software and a personal firewall". The new addition states that "unless you have acted fraudulently or without reasonable care (for example, by not following the previous advice), you will not be liable for losses".

Although the code's authors are at pains to stress this new addition is not a get-out clause for banks and retailers, the implied liability shift may turn off an already wary online shopping audience.

And finally, this year will see retailers grapple with an update to the PCI DSS, a worldwide security standard to help organisations that process card payments prevent credit card fraud, hacking and various other security vulnerabilities and threats. An update to the standards designed to clarify and ease implementation of the foremost standard for cardholder account security is due to take effect in December. It will mean retailers need to refresh their payments standards in order to ensure they remain compliant and don't fall subject to fines.

To respond to all of these new regulatory demands on their promotions, security and payments systems, retailers will need to ensure both their in-house and outsourced technology providers are regulation-ready and can help rather than hinder their compliance efforts.

This combined with the commercial pressures of the financial crisis will likely act as a catalyst for increased outsourcing activity in areas including fraud prevention and e-payments, as well as a rise in security and data protection support for retailers' loyalty sites and online shops.

Much as it will increase procurement demand, prompting renewals and generating new contract opportunities, the constantly changing regulatory landscape may also lengthen the procurement process as retailers look to ensure their providers meet the new standards. Cost-cutting will also be paramount so outsource service providers will be under major pressure to provide increased functionality and security, for less money.

With consumers turning online in search for a bargain next year, so too can we expect to see retailers focus their procurement efforts on shoring up their online offering, potentially migrating existing technology contracts to cover both their virtual and high street needs, or even vice versa.

The fallout from both the credit and compliance crunches this year has yet to be fully realised, but one thing is for sure: in the contradictory climate where both 'online' and 'on offer' will be the key mantra for major retailers, and where concerns about internet security and the data implications of online advertising abound, technology will prove dominant.

Technology, possibly more than any other business asset, will hold the key to the two major challenges currently facing retailers - falling spending and rising regulation - and only time will tell if it will help ensure that they triumph against them.

Kit Burden is head of the technology, sourcing and commercial group at law firm DLA Piper