Merchant-acquirers gathered for the midyear conference of the Electronic Transactions Association in Baltimore last week were cautioned that international electronic commerce -- while exciting and potentially lucrative -- also poses new types of challenges.

Companies that clear and process merchants' card transactions -- including banks and the independent sales organizations that act as their agents must be prepared for new and difficult issues: jurisdictional problems linked to offshore banking and gaming, higher risks of chargebacks, and cross-border inconsistencies in rules and enforcement.

International e-commerce means a tangle of languages and currencies, and unconventional merchants, experts said.

Peter Snell, president of Tucson, Ariz.-based Maverick International Processing Services Inc., called the Internet a "treacherous minefield" for merchant processors.

Charles S. Crawford, president and chief executive officer of Crown Management Systems Inc., a McLean, Va.-based payment processing consulting firm, said: "We're being pulled into this revolution by our merchants and our customers. We're not leading it, we're following it."

Consumers around the world are expected to make $100 billion of purchases through the Internet this year, and $1 trillion by 2003, Mr. Crawford said. "People have stopped browsing and have started putting their money where their mouse is," he said.

Cyberspace is populated by strange new retailers -- "little green merchants" who are "irreverent" and "impatient" and want to increase sales faster than conventional merchants, Mr. Crawford said.

But the merchant-acquiring industry is anchored to conventional retailing, and processors are not necessarily equipped to handle Internet conditions, Mr. Crawford said. While merchants want to operate in a borderless world, "acquirers are shackled by cross-border restrictions."

For example, consumers are sometimes charged fees for using their cards at on-line merchants based in other countries, and billing must be in the retailer's local currency. Interchange rates, charge ceilings, and monitoring programs vary from country to country, Mr. Crawford said, but interchange -- the fees that merchant banks pay to cardholder banks to compensate for handling costs -- are usually lower in foreign countries than in the United States.

In the virtual world it is much harder to detect merchant and cardholder fraud, experts said. The chargeback rate on the Internet is about 50% higher than in the physical world.

"Getting into this business is not for the faint of heart," said Andrew M. Phillips, president of Payment Resources International in Corona del Mar, Calif., a merchant-acquirer that has spent the last year dealing almost exclusively with Internet retailers, domestic and foreign. "You have to educate merchants on the fact that they can't run wide open."

Speakers said risk management on the Internet is growing in importance and sophistication. Payment Resources, whose customers are largely considered high-risk, has developed 30 filtering programs for fraud.

"We've imposed restrictions on entire countries from participating on the Net, all because of the fraud that's come through," Mr. Phillips said.

He said U.S. merchants and acquirers need to use caution when working with foreign banks. "My fear is that an unsophisticated American business person can get enamored with untold riches promised by a banker in another country," Mr. Phillips said. "Mr. Unsophisticated will then go out and sell business to place with that bank, and then never see a dime."

Kevin W. Killingsworth, a partner at Risk Management Consulting in Mill Valley, Calif., recently conducted a survey on behalf of Visa U.S.A. of six of the top 25 merchant acquirers. Among his findings were that acquirers underestimate the risk of serving Internet retailers. Respondents compared Internet risks to those posed by mail order and telephone order merchants, when in fact chargeback statistics and other measures show the Internet risks to be higher.

Mr. Killingsworth found that acquirers do not require their merchant customers to offer much in terms of encryption or other security for cardholder data. In many cases, merchants cover security needs by relying on gateway vendors with secure processing capabilities.

Visa and MasterCard have advocated the Secure Electronic Transaction protocol to alleviate security concerns. It has been slow to be accepted, particularly in the United States, which leaves SSL -- Secure Sockets Layer -- as the default standard.

In the absence of SET, Mr. Killingsworth recommended that acquirers adopt more stringent underwriting criteria for high-risk Internet merchants; make regular inspections of merchants' physical locations; and conduct regular reviews of merchant Web sites to monitor changes.

Philippe Serres of Kleline, an e-commerce subsidiary of the French banking group Paribas, told the trade group that the Internet has been primarily a U.S. phenomenon, and thus Europe has lagged in on-line activity. In 1998, just 6.4% of Europeans had Internet access, he said.

Though Europe has been a "little late to the party," it is catching up fast, said Mr. Serres, who described his company as the European pioneer of Internet merchant services.

The euro currency and other factors make Europeans more adept at cross-border transactions, he said. In the next century, he predicted, Europeans will comprise the largest market for e-commerce, because they are "inherently better prepared than Americans."

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