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A Setback for Consumer Confidence

  |  October 8, 2002   |  Comments

Online scams deal a blow to those of us trying to encourage online commerce, but we can fight back.

I'm sure it'll come as no surprise to find that eBay is consistently ranked as one of the most trafficked sites month after month. In August, Nielsen//NetRatings listed the site as number 8 on the Top 10 Brands list. This ranking combines the at-home and at-work active Internet audience to come up with a figure for unique audience (30,398,000) and time per person (1hour, 54 minutes, and 40 seconds). These are the numbers we all dream of as online marketers.

I took a quick poll of buyers and sellers alike. To my surprise, very few people I spoke with said they themselves had used eBay. Since my first personal experiences on the site (OK, I admit, buying Gucci bags), I've been impressed. I've also been exposed to PayPal, eBay's purchase of which closed last week.

PayPal is reported to be the Internet's largest purveyor of online services between individuals and businesses. According to BizReport, about two-thirds of PayPal's revenues come from fees generated by eBay auction transactions. Last July, eBay proposed to PayPal in a $1.3 billion dollar merger. PayPal has approximately 20 million registered users and estimates that $10 billion will pass through the service by 2005.

In a research report last year, Pacific Crest Securities estimated that eBay would garner more than $7 million in revenue for each point of market share it took from PayPal in 2002. Now it's taken over PayPal's entire market share.

Electronic payment methods over the Internet have spread like wildfire. Gartner Group predicts online purchases with debit cards to compose over 30 percent of all e-tail by next year. PayPal's software allows users to send and receive money over the Internet by registering an email address and a credit card number. PayPal acts as a middleman, by charging the buyer's account and crediting the receivers.

Still unclear on what role PayPal plays? Let's take a look at directions posted on PayPal's site:

  1. You create a PayPal account by providing your personal data, such as your credit card and/or bank information, and by verifying your email address.

  2. To send money, just go to the PayPal site and enter information, such as a person's name, email address, and amount you want to send. The payee receives the cash in his/her PayPal account at the speed of email, billed to your PayPal account (which is tied electronically to your credit card, debit card, or checking account).

  3. The payee can ship you the item you bought right away, with no need to wait for the mail to arrive and for the check to clear. And the recipient never sees your credit card or bank account number.

  4. You can even send money to someone who does not have a PayPal account, though that person will have to sign up with PayPal to collect it.

  5. PayPal promises to investigate any PayPal sellers who do not ship what was promised, and will give dissatisfied customers any money it can recover. PayPal accounts are not insured by the government the way bank accounts are, but PayPal insures them up to $100,000 against unauthorized withdrawals.

Such simplicity has caused the service to gain popularity, although recently that popularity has been turned against it. In general, consumer confidence in online is steadily growing, and recent reports by Yahoo and ACNielsen predict this increase to yield an surge in online consumer spending. Sounds optimistic for those of us who advertise online, right? Think again.

Last week, some (brilliant) idiot created and distributed one of the most offensive online frauds yet. The target was none other than our beloved PayPal. It was a simple email sent out to recipients across the Internet that read:

Dear PayPal User, Today we had some trouble with one of our computer systems. While the trouble appears to be minor, we are not taking any chances. We decided to take the troubled system off-line and replace it with a new system. Unfortunately, this caused us to lose some member data. Please follow the link below and log in to your account to make sure your information is not affected. Account balances have not been affected.

It goes on to entice users by saying that, "If fees would normally apply, you will not pay anything for the next two incoming transfers you receive" because of the inconvenience of having to re-enter data.

Of course, getting people to re-enter their data was an attempt by the scamsters to gain access to sensitive financial information. There's been no information released on how many people actually fell for the scam.

So, what's the lesson to learn here? This shows that the world is fraught with peril for even the most well-respected brands, such as eBay and PayPal. In this case, ironically, it was users' trust for PayPal that led to their being tricked out of their information.

Though there's not much you can do to keep a fraudster from misappropriating your client's good name, making sure you don't fall in with the wrong crowd has never been more important.

Marketers need to court people's trust by being completely aboveboard in all of their online activities. This can be accomplished by:

  • Engaging only in strict permission-based marketing

  • Associating your client's brand with only the crème de la crème of online publishers and other partners

PayPal's and eBay's track records and brand images are likely strong enough to survive this attack, but only because they've previously done things like inform their users on how to avoid falling for such a scam. Do the same, or the equivalent in your business, and you'll be one of the brands that benefits from the predicted rise in consumer confidence.


Seana Mulcahy

Seana Mulcahy is vice president, director of interactive media at Mullen (an IPG company). She's been creating online brands since before the first banner was sold. Her expertise includes online and traditional media planning and buying, e-mail marketing, viral marketing, click-stream analysis, customer tracking, promotions, search engine optimization and launching brands online. Prior to Mullen, Seana was vice president of media services at Carat Interactive. She's built online media services divisions for three companies and has worked with clients spanning financial, telecom, high-tech, healthcare and retail. Not surprisingly, she has taught, lectured and written about the industry for numerous trade associations and publications.

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