Online Fraud: An E-Commerce Image Problem

An Ipsos-Reid survey of consumers in 16 countries found the security of credit card information in online purchases is a concern for a majority of consumers.

Almost half of the 8,500 adults surveyed said the potential for online credit card fraud is a “major” concern (46 percent), while a quarter (26 percent) cited it as a “moderate” concern. Not only are consumers concerned, the prospect of online credit card fraud also has a chilling effect on potential online shoppers. Among U.S. Internet users who have yet to make an online purchase, 55 percent claim the potential for fraudulent use of their credit card information makes them less likely to shop online.

Another aspect of the problem is the fear that credit card holders are personally liable for all of the charges that an online thief might rack up. The degree of concern about this problem suggests something more basic — consumers may be reacting to the threat to their personal privacy that is implicit in online fraud.

The latest “The Face of the Web” study of Internet usage around the world by Ispsos-Reid found that more than two-thirds of American Internet users have bought something online, making the United States by far the single biggest e-commerce market in the world. About 40 percent of Internet users in major developed countries have shopped online.

“E-commerce has gone mainstream in North America. But to some extent the easy money has been made,” said Julie Busch, a vice president and technology analyst with Ipsos-Reid. “The fears about fraud and misuse of personal data persist and are keeping tens of millions of potential shoppers from making the leap from using the Internet to comparison shop to making an actual purchase online. Other research we’ve done shows that online shoppers are generally satisfied with the online shopping process, but at at the same time, online security and privacy are issues that refuse to go away, especially in key markets such as the U.S.”

In the United States, 47 percent of respondents said online fraud was a “major concern” and another 23 percent said it was a “moderate concern.” The most concerned about fraud are the French, where 63 percent of consumers cited online fraud as a major concern.

“With more than 100 million Americans online, half of whom spend over $500 a year on the Internet, there is huge opportunity among the other half who have yet to make an online purchase,” Busch said. “It’s now up to e-tailers and credit card companies to demystify e-commerce and turn these fence-sitters into satisfied Internet consumers and make money.”

Despite what seems to be a fairly widespread fear of credit card fraud, when asked if they had been the victim of online credit card fraud or knew of someone who had, few respondents could cite any first-or-second-hand experience. Just under 1 percent of all consumers say that they’ve experienced online fraud, according to Ipsos-Reid.

At least half of consumers in the United Kingdom (55 percent), Canada (54 percent), urban Brazil (51 percent), and Japan (50 percent) say the possibility of online credit card fraud is a major concern.

The Ipsos-Reid data suggest that in order to remove barriers to online purchasing, e-tailers and online credit card companies need to educate consumers about security measures used during the online purchase transaction process; disclose corporate policies regarding the use of personal information in consumer-friendly language; and overemphasize the availability of consumer protection plans provided by credit card companies.

“There is a lot to be said for the trust and relationships that local retailers deliver over time,” said Busch. “There are real challenges and significant opportunity among e-tailers to deliver the same level of trust and personalization over the Internet.”

Research from Jupiter Media Metrix also found fears of online fraud are more common than fraud itself. According to Jupiter, fraud rates for online credit cards only amount to three or four times that of overall commerce fraud. A Jupiter Consumer Survey found that 81 percent of consumers who had security concerns about shopping online cited interception of credit card as their primary concern.

The good news for consumers worried about the security of their credit card information is that Web sites are increasingly accepting online credit card processing, and many have automated the process. Fewer are taking credit card payments by methods that require much human input, such as by fax, email, or phone, according to the report “WebChange 2001: E-Business Comes of Age” from ActivMedia Research.

By 2005, the number of businesses that actually mail an invoice will be negligible, with the exception on the B2B side, ActivMedia found. Many B2B sites may maintain some of the traditional payment practices in place with long-time customers.

Problems experienced by online merchants are also diminished. Three in 10 Web business executives in ActivMedia’s study reported that the level of problem orders has declined in the past year, and one in four find falling levels of fraud as well. This may be related to the higher level of automated processing and real-time online security checking that is increasingly in use.

But there is still plenty of work to do on the B2c side. Among the few executives that reported increased problems with orders and fraud, it is not surprising that increases are more widely noted among B2C vendors, where transaction partners are less likely to know each other prior to the order.

“In the past, consumers were hesitant to place orders online for fear of credit card fraud, but that is changing,” said Harry Wolhandler, ActivMedia’s vice president of market research. “As consumers have increasing experience with reputable online merchants, their trust and confidence in the vendors grows. Companies that inspire trust online are able to garner higher levels of loyalty, reduced problems and, ultimately, greater profitability. The improvements noted in this study underscore the progress that continues to be made online among the webs successful vendors.”

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