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E-commerce fears persist

A new survey says that electronic commerce is less prone to fraud than checks, but fears of electronic fraud still hamper online sales and lead vendors to "guarantee" their sites are safe.

A new survey says that electronic commerce is less prone to fraud than offline transactions such as checks, but consumer fears about electronic fraud are hampering online sales anyway, leading vendors to "guarantee" that their e-commerce sites are safe.

A survey by technology consultancies Arthur D. Little and Giga Information Group found that nearly half of 129 respondents rated security and privacy as the most significant barriers to consumer acceptance of e-commerce.

Most vendors didn't need a survey to tell them that. Internet commerce services are already responding to security concerns by guaranteeing that their sites won't expose customers to fraud, or if they do, that the companies will pay for losses.

America Online today became the latest online service provider to offer customers protection against online credit card fraud. The nation's number-one online service provider says it will cover the $50 deductible if an unauthorized user charges a purchase to a customer's card. AOL also has ten criteria that merchants must meet to safeguard the shopping experience, including standards for confirming and fulfilling orders.

AT&T and PSINet this week also said they won't charge for fraudulent credit card purchases made over the Web from merchants who use their services.

The guarantees are intended to assuage consumer fears that are disproportionate to the risk, kind of like dying in a plane crash as opposed to dying in a car crash. "Society still pictures the computer hacker in the back room ready to pounce on consumers' credit cards the minute they type those magic digits into cyberspace," Stuart Lipoff, Arthur D. Little's vice president said.

But this perception means that even a single security breach of an electronic transaction system could be devastating, even as technology makes Internet transactions increasingly secure.

"Those hardest hit by the consequences of a security breach in the electronic world are the third-party intermediaries such as financial institutions and clearinghouses," Lipoff added. This is because most credit cards limit a consumer's liability for fraudulent use to $50.

The survey found that early adopters of e-commerce systems are willing to try and overcome consumers' concerns because they anticipate lower sales and marketing costs, in addition to how much easier the systems make sales processing.

"When [company] employees find a system convenient and easy to use, productivity increases and employee satisfaction provides positive word of mouth and accelerates the deployment of similar applications," Arthur Little director Michael Taylor said.

In addition to security, the survey also identified several other barriers to electronic commerce, including a lack of standards and infrastructure, privacy concerns, regulatory constraints such as the need for signed contracts, lack of acceptance, and start-up costs.