Consumer Perceptions of Privacy and Security Risks for Online Shopping

Government and industry organizations have declared information privacy and security to be major obstacles in the development of consumer-related e-commerce. Risk perceptions regarding Internet privacy and security have been identified as issues for both new and experienced users of Internet technology. 'This paper explores risk perceptions among consumers of varying levels of Internet experience and how these perceptions relate to online shopping activity. Findings provide evidence of hypothesized relationships among consumers' levels of Internet experience, the use of alternate remote purchasing methods (such as telephone and mail-order shopping), the perceived risks of online shopping, and online purchasing activity. Implications for online commerce and consumer welfare are discussed. The Internet has grown considerably during the past decade, particularly with respect to its use as a tool for communication, entertainment, and marketplace exchange. This rapid growth has been accompanied, however, by concerns regarding the collection and dissemination of consumer information by marketers who participate in online retailing. These concerns pertain to the privacy and security of accumulated consumer data (Briones 1998; Culnan 1999) and the perceived risks that consumers may experience with respect to these issues (Ernst & Young 1999; Milne and Boza 1999; Milne 2000). Consumers' perceived risks associated with online retailing have received limited attention despite their implications for e-commerce. Although some early research suggests that risk perceptions may play a minor role in the adoption of online shopping (Jarvenpaa and Todd 1996-97), several recent industry and government-related studies (e.g., Culnan 1999; Federal Trade Commission (FTC) 1998b, 1998d, 2000) have deemed consumer risk perceptions to be a primary obstacle to the future growth of online commerce. Many involved in online retailing assume that time alone will dissolve consumer concerns regarding the privacy and security of online shopping, yet others argue that greater Internet experience and more widespread publicity of the potential risks of online shopping will lead to increased risk perceptions. To date, no known research has investigated whether higher levels of Internet experience are related to higher or lower levels of perceived risks and concerns regarding the privacy and security of online shopping. Thus, presented here are the results of a study that explores the relationships among Internet experience levels, risk perceptions, and online purchasing rates. This study begins with an examination of Internet users' concerns and perceived risk regarding online shopping. The next area to be examined is how general experience with the Internet and other more-established remote purchasing methods relates to risk perceptions and online purchase rates. Finally, implications for online retailers are discussed with consideration of policy issues surrounding privacy and security on the Internet. PRIVACY AND SECURITY OF ONLINE CONSUMER INFORMATION Statistics and data regarding the growth of the Internet [1] have been widely cited in the popular press. Recent accounts report that over half (52%) of American adults use the Internet, which is twice as many as in mid-1997 (Sefton 2000). Moreover, approximately half of current Internet users have purchased products or services online (Sefton 2000), with average per capita online expenditures exceeding $1,200 in 1999 (Ernst & Young 2000). Looking toward the near future, Ernst & Young (2000) reports that 79 percent of nonbuyers plan to purchase via the Internet during the next twelve months, resulting in online sales of $45 to $50 billion. The issues of privacy and security have been labeled by government and consumer organizations as two major concerns of e-commerce (Briones 1998; CLI 1999; CNN 2000; Consumer Reports Online 1998; FTC 1998a, 2000; Folkers 1998; Judge 1998; Machrone 1998; National Consumers League 1999). …