Gartner: $2 Billion In E-Commerce Sales Lost Because Of Security Fears

Written by Evan Schuman
November 26th, 2006

In 2006 alone, retailers lost almost $2 billion because of consumer security fears, with about one-half of those losses ($913 million) coming from people who avoided sites that seemed to be less secure and the rest (about $1 billion) came from consumers who were too afraid to conduct E-Commerce business at all, according to a Gartner survey of 5,000 U.S. adults in August that the research firm will publish on Monday.

The report is startling in the sense that it confirms what many retailers have long feared. It’s a frustrating problem because so many legitimate security defenses are invisible and the most visible security features?such as displaying a sign noting security standards compliance?does little to truly secure the site. Also, credit card purchases are overwhelmingly protected against theft so the true risk for consumers is quite small.

Consumers, however, do not make purchase decisions based on reality nearly as often as they do on perception, so the reality of low risk doesn’t help much if consumers perceive high risk.

On the other hand, a consumer survey may not be the most reliable means of measuring E-Commerce losses which, at best, are theoretical as it’s impossible to precisely quantify the value of purchases never made. Also, consumers who want Web sites to improve security might tell survey researchers that the lack of security has stopped them from making purchases, even if that’s not true. Even if the consumer is speaking truthfully, they are speaking generically about unspecified future purchases. When it comes to actually make a specific purchase that the consumer wants or needs, they might very well change their mind.

“For 90 percent of people, if they want that refrigerator, they are going to buy it,” said Avivah Litan, a Gartner analyst specializing in security who is also an author of the report.

All those things aside, Litan stresses that the security perception issues are real and that E-Commerce merchants would do well to improve both the actual security as well as visible signs of security for both deterrence and to provide customer comfort.

?The two goals don?t necessarily call for the same technical approaches because the most effective fraud prevention applications are often invisible to consumers and criminals,? Litan said. ?A layered approach to solving security problems is the most effective. Companies should implement back-end fraud detection, stronger user authentication (beyond single factor passwords), transaction verification for high-risk transactions, and data masking/truncation of sensitive data that is shown on Web-based screens.?

Gartner is reporting that the impact of the consumer fears extends beyond consumers choosing to make online purchases, but also extends to online banking?where the report projects that some 33 million U.S. adults have avoided online banking due to security concerns?and generic E-mail marketing. More than 85 percent of the consumers in the Gartner survey said they delete unexpected E-mail without opening it.


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