US. DEPARTMENT OF COMMERCE/Office of Consumer Affairs/Washington, DC 20230
Electronic Commerce and the Consumer
What is Electronic Commerce?
Electronic commerce includes all forms of business transactions, such as the purchase of goods or services, undertaken through electronic means, such as telephones, televisions, computers, and the Internet. It is believed to be the means through which most business will be conducted in the future. With the growing numbers of people connecting to the Internet, electronic commerce is gaining rapid acceptance. Many people think of electronic commerce in terms of shopping on the Internet, or shopping on-line, but it's really much more than that. Electronic commerce impacts our lives in more ways than we realize.
- A manufacturer checking inventory on parts at a supplier's warehouse through the Internet in evolved in electronic commerce.
- A direct deposit transaction, such as the direct deposit of a paycheck or a tax refund into a bank account, is an electronic commerce transaction.
- A person advertising a seldom used exercise bike on-line is engaging in electronic commerce.
- Each time someone takes money out of an ATM, or uses a debit or credit card to purchase goods or services, that person is taking part in electronic commerce.
- A catalog shopper placing an order over the telephone is also participating in electronic commerce.
Electronic commerce may be in the form of business to business activities, business to consumer, or direct consumer to consumer contacts. Links to governments, educational institutions, libraries and not-for-profit organizations are all a part of the electronic commerce environment. Goods, services, and information are the content of electronic commerce; the whole world is its venue.
The Evolution of the Internet and Electronic Commerce
Although electronic commerce encompasses all forms of electronic commercial transactions, the recent commercialization of the Internet has greatly facilitated the growth of electronic commerce. The basis of today's Internet was initially developed through U.S. Government investment in computer networking technology dating back to the 1960's. The Internet was originally used for linking and transmitting information among scientists and universities doing government sponsored research in diverse locations. In the 1990's, however, the network was commercialized. Since then, the number of business transactions taking place electronically has grown at an astronomical pace. In fact, the volume of electronic commerce is projected to grow from just $8 billion in 1997 to well over $327 billion in the year 2002.
Consumers and the Electronic Shopping Environment
For the purpose of this bulletin we will concentrate primarily on the purchase of goods and services on-line, a form of electronic commerce using the Internet that is becoming very popular with consumers. In fact, a recent study found that 10 million people in the U.S. and Canada have actually purchased something on-line, up from 7.4 million just six months earlier.(1)
To shop on-line, consumers need a computer or network device that is connected to the Internet through an Internet service provider (ISP). Generally, most ISPs provide local access numbers that home computer owners can dial into directly through telephone lines. ISPs not only act as a "gateway" or "on ramp" to the Internet, but many also provide their own information and entertainment services and shopping outlets. Once connected to the Internet, web browsers and search engines help consumers locate specific destinations on the network, such as the web site for a particular store or product manufacturer. Consumers can either type in the specific Internet addresses or search for locations by entering keywords that describe what they are looking for.
Products and services are arranged in a variety of ways on the Internet. For example, many retail stores and catalogue companies now offer their goods on-line for selection and purchase by customers. New on-line or "virtual" stores selling everything from books and CDs to computer equipment and used automobiles are now open for business on the World Wide Web. Providers of services such as real estate brokers, insurance companies and travel agents also have an on-line presence. Some airlines, for example, offer discounted "cyberfares" to consumers who book their arrangements via the Internet.
However, an Internet shopper need not go directly to an on-line store in order to buy something. Some media sites, ISPs, and search engines prominently feature retailers and provide direct links to their sites. Specialty retailers, large discounters, service companies, and mall/marketplaces from around the world have their place on-line.
Most on-line shopping outlets try to make the electronic shopping experience as familiar and easy for consumers as possible. Physical goods such as flowers, clothing, and household products are often described with detailed product information, pricing and size information, and are represented with photographs of the product. When ready to make a purchase, the customer has only to decide whether to complete the transaction on-line or not. To purchase on-line, a customer selects the product, enters basic name and address information along with a credit card number, depresses the enter key on the computer, and the transaction is completed. Some consumers, however, prefer to use the Internet primarily as an information resource, comparing prices and then making their purchases through traditional means.
Advantages of Electronic Commerce for Consumers
There are numerous advantages for consumers who shop on-line. These include:
- Access to a truly global marketplace with an availability of sources from around the world.
- Access to products, services and information at any time of day or night.
- The convenience and speed of shopping without leaving home.
- Easier price comparisons and often discounted prices for goods purchased directly on-line.
- An interactive opportunity to learn more about products and how to use them.
Consumer Concerns about Electronic Commerce
Many features and conveniences make electronic commerce attractive to consumers. However, consumers also have a number of concerns about the electronic marketplace.
Confidence in the Source
The growth and appeal of the Internet has evolved as a result of the ease with which individuals and companies have been able to enter the electronic marketplace. However, because virtually anyone can create an Internet site and offer products and services, consumers shopping on-line may find suppliers who are well-known, along with unfamiliar ones from countries around the world.
Consumers should only complete transactions or reveal personal information to sources they feel comfortable exchanging information with. Consumers should also be aware that business practices in foreign countries may not be similar to those in the United States.
Security of Information
How safe is it to provide credit card information over the Internet? Will someone else be able to steal and use credit card information provided? Is ordering through the Internet as safe as ordering by phone or mail?
Most Internet purchases are currently made by entering credit card and delivery information on a computerized form and transmitting it electronically to the retailer. Even though consumers are accustomed to giving credit card information over the telephone, many are reluctant to give it on-line for fear that it will be stolen or misused. This reluctance is often cited as the largest barrier to the growth of retail sales on the Internet.
Internet retailers, however, are using technology and standards for safeguarding sensitive information that consumers provide as part of an electronic transaction. Before completing on-line transactions, consumers should take time to become familiar with methods the retailer uses for protecting their information.
To reassure potential customers, many on-line retailers offer descriptions of the technology used to protect credit card transactions. As with traditional transactions, there is always some risk involved with exchanging personal data over the Internet. However, as technology develops and more people shop on-line and have trouble-free experiences, concerns about security should lessen.
Consumers are also concerned about who is going to see the information that is provided and about the use of the information once the transaction is completed. Will others have access to their personal information? Will lists of personal information be sold to providers of similar or related products? The privacy rights of individuals must be balanced with the benefits derived from the free flow of information. But, a certain amount of personal privacy must be assured to increase consumer confidence in the use of the system.
In order to empower consumers to have control of their own personal information, the U.S. Government is encouraging the private sector to establish codes of conduct and self-regulation for the protection of consumer privacy. Effective self-regulation involves substantive rules, as well as the means to ensure that consumers know the rules, that companies comply with them, and that consumers have appropriate recourse when there is non-compliance.
Customer Service Standards
What if a product is delivered inaccurately or doesn't arrive at all? What if the product is defective? What if you need more information about product use?
Improved customer service is perhaps one of the biggest advantages for on-line shoppers. Manufacturers are able to provide more product information, and on-screen instructions--often with visuals and sound--to assist consumers. Inventories can be checked, shipments traced, and pricing errors corrected quickly and electronically.
Making a purchase through the Internet should be no different from making a purchase over the counter. The same guarantees and warranties should apply. However, consumers should be aware that standards may vary from country to country.
Fraud in Cyberspace
Instances of fraud can be found in any marketplace. The Internet presents new challenges for lawmakers and regulators in determining whether existing laws and regulations are sufficient in the on-line marketplace.
Coordinated efforts between governments, international and multinational organizations will be required to create an on-line marketplace in which consumers can have confidence in both their transactions and opportunities for redress.
The Role of Government in Electronic Commerce
Commerce on the Internet promises to total tens of billions of dollars by the turn of the century. For this potential to be realized fully, the U.S. Government believes that governments must adopt a non-regulatory, market-oriented approach to electronic commerce, one that facilitates the emergence of a predictable legal environment to support global business and commerce. The U.S.Government's approach to electronic commerce policy making is that:
-The private sector should lead.
-Governments should avoid undue restrictions on electronic commerce.
-Where government involvement is needed, its aim should be to support and enforce a predictable and simple legal environment for electronic commerce.
- Governments should recognize the unique qualities of the Internet.
- Electronic commerce over the Internet should be facilitated globally.
Governments around the world are participating in the creation of legal frameworks that will facilitate electronic transactions nationally and globally. The challenge is to provide an adequate level of protection for consumers and businesses without stifling competition and technological development through excessive or unnecessary regulation. Mechanisms should be established that give consumers assurances that their on-line transactions carry the same legal rights and responsibilities as off-line transactions. Questions regarding customs and taxes, protection of intellectual property rights as they affect consumers, privacy and security, and protection against fraud are under discussion in a variety of fora--both national and international. For example:
- Through the World Trade Organization, the U.S. Government is seeking to have the Internet declared a tariff-free environment.
- The Treasury Department is debating tax issues and the development of electronic payment systems through the Organization for Economic Cooperation and Development.
- Uniform Commercial Codes are now being considered at the international level.
- The Department of Commerce is working with U.S. industry and foreign governments to develop self-regulatory mechanisms that protect consumer privacy and the collection, storage and re-use of personal data.
- The Federal Government is also working to encourage technological developments to expand Internet capabilities and the further development of the global telecommunications infrastructure.
Electronic commerce offers unlimited opportunities for consumers to interact with people and markets around the globe. For consumers to make the most of the potential of the global Internet, businesses will have to overcome a number of challenges. Among these are the need to increase consumer confidence in computer images and information to determine the quality and fit of a product, and to simplify the process of returning defective or unwanted merchandise. Business will also need to address the issue of credit card security and consumer privacy.
For consumers to take full advantage of the opportunities of the global marketplace, care will have to be taken to recognize the unique qualities of the Internet and to promote the principles that have made electronic commerce and the Internet successful--private sector leadership, the absence of burdensome regulation, freedom of information and expression, open access and competition --while addressing the challenges this new environment brings.
As more individuals come on-line, as the Internet becomes easier to access, as commerce on the Internet increases, and as consumers become more educated and comfortable about completing transactions in the electronic marketplace, the combined effect will be to further enhance the already-present benefits the Internet has to offer to consumers.
The Language of Electronic Commerce and On-Line Shopping
This section provides a definition and discussion of terms that consumers are likely to encounter in the electronic marketplace. Many of these terms have been used in this bulletin, however, some supplemental terms have also been included to provide readers additional information.
Bookmark: A tool on a web browser that helps users save Internet addresses for later reference.
E-Mail: Messages sent over computer networks (such as the Internet) from one person to another or from one person to many.
Electronic Commerce: All forms of commercial transactions, such as the purchase of goods or
services, undertaken through electronic means, such as telephones, televisions, computers, and the Internet.
Encryption: The scrambling or coding of data for transmission so that the information can be easily read only by the intended recipient.
FAQ: Frequently Asked Questions. A reference list that provides answers to commonly asked question on or about a particular web site. FAQ are especially helpful for first-time visitors and users looking for general information about a particular web site.
Home Page: The introductory page of a web site, frequently a table of contents or navigational map that assists users in locating information on the site.
Internet: The global matrix of interconnected computer networks using the Internet Protocol (IP) to communicate with each other.
Internet Service Provider (ISP): A company that provides Internet access to consumers for a fee. ISPs often also provide their own information, entertainment, and shopping services as part of their offerings.
Modem: A device that allows computers to connect to other computers and networks through telephone lines.
Search Engine: A computer program that assists users in finding information and locations on the Internet. Search engines often host direct links to other web sites and provide a tool by which users can search the Internet for web sites that contain keywords or phrases.
Web Site: A specific location on the World Wide Web.
World Wide Web (WWW or Web): A system for delivering text and multimedia files (such as graphics, sound or video) over the Internet. Because of its compatibility with earlier Internet protocols and the popularity of its use, the term "World Wide Web" is often used interchangeably with "Internet."
For further information about Electronic Commerce contact:
Secretariat for Electronic Commerce
U.S. Department of Commerce
Washington, DC 20230
Web site: www.ecommerce.gov
For more information about the Office of Consumer Affairs, consumer bulletins and other publications contact:
Office of Consumer Affairs
U.S. Department of Commerce
Room H 5718
Washington, DC 20230
Web site: www.doc.gov/oca
Phone: (202) 482-5001
Fax: (202) 482-6007
1. i. Fall//Winter 1997 CommerceNet/Nielsen study.