Trust in ECommerce

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McMaster University Business K778 Seminar
Trust in E-Commerce Isaac Wong March 26, 2002
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AGENDA
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Introduction

• What is Trust?
• Definition
• the assured reliance on the character, ability,
  strength, or truth of someone or something, or
  one in which confidence is placed.

Trust Risk
Strategic Thrusts
Framework
Conclusion
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Questions
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• Trust in Traditional Commerce

Introduction

• Identity (brick mortar store)
• Immediacy (physically touch the product)
• Value (can evaluate since close at hand)
• Discourse (talk to a salesman in person)
• Community (words of mouth)
• Privacy (pay cash)
• In the traditional setting, handshaking often
  symbolizes a transaction
• In the Internet context, it is not possible

Trust Risk
Strategic Thrusts
Framework
Conclusion
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Questions
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• What Consumers Look For to Evaluate
  Trustworthiness online

Introduction
Trust Risk

• Is the site professional?
• Does the information architecture make sense?
• Is the site easy to navigate?
• Is the site easy to use?
• Are my questions answered?
• Do other people trust this site?
• Am I familiar with this company?
• Are the prices reasonable?

Strategic Thrusts
Framework
Conclusion
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Introduction

• Some Properties of Trust

Trust Risk
Strategic Thrusts

• Trust is not associative (non-symmetric)
• Trust is not transitive
• Trust is always between exactly 2 parties
• Trust will involve either direct trust or
  recommender trust

Framework
Conclusion
Web Sites
Questions
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• Trust and Risk

Introduction
Trust Risk

• Trust and risk are closely interrelated
• Risk is defined as a consumers perception of the
  uncertainty and adverse consequences of engaging
  in an activity
• When risk is present, trust is needed to make
  transactions possible
• Doing business on the Internet has many
  additional risks

Strategic Thrusts
Framework
Conclusion
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Questions
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• Four Types of Risk

Introduction

• Financial (risk of losing money or paying too
  much)
• Functional (risk of receiving the wrong or a
  malfunctioning product)
• Social (risk of using a product that reflects
  poorly on its user)
• Physical (risk that we might be harmed by the
  product)
• Higher consumer trust towards an Internet store
  will reduce the perceived risks associated with
  buying from that store

Trust Risk
Strategic Thrusts
Framework
Conclusion
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• Factors of Trust

Introduction
Trust Risk

• Reputation and size are key factors
• Long term reputation is far more than short-term
  product quality movements
• Reputation and size provide assurances
• Assurances help to increase trust, particularly
  when parties have not interacted before and do
  not have first hand knowledge of each other
• The stores perceived reputation is positively
  associated with a consumers trust in an Internet
  store
• The stores perceived size is positively
  associated with a consumers trust in an Internet
  store

Strategic Thrusts
Framework
Conclusion
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Questions
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Introduction

• Outcomes of Trust

Trust Risk

• Higher consumer trust toward an Internet store
  will generate more favourable attitudes towards
  shopping at that store
• The lower the consumers perceived risk
  associated with buying from an Internet store,
  the more favourable the consumers attitudes
  towards shopping at that store
• Favourable attitudes towards an Internet store
  will increase the consumers willingness to
  purchase from that Internet store
• Reduced perceived risks associated with buying
  from an Internet store will increase a consumers
  willingness to purchase from that Internet store

Strategic Thrusts
Framework
Conclusion
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Questions
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• Key Strategic Thrusts to Build a framework of
  trust

Introduction
Trust Risk

• Five key strategic thrusts
• Establishing a secure e-Commerce environment
• Building confidence in E-businesses
• Building confidence in consumers to transact on
  the Internet and
• Educating and increasing awareness of the
  benefits of E-Commerce
• Best practices for E-Commerce to increase trust

Strategic Thrusts
Framework
Conclusion
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Questions
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• Establishing a secure E-Commerce Environment

Introduction
Trust Risk

• People need to be confident of the identity of
  the person sending electronic messages, to be
  sure that they have not been tampered with, and
  that they have been kept confidential.
• Senders would want to be able to identify the
  recipients of the messages, to ensure that they
  will not land on the hands of the unauthorized.
• Secure electronic transactions can be provided
  through the use of encryption technologies and
  certification authorities.

Strategic Thrusts
Framework
Conclusion
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Questions
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• Establishing a secure E-Commerce Environment

Introduction
Trust Risk

• Approaches
• Security
• Secure Socket Layer
• S-HTTP, s/MIME
• Identification
• Challenge-Response System
• Authentication
• Secure Electronic Transaction (SET)
• Secure Electronic Payment Protocol (SEPP)
• Secure Transaction Technology (STT)
• PKI/Digital Certificates
• Authorization
• Open Profiling Standard for Authorization and
  Single Sign-On (OPS)

Strategic Thrusts
Framework
Conclusion
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Questions
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• Establishing a secure E-Commerce Environment

Introduction
Trust Risk

• Risk is unavoidable, but doing E-Business is
  perceived to have greater risks.
• Some banks impose higher transactional fees for
  online payments (risk premium)
• E-Merchants are required a fixed term (e.g. six
  month) deposit to cover possible charge backs
  arising from online transactions.
• Approach Risk Assessment and Profiling

Strategic Thrusts
Framework
Conclusion
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Questions
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• Building Confidence in
• E-Business

Introduction
Trust Risk

• E-Commerce brings about new markets, more
  customers and global reach.
• Businesses are hesitant to exploit opportunity
  which can be accompanied with an increased risk
  of network fault, online fraud and crime.
• Businesses also worry about capital investment
  that might become outdated through rapid
  technological obsolescence.
• Approach Introducing E-Commerce Insurance
  Underwriters

Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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• Building Confidence in
• E-Business

Introduction
Trust Risk

• When a credit card fraud occurs, the e-business
  will lose its good, be charged for the costs and
  have to pay the issuing bank a charge-back fee
• Online consumers also face the risk that they may
  not receive the goods, the goods that arrived are
  not what they had ordered or the goods are
  damaged upon receipt and even DOA (dead on
  arrival).
• Approach Escrow Services

Strategic Thrusts
Framework
Conclusion
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• Building Confidence in
• E-Business

Introduction
Trust Risk

• Due to the faceless nature of E-Commerce
  transactions, the transacting parties on both
  sides do not know each other and have no
  information on the credit worthiness of the other
  party
• Approach Introducing Credit Bureau Services

Strategic Thrusts
Framework
Conclusion
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• Building Confidence in
• E-Business

Introduction
Trust Risk

• There will be potential e-disputes when doing
  business online, thus there is a need for an
  alternative dispute resolution process to allow
  businesses and consumers to have access to an
  independent and efficient way of resolving
  complaints.
• Approach Alternative Dispute Resolution (ADR)
  Mechanisms

Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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• Building User Confidence in E-Commerce
  Transactions

Introduction
Trust Risk

• For consumers to transact on the Internet, they
  must have trust that the site keeps information
  private and offers a secure site for them to
  purchase products
• Consumers fear the risk of financial losses due
  to theft or fraudulent use of credit cards, or
  orders that disappear and products that never
  arrive.
• Approach Trust Marks

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  WebTrust

Introduction
Trust Risk

• The public accounting profession (AICPA CICA)
  Verisign has developed and is promoting a set of
  principles and criteria (On-Line Privacy,
  Security, Business Practices and Transaction
  Integrity, Availability, WebTrust for
  Certification Authorities)
• CPA CA can provide assurance services to
  evaluate and test whether a particular E-Commerce
  site meets these principles and criteria
• The WebTrust seal of assurance can be displayed
  on the E-Commerce site if it meets these
  principles and criteria
• Example site Bell Canada

Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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• Building User Confidence in EC Transactions -
  BBBOnline

Introduction
Trust Risk

• Reliability Seal Program
• Makes a commitment to high levels of ethical
  business practices and customer satisfaction.
• Has been in business for more than a year.
• Has a satisfactory record with the Better
  Business Bureau.
• Commits to work with its customers and the Better
  Business Bureau to resolve disputes that might
  arise.
• Privacy Seal Program
• The BBBOnLine Privacy program was developed
  specifically to help business web sites address
  this key concern of online shoppers.
• Example site Dell Computer

Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• Deals with privacy concerns of users. Its goal is
  to provide
• Online consumers with control over their personal
  information
• Internet publishers with a standardized,
  cost-effective solution for both satisfying the
  business model of their site and addressing
  consumers anxiety over sharing personal
  information online
• TRUSTe seal will take users directly to a
  companys privacy statement
• Example site MSN

Strategic Thrusts
Framework
Conclusion
Web Sites
Questions
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• Program Principles
• Adopting and implementing a privacy policy that
  factors in the goals of the individual web site
  as well as consumer anxiety over sharing personal
  information online
• Posting notice and disclosure of collection and
  use practices regarding personally identifiable
  information via a posted privacy statement
• Giving users choice and consent over how their
  personal information is used and shared
• Putting data security and quality, and access
  measures in place to safeguard, update and
  correct personally identifiable information

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• Minimum requirements of the TRUSTe privacy
  statement
• What personal information is being gathered
• Who is collecting the information
• How the information will be used
• With whom the info will be shared with
• The choices available to users regarding
  collection, use, and distribution of their info
• The security procedures in place to protect
  personal info from loss misuse, or alternation
• How users can update or correct inaccuracies in
  their pertinent info

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• TRUSTe Oversight
• Initial and Periodic Review
• Review website for adherence to the TRUSTe
  principles, privacy statement requirements and
  trustmark usage.
• Seeding
• TRUSTe submits unique user information and
  monitor results for any wrongdoing
• Online Community Monitoring
• The ability of the community at-large to report
  violations by establishing online Watchdog
  reporting form for users. Licensee privacy
  statement must also display the TRUSTe click to
  verify seal which links to a verification page
  located on TRUSTes secure server.

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• TRUTEe Resolution Process
• Request users to contact website directly before
  filing a report with TRUSTe
• If there is no satisfactory response, TRUSTe
  steps in as the liaison between the consumer and
  website to resolve the issue.
• If the website is in violation and is verified by
  TRUSTes official auditors, TRUSTe will advise
  and guide the licensee on the steps to remedy the
  problem
• If no action taken, then it will result in
  revocation of the TRUSTe trustmark

Strategic Thrusts
Framework
Conclusion
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Questions
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Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in EC Transactions -
  TRUSTe

Introduction
Trust Risk

• Issues
• Narrow Focus
• Web only, what about e-mail and other channels?
• Potential conflict of interest
• Depends on corporate sponsors which are also
  users of TRUSTe
• Self violation
• Allowed a third party thecounter.com to track
  visitors to its web site through a collection of
  personally identifiable information

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in E-Commerce
  Transactions

Introduction
Trust Risk

• The ease with which personal information can be
  disseminated with the proliferation of IT has
  raised privacy concerns worldwide.
• Approaches Addressing privacy concerns
• - Policy for Cookies should be made known to
  the users
• - Policies regarding any practices that involve
  using record of user accesses for statistics
  generation and/or debugging, should also made
  known to the users
• - Platform for Privacy Preferences Project (P3P)

Strategic Thrusts
Framework
Conclusion
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• Building User Confidence in E-Commerce
  Transactions

Introduction
Trust Risk

• P3P (W3Cs Platform for Privacy Preferences
  Project) A framework for informed Internet
  interactions. The goal of P3P is to enable
  Internet sites to express their privacy practices
  and users to exercise preferences over those
  practices
• Approach Each Internet site has a proposal for
  privacy policies. If a proposal matches the
  users preference via WWW user-agents, then
  accept. Otherwise, reject. Sites can use P3P to
  increase the level of confidence

Strategic Thrusts
Framework
Conclusion
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• Educating and Increasing Awareness of the
  Benefits of E-Commerce

Introduction
Trust Risk
Strategic Thrusts

• Approaches The government introduces initiatives
  to help educate and increase awareness of
  E-Commerce for the businesses and consumers.
• Encouraging the fostering of an e-lifestyle
  amongst the people
• Creating E-Commerce awareness through seminars
  targeting at businesses
• Publicly awarding businesses that adopted
  E-Commerce successfully

Profile
Conclusion
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Questions
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• Best Practices for E-Businesses to Increase Trust

Introduction
Trust Risk

• Seals of Approval Re-assure the consumers that
  security has been established
• Brand The E-Merchants promise to deliver
  specific attributes and its credibility based on
  reputation consumers previous experience
• Navigation Ease of finding what the consumers
  want
• Fulfillment Clearly indicates how orders will be
  processed, and provides information on how to
  seek recourse if there are problems
• Presentation Design attributes that exhibit
  quality and professionalism
• Technology State of the art even it is expensive
  and difficult to use

Strategic Thrusts
Framework
Conclusion
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Introduction
Trust Risk

• Putting all the key strategic thrusts together
• To build a framework of trust

Strategic Thrusts
Framework
Conclusion
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• A Framework of Online Trust

Introduction
Trust Risk

• Technology Dimension
• Market Place Dimension
• Market Participant Dimension
• Supported by a legal framework

Strategic Thrusts
Framework
Conclusion
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An Online Trust Framework (Simple Model)
Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
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• A Framework of Online Trust

Introduction

• Technology Dimension
• Security, Authentication, Identification,
  Authorization
• Non-repudiation
• Confidentiality of Transactions
• Tools
• PKI/Digital Certificates
• Challenge Response
• SSL, S/MIME
• SET, SEPP, STT, OPS
• Key Strategic Thrust To establish a secure
  E-Commerce Environment

Trust Risk
Strategic Thrusts
Framework
Conclusion
Web Sites
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• A Framework of Online Trust

Introduction

• Market Place Dimension
• Privacy Services (e.g. P3P)
• Alternative Dispute Resolution (ADR) Mechanisms
• E-Commerce Insurance Underwriters
• Escrow Services
• Credit Bureau Services
• Alternative Dispute Resolution (ADR) Mechanisms
• Trust Marks
• Key Strategic Thrusts
• To build confidence in EC
• To build user confidence in EC Transactions
• Best Practices

Trust Risk
Strategic Thrusts
Framework
Conclusion
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• A Framework of Online Trust

Introduction

• Market Participant Dimension
• Risk Assessment Profiling
• Fostering e-commerce lifestyle, e-commerce
  seminars for consumers, etc.
• Brand, Effective Navigation, Fulfillment
  Presentation
• Key Strategic Thrusts
• To establish a secure E-Commerce Environment,
• To build confidence in EC
• To build user confidence in EC Transactions
• To educate and Increasing Awareness of the
  Benefits of E-Commerce
• Best practices

Trust Risk
Strategic Thrusts
Framework
Conclusion
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A Legal Framework
Introduction

• Consistent Legal Framework is important
• Country specific but EC is global
• Conflicting views create confusion and friction
  in the E-Commerce
• A sound global legal framework plays a vital role
  in restoring confidence in the mind of customers.
• Approach United Nations Committee on
  International Trade and Law (UNCITRAL) should
  take initiative to find a global acceptable
  solution for the legal framework

Trust Risk
Strategic Thrusts
Framework
Conclusion
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A detailed Online Trust Framework
Introduction
Trust Risk
Strategic Thrusts
Framework
Conclusion
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Introduction

• Conclusion

Trust Risk

• The issue of trust in E-Commerce is fundamental
  to its eventual success
• If consumers cannot trust that personal
  information is safe and secure, the Internet will
  never reach its economic potential
• In the faceless world of E-Commerce, consumers
  need the assurance of a sound framework for
  fostering online trust

Strategic Thrusts
Framework
Conclusion
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• Related Web Sites for online Trust

Introduction
Trust Risk

• Trust Marks
• TRUSTe
• http//www.truste.com
• WebTrust
• http//www.cpawebtrust.org
• BBBOnline
• http//www.bbbonline.org

Strategic Thrusts
Framework
Conclusion
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• Related Web Sites for Cyber Crimes

Introduction
Trust Risk

• Discussion Papers on e-Trust
• Online Trust in Business-to-Business E Commerce
  (Mahadevan Venkatesh) http//unix2.iimb.ernet.in
  /mahadev/trust1.pdf
• A Proposed Framework on Building Trust and
  Confidence in Electronic Commerce (IDA,
  Singapore) http//www.ida.gov.sg/Website/IDAhome.n
  sf/Home?OpenForm

Strategic Thrusts
Framework
Conclusion
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Introduction
Trust Risk
Strategic Thrusts

• Questions???

Framework
Conclusion
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