Impact of e-Commerce and m-Commerce on Consumer Privacy and Fraud

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  • 0:05 E-Commerce & M-Commerce
  • 0:58 Privacy
  • 2:02 Privacy in E-Commerce
  • 6:15 Protecting Privacy
  • 7:43 Fraud
  • 12:01 Lesson Summary
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Lesson Transcript
Instructor: Jill Heaney

Jill has taught college-level business and IT. She has a Doctorate in Business Administration and an M.S. in Information Technology & Leadership.

There are a number of challenges in the world of e-commerce and m-commerce stemming from the ease of information exchange over the Internet. The issues discussed in this lesson include consumer privacy and fraud.

E-Commerce and M-Commerce

Hi, I'm Mary Thompson of GNN News with a special report on consumer privacy and fraud. Information technology has changed society in many ways including the way we conduct business and purchase goods and services. E-commerce and m-commerce have become a way of life. Electronic commerce, or e-commerce, is the buying and selling of products over the Internet. Mobile commerce, or m-commerce, refers to e-commerce conducted in a wireless environment over the Internet. This typically occurs over mobile technologies such as smartphones, tablets or other wireless devices. With this technology come two important issues and concerns we must be aware of: consumer privacy and fraud.

Privacy

The protection of personal data is a pressing privacy issue. Privacy is the right to be left alone and free from surveillance and unreasonable personal intrusions. Information privacy is the right to determine when and to what extent information about oneself can be communicated to others. But, how much control do consumers really have over their information in our ever increasing digital world?

A decline in privacy has resulted from the development and widespread use of databases. A database is an organized collection of information that can be accessed, managed and updated. Databases may contain all sorts of personal information including addresses, buying habits, preferences, credit card information and personal histories. Practically every organization we conduct business with maintains a database of information including the grocery store, the pharmacy and e-commerce websites on the Internet.

Privacy in E-Commerce

E-commerce transactions typically require buyers to divulge large amounts of personal information, either for the purpose of completing the sales transaction or as required by the company. Consumers don't often give much thought to how secure their information is, who has access to it and how it will be used. A consumer's privacy can easily be violated through unintentional consent.

Smartphones and tablets are used to conduct m-commerce
M Commerce Devices

Many consumers mistakenly believe that when they see a privacy policy, or a statement detailing the ways in which a party collects, uses and maintains customer data, on a website they visit, that those sites are not collecting or selling their personal information and online activities to others. That's not always the case. The privacy policy only details how information may and may not be used.

Let's talk with Martin Brown, a successful e-business entrepreneur.

(Mary:) Hi Martin, welcome!

(Martin:) Hi Mary, thanks for having me.

(Mary:) Martin has developed a website called Gadgets and Things, which sells a variety of miscellaneous products that are sometimes difficult to find. Customers can engage in e-commerce or m-commerce by purchasing products through his website over the Internet. E-commerce and m-commerce transactions are known for leaving a trail of personally identifiable information. Martin, can you tell us what information you collect and how you use the information from consumers who transact business with your company?

(Martin:) Of course, Mary! We collect personal information, such as one's name, address, email or phone number; we also collect demographic information, such as age and gender. This allows us to gain a better understanding of our customers and their needs. With this information, we are able to cater to their specific wants, market products to them that they may be interested in and increase the likelihood that a purchase will be made.

(Mary:) Clearly, for the business, collecting personal information is useful in marketing research and personalized advertising. Websites frequently collect this type of information when a user signs up or makes purchases. Martin, how are you able to gather data about consumer preferences and likes?

(Martin:) Well, Mary, one technological tool that is quite popular and used commonly in e-business is the cookie. Cookies are small data files that are written and stored on the user's hard drive by a website whenever the user visits the site with their browser. Cookies send information back to me on the user's movements and actions.

(Mary:) Cookies are a popular method for collecting data. The public should also be aware of a more controversial manifestation of this technology, which is third-party cookies. Third-party cookies are placed across a network of related websites so that a user's movements can be tracked at any site within the network.

An even more intrusive technology is spyware. Spyware is a small computer program, stored on the user's hard drive, that collects users' habits and transmits that information to a third party, all without the user's consent. Spyware can monitor any website visited by the user whereas cookies are specific to a particular website or network of websites. Thanks Martin for your time and expertise on the type of data collected by businesses and how that data is commonly collected.

(Martin:) You're very welcome Mary!

(Mary:) Consumers will have a difficult time keeping their information private when they engage in e-commerce and m-commerce. Transactions between vendor and customer used to be private, but information technology has dramatically impacted the availability of information and reduced privacy.

Most businesses have attempted to build strong defenses to protect consumer information. They understand the importance of securing and guarding this valuable resource. Even so, security breaches do occur in which personally identifiable information within organizations is susceptible to fraud and theft.

Protecting Privacy

Websites often ask for personal information when customers sign up for accounts
Website Sign Up

The question that arises is: how can we protect our privacy? Some suggest that creating awareness and educating consumers and businesses would help. Others believe legislation is needed, while some feel technology is the answer. Most likely, a combination of the three would be most effective.

Some technologies attempt to provide more anonymity. For instance, a method could be implemented that enables organizations to store information in databases, yet ensures the information cannot be traced back to a specific person by removing all identifying information. Other technologies may limit access to information by alerting users of cookies or preventing their installation.

Legislation can be effective at restricting how businesses use information or giving consumers more control. But, legislation has its limitations; technology grows rapidly and easily outpaces the legal system's ability to keep up. One new law is called the Restore Online Shoppers' Confidence Act. It was signed into law by President Obama in 2010. This act regulates post-transaction marketing and specifically targets transactions conducted by third-party sellers. The act prohibits businesses from transferring consumer data to a third-party for the purpose of engaging in post-transaction marketing on the merchant's websites.

Fraud

Business owners, like Martin, must be aware of the very real possibility for fraud and must take measures to protect the business and its customers. Fraud is deliberate misrepresentation that causes others to suffer loss or damages. The same scams that are carried out by mail or phone can be found on the Internet. E-commerce concerns making transactions, and transactions concern money. This attracts crackers and criminals who attempt to exploit loopholes in the system for personal gain. Remember that a cracker is a term used to describe someone who intentionally breaches security to break into someone else's computer or network for a malicious purpose. E-commerce fraud costs retailers billions of dollars each year.

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