Consumer Bulletin

US. DEPARTMENT OF COMMERCE/Office of Consumer Affairs/Washington, DC 20230

This page was last updated 7/98

Number 13

Electronic Commerce:

Addressing Consumer Concerns

In 1996, fewer than 40 million people worldwide were connected to the Internet. By the end of 1997, that number had grown to over 100 million, and traffic on the Internet is doubling every 100 days. This rapidly expanding use of the Internet has boosted interest in developing this vehicle into a thriving marketplace, one with boundless and boundary-less opportunities and benefits for businesses and consumers alike.

But, this marketplace is just in its early stages. Only about one percent of total retail sales are made over the Internet. The Federal government believes that development of the Internet as a vehicle of commerce should be market driven, and, as more and more consumers complete satisfactory transactions, confidence in the process will increase. It is only a matter of time before businesses and consumers will develop the same comfort level and degree of trust now enjoyed by more traditional marketing outlets, turning the Internet into a major force in the global economy.

At this point in time, however, consumers are expressing concern about several aspects of electronic commerce. These include: 1) the integrity of businesses on the Internet with whom they are trading; 2) the security of the information they provide during transactions; 3) the levels and standards of customer service they might expect; and 4) the potential for fraud that exists in this new marketplace. (Please refer to Bulletin # 12, "Electronic Commerce and the Consumer," for an overview of the issues. Privacy, a major consumer concern, will be the subject of a separate bulletin.)

Many of these consumer concerns are being addressed by governments, industry/trade groups, and consumer organizations around the world and will undoubtedly affect the future structure and image of electronic commerce.

Meanwhile, there are some things that consumers should know about the direction in which the Internet is heading, and what they should do to protect their own interests when cybershopping or surfing the net.

1. Confidence in the Source

The Internet is an endless and ever-changing source of information, a research resource, and now a global marketplace as well. Today's consumers have an electronic marketplace that is accessible any hour of night or day, filled with an endless number of choices of goods and services from around the world and the convenience of shopping without ever leaving home.

Since just about anyone can set up a presence on the Internet, understandably, some consumers are concerned about the integrity, reliability, and quality of the on-line companies and individuals with whom they are dealing.

In the United States all of the 50 states have adopted the Universal Commercial Code which spells out the rules of commercial law. Now, several groups are hard at work seeking to adapt these principles specifically to include electronic commerce. The National Conference of Commissioners of Uniform State Law and the American Law Institute, along with the American Bar Association, are involved in this project in the U.S. And, on the international level, the United Nations Commission on International Trade Law has developed model law that supports the commercial use of international contracts in electronic commerce.

While work continues at all levels in the public and private sectors to bring about an orderly and reliable electronic marketplace, consumers should use common sense in deciding between competing services and marketers on the Internet.

- Deal with recognized and trusted companies.

- Smaller, less recognized entities may be no-less reliable and should be considered. Take advantage of e-mail addresses and toll-free phone numbers provided on web sites to ask questions to gain assurances before committing to any transactions.

- Know the actual location and a mailing address for the company. This may be needed to identify the consumer protection agency to help you if you have a complaint with a business in the United States.

- Ask others. Friends, neighbors or people on-line in chat rooms can help to find out more about the reliability and quality of companies and services.

- Ask about return and refund policies.

- For U.S. businesses, contact the state or local consumer protection agencies where the business is located or the Better Business Bureau to check on the organization's complaint record and track record.

- Individuals may be offering products or services on the Internet through unsolicited e-mail or through chat rooms, web auctions or on-line classified advertisements. Exercise extreme caution when responding to such solicitations to minimize the potential for fraud. Any cases of unsolicited e-mail (known as "spamming") should be reported to the Internet service provider.

2. Security of Information Provided

Consumers want to be reassured that the information they are providing during transactions on the Internet will be used only for the intended purposes. In most cases, consumers do not want their names to be sold to others without their knowledge, nor do they wish to become targets of unsolicited sales pitches.

Ideally, consumers should be provided with the option, on-line, to restrict the use of information they provide, and businesses should make clear how the information that is provided will be used by them. (A future bulletin on "privacy" will contain more detail about this.).

On the other hand, businesses need to be assured of the legitimacy of the persons placing orders so that they can be sure of payment and the accuracy of shipping information for timely delivery of purchases or service follow-up.

As a result, sophisticated encryption products and other methods of verification are being developed to make sure that information provided can only be read by the intended recipients.

In a recent poll, as many as 95% of respondents said they would not give out their credit card numbers on the Internet. Some credit card companies are actively developing technology that protects credit card information all the way to the bank through encryption, so that even the merchant does not get to see the customer's credit card number.

Among the numerous organizations addressing on-line consumer concerns is the International Chamber of Commerce. They have updated their 1996 Guidelines on Marketing and Advertising on the Internet to address several consumer concerns and to serve as models for electronic commerce. The basic premise insists that marketing on the Internet must parallel the requirements of other forms of advertising in that it should be "legal, decent, honest, and truthful." Internet marketers are urged to disclose their identity and provide a means for the consumer to reach them readily. Any costs to the consumer for accessing a message or service should be spelled out clearly, and the rules and standards of electronic news groups, forums or bulletin boards are to be respected. The International Chamber of Commerce enumerates Consumers' Rights regarding the collection and use of data, encouraging marketers to disclose the purpose for collecting and using personal data and adhering to the stated purposes. In addition, consumers should have the opportunity to refuse the transfer of personal data to another advertiser or marketer by an easy, opt-out, electronic means. Privacy policy statements should be posted by Internet marketers and unsolicited on-line marketing messages are discouraged. Given the global nature of the electronic marketplace, special advice on marketing to children and a caution to consider ethical and cultural differences are included in the new guidelines.

Nevertheless, consumers should not be taken in by an exciting and colorful web site. Offers should be evaluated with care, and the company should be checked out to determine legitimacy. If there are any questions about the company, the product/service offer, or the security of information provided, it is wise to avoid providing personal or financial information. The Internet can be used as a valuable tool for comparison shopping purposes, then placing the actual order by phone, using a credit card or sending a check, or making a trip to a local retailer.

3. Levels and Standards of Customer Service

The Internet offers companies the potential for providing incredible customer service--before, during, and after the actual sale.

Customer service is essentially available around the clock as a result of information that can be provided on the Internet.

Internet marketers have the capacity to give customers more detailed and customized information on the Internet than can be included in mass-market vehicles like catalogs and special mailings, or even brochures in retail outlets.

Information about product use and care are also readily available on-line, as well as information about the company and how to reach customer service staff should additional information be required. Many on-line companies also include toll-free telephone numbers and e-mail addresses for answers to customers' most-frequently-asked questions and customer service contact.

With the vast number of information storage and retrieval systems available, businesses can readily keep and access customer information. As a result, they can now provide advance notice of special offers on products individual consumers prefer, track the status of shipments and payments, and even alert consumers to any follow-up service requirements, or announce recalls should they occur--all major customer service advantages.

Consumers may actually even experience lower prices when shopping on the Internet. For example, on the Internet, some on-line businesses are able to lower operating costs, process orders more accurately, rapidly, and simply with less paperwork, and many are passing along these savings in the form of lower prices.

It is still up to the consumer to pursue the information and services desired. The same principles for achieving satisfaction apply on-line as in the retail marketplace. If there's a problem, contact the source from which the product or service was purchased. Ask questions. Document the situation. Utilize all resources available on the Internet and from government agencies, trade associations, and consumer organizations.

Although global standards are being discussed to ensure that consumers taking part in electronic commerce achieve equal levels of customer satisfaction with those in the traditional marketplace, caution should still be exercised when dealing with foreign sources where customer service standards may vary.

4. Fraud in Cyberspace

The opportunity for fraud exists in any market, be it electronic or conventional, and care should be taken in all transactions. With the limitless number of sources available through the Internet, the potential for fraud increases, too.

Cooperative actions and discussions, aimed at protecting consumers and establishing means for prosecuting deceptive or fraudulent activities in the electronic marketplace, are underway. Federal agencies, and others, are tackling the issue of fraud prevention. Several international bodies are also seeking pragmatic solutions to address these issues. The challenge remains to seek practical solutions without impeding technological progress or stifling competition.

A total package that includes consumer education, the use of codes of ethical business practices, more sophisticated technology for maintaining customer privacy, and legislation, if necessary, will be required to increase consumer confidence in the marketplace and decrease the potential for fraud. A future bulletin will concentrate on the issue of privacy and the latest developments in privacy protection on a national and global scale.

As with any transaction, Internet shoppers are encouraged to use caution and to report any instances of fraud should they occur. The National Fraud Information Center, a project of the National Consumers League, launched the Internet Fraud Watch in 1996. The information gathered through this center is fed into the National Fraud Database maintained by the U.S. Federal Trade Commission, and the National Association of Attorneys General. More than 160 agencies in the U.S. and Canada are tracking the data. A toll-free phone number (1-800-876-7060), or an on-line incident report form may be used by consumers to alert the system of any suspected incidents of fraud. The Better Business Bureau On-line Program and the On-line Public Education Network Project are additional means for reporting suspected fraud or to receive guidance about doing so.

When reporting incidents of fraud, either by phone, mail or on-line, regardless of the agencies contacted, the following information should be included:

- name of the company

- names of persons dealt with

- company address, mailing address, e-mail, telephone, and web site information

- description of the problem

- nature of payment

- copies of receipts or other information available.

Looking Ahead

Predictions of sales over the Internet are as high as $16 billion by the year 2000. As the various consumer concerns are put to rest and technology increases the ease of access and quality of information, the electronic commerce segment of the economy will expand. When virtual reality through 3-D imaging allows customers to "try on" products in their homes, and more prevalent, digitized TV systems allow even those without computers to access the Internet through their television screens, electronic commerce will be the major convenience for tomorrow's consumers around the world.


For further information about Electronic Commerce contact:

Secretariat for Electronic Commerce
U.S. Department of Commerce
Washington, DC 20230
Web site:
Phone: (202) 482-6065

For more information about the Office of Consumer Affairs, consumer bulletins and other publications contact:

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Office of Consumer Affairs
U.S. Department of Commerce
Room H 5718
Washington, DC 20230
Web site:
Phone: (202) 482-5001
Fax: (202) 482-6007


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