June 29, 2009, 12:00 AM

Fear of debt and fraud change the way online shoppers pay

Fears of running up debt and of identity theft are changing how consumers pay online.

It’s a scary time for online consumers. They’re scared of losing their jobs, and many fear their personal information will be stolen from web sites. Both worries are contributing to changes in the way shoppers pay at e-commerce sites.

The economic shock of the past year has persuaded many consumers to avoid using credit cards. In a survey last year by Javelin Strategy & Research, 37% said they were using credit cards less, and only 10% more.

Javelin, a market research and consulting firm, expects that trend will continue, projecting only a 5.6% compound annual growth rate for online credit card payments between 2008 and 2013, compared with 14.5% growth for debit cards, 14.5% for PayPal, 23.5% for private-label cards and 22.8% for on-the-spot credit services like Bill Me Later.

“We’re seeing a shift in consumer behavior to more pay now and pay before, and a shift away from credit card usage,” says Bruce Cundiff, director of payments research and consulting at Javelin.

Security concerns

That shift is also prompting more e-retailers to accept alternative payment systems. For instance, 32% of the 50 largest web merchants were accepting PayPal and Bill Me Later in a survey last year by Jupiter Research, now part of Forrester Research Inc. And 39% of large Internet retailers told the E-tailing Group this year that adding alternative payment options was a priority.

Meanwhile, the constant barrage of reports of identity theft and data breaches is making consumers think twice about how they pay online. Consulting firm Gartner Inc. reports that 39% of consumers say they have changed their behavior because of security concerns, and of those 59% say they have changed the way they pay online. PayPal gets a big boost among these consumers, Gartner says.

Those concerns also came through in a survey last year commissioned by online security firm VeriSign Inc. and conducted by Synovate. In that survey, 85% of consumers said the most important factor in doing business with a web site was trust, while 9% cited price and 5% ease of use.

The survey also showed that many consumers look for signs of a secure site. Sixty-two percent of respondents said they look for the lock icon in a web address bar and 55% for a logo from an Internet security provider.

Another sign of a secure site is the green address bar that appears on sites using the Extended Validation Secure Sockets Layer certificate from VeriSign. That assures visitors that a site is legitimate and not a phishing site designed to steal consumers’ personal data, such as credit card numbers.

More than 11,000 retailers have implemented Extended Validation SSL certificates from VeriSign, and many of them report higher conversion rates. For instance, Virtual Sheet Music Inc., an online retailer that serves classical musicians, says consumers who saw the green bar were 13% more likely to buy.

Beyond passwords

VeriSign also offers consumers ways to sign on to web sites with greater security, using two-factor authentication, which means the consumer must not just know a password but also possess something, such as a token. A new form of two-factor authentication uses the mobile phone, notes Jeff Burstein, senior product manager in authentication services at VeriSign.

“It’s a free app any user can download from m.verisign.com or through Apple’s app store,” Burstein says. VeriSign sends a one-time password the user enters on a web site to verify his identity.

The VeriSign authentication services are being offered by eBay Inc. in the U.S., Canada and four other countries. “We’ve seen a greater trend in people wanting to take action themselves on security,” Burstein says. “They’re willing to take that extra step.”

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