January 3, 2013, 3:44 PM

Security worries still keep some consumers from shopping online

12% don’t shop online, and many cite concerns about privacy and fraud.

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Most consumers buy online, but 12% still don’t, according to a recent survey by Javelin Strategy & Research, a financial services research and consulting firm. Some want to see goods before purchasing, but many of the online holdouts are concerned about fraud and privacy, the survey suggests.

The single biggest reason for not shopping online, cited by 32% of those who don’t, is that they want to purchase in person so they can see merchandise and avoid returns. But 26% are concerned that personal information will be used fraudulently, 21% that credit or debit card data could be used to commit fraud, and 18% that personal information will be sold to other merchants. 20% say shipping costs are too high.

Web retailers can allay these concerns by doing a better job of informing consumers of the security measures they take to guard payment card data and their policies that protect consumers against fraud losses, says Beth Robertson, author of the Javelin report, “5th Annual Online Retail Payments Forecast 2012-2017,” released last month. She also suggests "FAQs that address issues associated with fraud, security, and consumer protection."

The report, based on an August survey of 3,000 U.S. consumers, shows little change in how consumers pay for online retail and travel purchases. 42% pay with credit cards, up from 40% in the 2011 survey, and 29% pay with debit cards, down from 30%. The report notes that with the economy improving 63% of respondents in the 2012 survey had a major credit card compared with 58% in 2011. Meanwhile, debit card use has held nearly steady, the report says, despite regulatory changes that led banks to cut back on promoting use of debit.

The report projects that credit cards will hold steady at 42% of online purchases in 2017, but that debit cards will account for only 25% of web payments that year.

The biggest gainer will be alternative payment options, such as PayPal and Bill Me Later, Javelin projects. While alternative payments dipped to 16% of online purchases in 2012 from 17% in 2011, Javelin projects they will increase to 20% of online retail and travel purchases by 2017.

PayPal is the clear leader in alternative payments, used by 84% of consumers who pay online with alternatives to payment cards. Bill Me Later, which lets consumers defer payment on online purchases, has made big strides, Javelin says, as 21% of consumers who prefer payment alternatives using Bill Me Later, up from 14% in 2011 and only 1% in 2010. “The popularity of Bill Me Later—an online payment service—is a further indicator of an improving economy,” Robertson writes in the report. Both PayPal and Bill Me Later are owned by eBay Inc.

Robertson also notes that alternative payment options are often attractive to security-conscious consumers as they do not require entering a credit or debit card number on a web site. For example, a consumer can pay with PayPal by entering an e-mail address and password.

The report also noted the growing frequency of online purchases from smartphones and tablets. “A full 6.4% of all online purchases now originate from a mobile device; in contrast, less than 0.01% of all in-store purchases are made with a mobile phone.”

The Javelin report project little change in two other payment forms. The share of online purchase volume attributed to store-branded credit cards will hold steady at 6% through 2017, the report projects, while purchases with prepaid or gift cards will inch up from 7% in 2012 to 8% in 2017.

The report also notes that 32% of consumers in the 2012 survey said they had made an online purchase in the previous seven days, compared with 34% in 2011; 61% said they had bought something on the web in the previous 30 days, down slightly from 63% a year earlier.

Consumers on average make 3.96 online purchases a month, but there's a big variation by income level, Javelin says. Consumers with annual incomes below $15,000 make on average 1.96 online purchases a month compared with 5.97 transactions for those with incomes above $150,000.

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