E-commerce - Five preconditions - PTS-ER-2003:4

19/02/2003

In this report, the National Post and Telecom Agency (PTS) reports on the Government assignment to report on obstacles and opportunities for the stimulation of E-commerce. Five preconditions have been studied in detail: broadband, security infrastructure, payment services, physical delivery and confidence and security awareness.

In the autumn of 2002, PTS conducted a questionnaire study directed at the public. The study shows, among other things, the habits of Internet users in ecommerce and what security measures are implemented when using the Internet. According to the study, four out of five Swedes between the ages of 16 and 76 use the Internet. Half of all Internet users have, at some time during the last half-year, purchased goods or services for private purposes with the use of e-commerce. Slightly more men than women have bought online, but the difference between the sexes is small. In the ages up to and including 54, there are no great differences in online buying habits, but from the age of 55 and above, use of ecommerce decreases.

Broadband

It is more common for Internet users with broadband access at home to buy online, compared with those who have dial-up Internet access. In the autumn of 2002, 30% of Internet users had broadband access at home. Of the broadband users asked, 67 per cent had bought online at some time during the last half-year, while 46 per cent of those with dial-up access at home had bought online during the same period. This result corresponds to the outcome of the survey conducted by PTS in 2001 on online buying habits in relation to form of access. In the 2002 study, those who had not planned to acquire broadband gave the reasons for this. Only three per cent of Internet users emphasised that they were not interested in broadband. The most common reasons given were that it is too expensive, or that there is a risk of it becoming so in the future, and also that there are no broadband operators in the home area. Increased accessibility to broadband may increase e-commerce. What the State can do is to stimulate the development of broadband and create the conditions for competition on equal terms for the actors in the market. The State can also stimulate demand for broadband by offering valuable services.

Security infrastructure

Security infrastructure is an important precondition for many applications, among other things, e-commerce. Fraud on the Internet is increasing and there is a great need to be able to verify the other party’s identity. Today, electronic certification (e-identity) is only used to a limited extent and the actors in the sector are hesitant. It is considered that the market is rather immature and potential users do not appreciate the benefits. The technology is difficult to understand and the user interfaces are poorly designed. Means for the State to stimulate development are to provide information about user areas, that the authorities use e-identity and to encourage the development of good interfaces.

Payment services

The dominant payment method for Internet trade is cash on delivery and invoice, which is used for 84 per cent of all payments in connection with Internet commerce. In order to simplify e-commerce, secure and easily used payment services are required. These must demonstrate sufficiently great advantages in relation to traditional methods of payment to attract a critical mass of consumers and e-commerce enterprises. There have for some time been enterprises that offer efficient and secure payment services, but their success has been limited. New behaviour and the use of new functions on the part of customers are required, which can constitute a threshold for customer activation. The market for payment services is dominated by large banks, which control the infrastructure for payments and develop their own payment services. These formulate terms for how competing enterprises should be allowed to use the payment infrastructure. Payment via mobile networks is controlled by the mobile operators, which may change in conjunction with the third-generation mobile telephony, 3G. Payment via premium rate calls is controlled by the telecom operators controlling the fixed telecommunications network. Advanced knowledge of technology and market regarding payment services is required.

Physical delivery

A partial change in customer behaviour from major purchases to small, more frequent purchases, many customers’ keener price awareness in connection with e-commerce than with shop purchases, and also that the cost of carriage has increased, constitute special preconditions for e-commerce. Distance trading businesses consider that they are not able to pass on the entire cost of carriage directly to the customer. The cost of carriage must instead be covered by the pricing of the products. A minimum order value for certain orders is required, which may be a restraining factor for e-commerce. Another possible counterforce against e-commerce is that it may be felt that it is inconvenient to go to a distribution point to collect goods. One possibility may be to install so-called drop-off boxes in multiple occupation properties, where consignments that are too large to go through a normal letter box can be delivered. It is a function of the State to ensure that competition takes place on equal terms for the actors in the market.

Confidence and security awareness

The confidence and security awareness of users is important for the development of e-commerce. Those who buy online have greater needs of releasing personal data via the Internet. The study shows that almost one-fourth of those who have bought online have provided credit or cash card numbers via e-mail or web sites. Of these, it is only 17 per cent of them that only release personal data if the web site is secure (i.e. the data transmitted is encrypted). Security awareness is greater among broadband users than among those with dial-up access at home, yet half of those with broadband access did not have a firewall and a third did not have up-to-date virus protection. Nine out of ten of those with dial-up access did not have a firewall and half did not have upto- date virus protection. It is necessary to inform the public about relevant security measures and, through information about the risks, reduce unnecessary anxiety. The State can contribute to a secure Internet by, among other things, using secure web sites and e-identity within the public administration.

PTS, and the State generally, have limited opportunities to influence the preconditions and eliminate obstacles. Market forces determine developments, but the State can:

• investigate and analyse markets, produce an information-base for decisions concerning possible measures to ensure that competition functions better.
• legislate to create the preconditions for competition on equal terms for the actors in the market.
• analyse the information needs of Internet users and provide information about security risks in connection with e-commerce and other activities on the Internet.
• act as a driving force through using and offering electronic services within its own administration and in its contacts with businesses and citizens, and also by using electronic certification whenever appropriate.