Online credit card fraud against small businesses

Kate Charlton and Natalie Taylor
ISBN 0 642 53846 8 ; ISSN 1326-6004
Canberra: Australian Institute of Criminology: 2004
(Research and public policy series, no. 60)

Section 3 : Online retailing practices

How many businesses trade online?

Data which are available relating to the number of businesses trading online in Australia have previously been released from three sources:

• the Australian Bureau of Statistics (ABS 2003) estimates that five per cent of all retailers (large and small) in Australia have a facility for buying and selling products over the internet;
• the Yellow Pages (2003) e-business report states that 32 per cent of their small business respondents currently receive payments online; and
• a study by the Australian Centre for Retail Studies (ACRS 1999), which surveyed 1,500 members of the Australian Retailers Association, found that approximately 60 per cent of general and specialty non-food retailers traded over the internet.

These statistics are inconsistent. The reason for this lies in the sampling frames used. The ABS study examined retailers but of a variety of sizes; the Yellow Pages report looked at small businesses but not specifically retailers; and the ACRS study used a convenience sample and did not randomly sample from a defined population (businesses who were members of the Australian Retailers Association were asked to respond to a survey regarding e-commerce and the sample comprised those businesses who returned surveys - the response rate was 19 per cent).

Because of the different sampling frames and methodologies used, it was not possible (based on past research) to identify the proportion of small retailers in Australia who currently accept payment for goods online through their own web site. The present AIC online credit card fraud survey was specifically focused on five types of retailer (who were likely to trade online) and this strategy was aimed at producing solid figures relating to the extent of online trading within particular retail categories.

AIC online credit card fraud survey 2003

It appears that, despite the surge in interest in online retailing in recent years, the vast majority of these types of businesses still sell their products through more traditional means (face-to-face, mail order, telephone order and so on). The number of businesses who indicated that they previously but no longer accepted payment for their products over the internet was small for all categories (one per cent, averaged across all five industries). Overall, 13 per cent of retailers were currently trading online (see Table 1). Booksellers had the highest percentage of businesses currently retailing online (17%) followed closely by recorded music retailers (15%). Florists and toy and game retailers had the lowest proportion of retailers currently accepting payments online (11%), although this figure does not include those florists who may use an external web site such as Interflora (43%).

Table 1: Online trading by business type in Australia (row percentages)

Business type	Currently trading	Previously traded	Never traded	Weighted n
Florists (a)	11	1	88	2,766
Booksellers	17	1	82	1,065
Recorded music retailers	15	3	82	502
Toy and game retailers	11	2	87	645
Computer hardware retailers	13	2	85	1,679
Total	13	2	85	6,657
(a) 43 per cent of florists accept payment through an external web site such as Interflora Source: Australian Institute of Criminology, Online credit card fraud against small business 2003 [computer file, weighted data]

Online retailing as primary source of business

Online traders are likely to operate in different ways. Some will operate as 'pure clicks' businesses (retailing solely online), while others may prefer the 'clicks and mortar' variety (retailing online while still maintaining a physical presence in the form of a shopfront). The degree to which small businesses focus on online trading can be determined through (a) the percentage of overall turnover attributed to online trading and (b) whether the business simultaneously operates a shopfront while trading online. This study found that 49 per cent of online retailers estimated that online trading accounted for less than five per cent of their overall turnover. Another 21 per cent estimated that the percentage of turnover was between five and 10 per cent. In all, only three per cent of online traders believed more than 80 per cent of overall turnover was attributed to their internet selling. Moreover, only 17 per cent of online retailers were operating without a shopfront, demonstrating that the majority of proprietors are reluctant to invest their entire operations into non-traditional methods of retailing.

How long had businesses in Australia been trading online?

Retailers slowly gravitated toward selling over the internet in the mid to late nineties in Australia, with online trading continuing to increase into the twenty-first century (see Figure 1). In 2002 fewer online traders reported commencing online trading, however preliminary results for 2003 suggest that the 2002 finding is an exception to the trend. Although the study was only able to measure retailers' commencement in the first quarter of 2003, when this finding is projected to the entire year, we can see that the trend from previous years (excluding 2002) looks like continuing. It was also found that male retailers (M=1999.9, SD=2.2) were more likely to have commenced online trading earlier than females (M=2001.0, SD=1.6) and that florists (M=2001.0, SD=1.5) were likely to have moved into online trading later than the other four business types (M=2000.0, SD=2.1).

Trading online in the future

Online trading was generally viewed favourably by the majority of retailers, with few differences across business types. When asked how likely it was that their business would stop trading online within the next two years, only five per cent of all online traders indicated this was likely. The vast majority indicated that they were much more likely to continue trading online (93%). To determine potential future activity on the internet, retailers who did not currently accept payments online were asked about the likelihood of their business trading over the internet in the next two years. Overall:

• 39 per cent of retailers stated that it was very likely;
• 38 per cent thought it was somewhat likely;
• 21 per cent thought it unlikely; and
• 2 per cent were unsure.

These findings strongly imply that online trading by these types of business will increase markedly over the next two years. Overall, those who indicated that they were likely to begin retailing on the internet in the following two years were significantly more likely to be located in a highly accessible or accessible area than a remote area (p<.05), were more likely to believe their business was suited to online trading (p<.001) and more likely to think customers would use the web site (p<.001).

How satisfied are online traders?

In keeping with online traders' likelihood of continuing trading online, the vast majority (89%) were satisfied with accepting payments over the internet. Fewer retailers, however, believed that online trading had significantly increased business sales, with 56 per cent agreeing that their business had increased sales as a result.

Predictors of retailing online

Why is it that two businesses which operate within the same business type may vary in terms of their decision to trade online? Are demographic characteristics such as size or location important? Or are beliefs and perceptions held by the business proprietor about online trading more influential? Those factors which contribute significantly to variability in online trading status were investigated through four logistic regression models, one for each business type aimed at predicting whether or not a business currently traded online. Predictors varied depending on the type of business. For florists and recorded music retailers, online trading is significantly associated with:

• having more employees; and
• the belief that the costs/time required when trading online are reasonable.

For booksellers, online trading is significantly associated with:

• having more employees;
• being located in highly accessible areas;
• the belief that customers do/would use the web site frequently to place orders;
• the belief that benefits of trading online outweigh the risk of fraud; and
• the belief that the costs/time required when trading online are reasonable.

For toy and game retailers, online trading is significantly associated with:

• the belief that benefits of trading online outweigh the risk of fraud; and
• the belief that the costs/time required when trading online are reasonable.

Finally, for computer hardware retailers, online trading is significantly associated with:

• the belief that the business is suited to selling products over the internet; and
• the belief that the benefits of trading online outweigh the risk of fraud.

These findings indicate that perceptions of and beliefs about online trading are important determinants of whether or not a business chooses to trade online.