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1.2 The Downside

While the potential benefits of e-commerce are multifaceted and vast, there is also a possible downside. The electronic systems and infrastructures that support e-commerce are susceptible to abuse, misuse, and diverse failures. Tremendous damage can occur to all e-commerce participants. The damage may result from human error, system failure, criminal intent, or mischief.

Risks to a business engaged in e-commerce include

  • Direct financial loss resulting from fraud: An external attacker or a fraudulent insider might, for example, order goods but charge payment to someone else's or a nonexistent account, transfer funds between accounts without authorization, or destroy or hide financial records that might reveal illegal conduct.

  • Exposure of the "crown jewels": Proprietary information, such as intellectual property or marketing or competitive pricing information, that is crucial to a business's success might be unwittingly exposed to competitors or others.

  • Damage to relations with customers or business partners: Relationships might be severely damaged due to disclosure of confidential information, disputed transactions that are not easily resolved because of the absence of convincing records, or excessive unavailability or unreliability of information or services.

  • Unforeseen costs: Legal, public relations, or business resumption costs might be incurred in recovering from a security compromise, whether caused by external intrusions, employee dishonesty, inadequate controls, human error, or electronic system failures. Also, final settlement of major business transactions might be delayed pending lengthy resolution of disputes, if convincing records are not at hand.

  • Public relations damage: Damage to corporate image or credibility might result from outsiders' masquerading as corporate spokespersons, manipulation of corporate Web site content, spreading of malicious rumors (such as in the investment community), or bad press resulting from newsworthy security penetrations.

  • Uptake failure due to lack of confidence: Security concerns, whether founded or unfounded, can easily diminish the uptake of e-commerce generally, resulting in loss of business opportunity and lack of realization of the benefits identified in section 1.1.

Consumers also face risks, despite consumer protection regulation. The consumer who entrusts his or her money to electronic systems that are attacked or fail can unquestionably suffer loss. Ultimately, all of the business risks noted earlier can hurt consumers, in the form of direct costs, hidden costs passed on by businesses, or inconvenience factors.1 There have been many well-documented reports of attacks on, or failures of, computer networks and e-commerce services, including alteration of content on commercial or government Web sites, falsification of news bulletins, penetration of a major bank's cash management system, and systematic "sniffing" of passwords on a scale of millions.

It is not easy to assemble reliable statistics on the likelihood that such attacks will affect a given business, nor on the real costs of such attacks. An organization that suffers a security-related attack or failure must consider carefully whether or not to publicize it. The publicity may be so damaging, in terms of loss of customer confidence or competitive advantage, that it is easier, and possibly more profitable, to absorb quietly the resulting damages.

Notwithstanding the reluctance to disclose details of security compromises or related losses, it is clear to anyone following the popular press that security risks for e-commerce are real and can have a massive impact on businesses. Prudent users of e-commerce systems cannot ignore security concerns on the grounds that a successful attack is statistically unlikely to occur. Rather, all users must take protective steps, including appropriate countermeasures and recovery strategies, to avert or marginalize the damage caused by such attacks.

The perception of the role of security in e-commerce has changed in recent years. Whereas security was once widely considered as an optional, discretionary add-on feature, it is now painfully evident that security is an essential ingredient of any e-commerce solution. Therefore, security is now recognized as not just a safeguard of e-commerce but more an enabler of it. Furthermore, artful businesses can leverage their risk management strengths into positive success factors, driving competitive advantage and creating strategic barriers to entry.

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Last Update: November 17, 2020