Summary:
The market for online transactions was already worth an estimated $35 - $100 bn in 1998, with conservative projections for 2003 reaching well in excess of $1 trillion. However, growth in Europe in lags behind that of the US, and both are hampered by a number of factors, most of which relate to trust or confidence in the systems, vendors and legal infrastructure surrounding online trading.

Introduction
The enormous growth in numbers of people connected to the Internet over recent years is starting to be mirrored by an equally rapid increase in the value of business transactions carried out over the World Wide Web. From digital deliverables such as software, encoded music and video to a wide range of physical products and services, from books to flowers, banking services to travel bookings, the volume and value of commerce over the Internet (referred to as e-commerce) has shot up almost exponentially over the last three years and is predicted by a wide range of market research sources to continue in a similar manner over the next three to five years.

Although methodologies and figures vary considerably, it's clear that even by conservative estimates, for both consumers and retailers this represents an enormous new opportunity to increase choice, reduce costs and to stimulate new trade and economic development. However, there are a number of factors that are impeding the large scale take up of e-commerce. Section 1 of this backgrounder looks at the size of the e-commerce market today and presents a variety of predictions for the middle-term; section 2 discusses the barriers to e-commerce from consumer the supplier perspectives.

1. The size of the e-commerce market.
As might be expected in a new and fast developing market, measures of current performance and predictions vary quite substantially. According to US online research firm ActivMedia (www.activmedia.com), global Internet revenues grew from $2.6 to £38bn between 1996 and 1998. The company predicts growth at 150 per cent and 138 per cent for 1999 and 2000, to yield total values of $95bn and $226bn respectively. Beyond that, annual growth rates are expected to fall to around 84 per cent, leading to a 2003 figure of around $1.3 trillion.

By comparison, eMarketer(www.emarketer.com), an online publication specialising in this industry, predicts just over $98bn for 1999, 'only' $197bn for 2000 but still reaching $1.2 trillion for 2003. Datamonitor (www.datamonitor.com) estimates that Western European e-commerce will be worth $775m by the end of 1999, rising to $8.6bn by 2003. Germany, the UK and France are the top three consumer online markets in Europe, worth $160m, $50m and $20m respectively in 1998 and $290m, $170m and $85m by the end of 1999.

ActivMedia's report says that the US dominates e-commerce, with 72 per cent of Web sites still based in the US, generating 92 per cent of the world's e-commerce. However, export sales are an increasingly important element of US e-commerce growth.

A much more bullish picture was painted by the Centre for Research on Electronic Commerce at the University of Texas, which claimed that 1998 e-commerce revenues were already at nearly $102bn in a total Internet economy worth some $300bn and responsible for some 1.2 million jobs. The report says that most estimates generally focus on the 80 or so top companies, assuming that they are responsible for the bulk of e-commerce; its findings are to the contrary, claiming that the top 80 contribute only one third of revenues and that there are altogether some 11,000 players generating revenue in e-commerce. Additionally, the report claims that there is substantial room for growth in e-commerce.

Estimates for total consumer online shopping revenues in 2000 vary by a factor of three ranging from $1 trillion (Yankee Group) to some $3.2 trillion (Morgan Stanley). Even at the conservative end of the scale, these are significant sums.

E-commerce predictions in various industry sectors also vary:

Travel is thought to make up about one quarter of all current online revenues (Internet World); 2002 revenues are predicted to be $12bn (The Industry Standard) or $11.7bn (Jupiter Communications);

Home banking via Internet is also predicted to be a big growth area, with between 13.1 million (Jupiter Communications) and more than 16 million households (Booz Allen & Hamilton) banking online in 2000. By comparison, FindSVP thinks that it will take until 2001 to reach the 16 million household mark.

2. Obstacles to growth in e-commerce
Although online shopping offers a rapidly growing number of consumers unparalleled convenience and increasing diversity of choice, a number of issues have arisen that deter or prevent consumers from making online purchases.

Biggest among these are matters relating to trust. A recent report by Rockbridge Associates (www.rockresearch.com) highlights the security issues that concern consumers: 77 per cent of the sample of 1001 US households felt that it wasn't safe to give out a credit card number via computer, and 87 per cent wanted electronic transactions confirmed in writing. Two-thirds of the sample did not feel confident doing business with a supplier that could only be reached online, while 58 per cent did not think it safe to make any kind of financial transaction online.

Similarly, in a survey of leading companies in IT and related industries carried out by the Information Technology Association of America (ITAA) in conjunction with Ernst & Young, 62 per cent of CEOs selected 'lack of comfort or trust with e-commerce' both within the company and for customers as the primary barrier to development of e-commerce.

In general terms, trust issues can be subdivided into three categories that affect both customers and suppliers - privacy, authentication and security.

Privacy relates to uncertainties over the degree of protection for and validity of personal or commercial data; authentication concerns reliable means of establishing the identity and credentials of all parties to a transaction; and security concerns are about technological protection about illegal and malicious attacks on personal or company confidential data. Media stories about attacks on data encryption technologies by students or hackers fuel consumers' fears about entrusting their credit card number, address or phone number to the Internet; hence the results in the Rockbridge survey mentioned above.

In addition, there are social responsibility issues raised by the exposure to e-commerce of weaker or more vulnerable sections of society, particularly children. In the same way that there is widespread concern about children having access to pornographic or other unsuitable types of adult material through the Internet, e-commerce could be seen as a means to promote or actually sell unsuitable products to children. The question of authentication arises here - if a child has an adult's credit card details, the child could appear to an online retailer of guns or legitimate drugs to be an adult. There is also the potential for children to overspend with parents' credit cards on otherwise appropriate products or services.

Customer service is also a major area in which Internet transactions may fall short of the standards expected by consumers in more familiar - and, for the time being, more comfortable - purchasing modes such as telephone or mail order. Research by Net Effect Systems, a supplier of e-commerce software based in Hollywood, California, suggests that as many as two thirds of online transactions are abandoned through lack of real-time customer support; e-commerce systems may rely too heavily on automated procedures or fail to identify and correctly handle customers whose circumstances require a personal response.

Other areas of customer service that can abort or make unsatisfactory online sales include deliveries (or lack of them), returns and product specifications. A recent European Union-funded study into e-commerce around the world provides an ideal showcase for the pitfalls in these areas: co-ordinated by Consumers International, a federation of 245 consumer organisations in 110 countries, the study involved buying more than 150 items from 17 countries.

Customer service issues raised by the Consumers International exercise included:

A US survey of 200 sites (half of which were US) by the Federal Trade Commission highlighted similar issues regarding disclosure and guarantees: only a quarter of sites polled posted their refund policy and fewer than one in 10 their cancellation terms. Currencies for transactions were specified by just over a third of the sites overall.

Issues relating to inconsistencies between consumer law in buyers' and sellers' countries are a major hurdle for both parties. Efforts are being made by groups such as Consumers International to develop and promote guidelines for consumer protection legislation. The European parliament decided in May 1999 that e-commerce transactions should be regulated according to the laws of the supplier's country, though consumers with grievances might invoke their own national consumer protection laws if not already covered by EU-wide legislation.

As national and regional governments attempt to tackle these matters, they are increasingly realising that the global nature of the Internet, legal differences between states and jurisdictional disputes mean that legislation-based approaches to regulating e-commerce are unlikely to work or to be enforceable in every instance. Self-regulation of the e-commerce industry may have a role to play, with independent rating or certification schemes to provide a widely accepted system of classifying or validating e-commerce sites. There has been considerable discussion at UK and EU level of systems of 'tagging' Web sites for content that would enable Internet users to set their own criteria for restricting access; the concept could be adopted to rate e-commerce sites on a range of criteria, from type of goods or services offered to data security and customer service policies.

From the supplier's side there is also a variety of issues that hinder the opening of more e-commerce sites. In addition to the trust questions as outlined above, technology barriers were cited in the ITAA survey mentioned earlier. Security of information was the top concern, followed by difficulty in integrating e-commerce into existing systems. Lack of technical standards and network bandwidth to support the anticipated volume of transactions were also issues.

Businesses also face difficulties in finding and retaining appropriately skilled staff, while government policy questions relating to tax on Internet sales, authentication standards and restrictions on availability of secure encryption technology also confuse the issue. Of these, tax issues between US states or between countries are seen as a major barrier. Differing VAT regimes between members of the EU further complicate e-commerce between European Union member states.

Fear of opening corporate systems to suppliers and contractors or to consumers were additional trust problems for businesses. The costs of setting up in e-commerce are also a concern. This includes buying or setting up new systems and services, adapting existing ones and changing business processes to support Web transactions.

Conclusion
Clearly there is a range of trust-related issues for both consumers and suppliers that could seriously retard or even halt the development of e-commerce, in addition the IT and other business challenges facing would-be suppliers. From consumer concerns about personal and data security to corporate fears about adapting business processes and opening IT systems to the outside world, there are many aspects of this new industry that require technological, legislative and procedural development to unlock the enormous potential of online trade. Without significant progress in resolving these issues and building the trust necessary, the predicted volumes of online trade will not materialise. Businesses and public institutions need to be certain that they are dealing with reputable and reliable suppliers; consumers need to feel that their personal details are safe and that they will get what they order with greater choice and convenience than offered by other means. Otherwise, both groups will stick with what they know and the improved consumer choice and boosted international trade will not reach it potential.

Government efforts to regulate e-commerce may take too long and achieve too little. If the industry cannot arrange to regulate itself, governments may take action to restrict Internet growth and access on the basis that if they can't regulate it to protect citizens from online scams, it might be better to remove it to avoid harm.