Consumers’ Trust in Electronic Commerce Transactions: The Role of Perceived Privacy and Perceived Security

Acknowledgement I am greatly indebted to Omar El Sawy and Ann Majchrzak for their guidance and suggestion, and I would like to thank Ricky Lim and Raymond for their help with the data analysis. Abstract Consumers' trust in their online transactions is vital for the sustained progress and development of electronic commerce. Our paper proposes that in addition to known factors of trust such a vendor's reputation, consumers' perception of privacy and security influence their trust in online transactions. Our research shows that consumers exhibit variability in their perceptions of privacy, security and trust between online and offline transactions even if it is conducted with the same store. We build upon this finding to develop and validate measures of consumers' perceived privacy and perceived security of their online transactions which are then theorized to influence their trust in EC transactions. We propose that the perceptions of privacy and security are factors that affect the consumers' trust in the institutional governance mechanisms underlying the Internet. We conduct two distinct empirical studies and through successive refinement and analysis using the Partial Least Squares technique, we test our hypothesized relationships while verifying the excellent measurement properties associated with our instrument. Our study finds that the consumers' perceived privacy and perceived security are indeed distinct constructs but the effect of perceived privacy on trust in EC transactions is strongly mediated by perceived security. A major implication of our findings is that while the much studied determinants of trust such as reputation of the transacting firm should not be neglected, vendors should also engage in efforts to positively influence consumer perceptions of privacy and security. We discuss the significance of this observation in the context of increasing importance in acquiring customer information for personalization and other online strategies.