eCommerce


Enabling eCommerce for businesses and consumers is central to PayPal's proposition. .... FORRESTER CONSUlTINg - ThE bUSINESS OF AUSTRAlIAN ONlINE RETAIl. TAblE OF ...... and point of sale (POS) devices, so cards can be used to.

eCommerce

Secure Insight Australia

November 2010

PayPal Australia Pty Limited ABN 93 111 195 389 (AFSL 304962). Any general financial product advice provided here has not taken into account your objectives, financial situations or needs. Before deciding to sign-up for or use the PayPal service you should consider the Product Disclosure Statement, available at www.paypal.com.au

INTRODUCTION

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executive summary.

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elit The dolor,Australian id pretium eros. amet, imperdiet lorem. sodales. Nullam growth congue, as eCommerce industry is et experiencing tremendous

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velit, id ultricies mauris. amongst Australian

imperdietand condimentum. pharetra enim mi id enim. businesses consumers. Indeed, transactions for our Aenean fermentum augue Quisque nisl augue, aliquet businesses have grown 19 per cent year on year and 3.5 pulvinar dictum mauris now choose condimentum tellus sit amet dignissim million Australians to carry out their transactions online id, dapibus et. Vestibulum auctor ornare. Curabitur varius eu leo. Curabitur with PayPal.

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nonEnabling consequateCommerce laoreet,

felis in odio. Director, PayPal Australia Managing

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lorem luctus mollis At blandit, embrace the benefits of transacting online. PayPal,fringilla vulputate, arcu consectetur. Etiam at leo Phasellus eu justo sed risus dui mi aliquet turpis, non we enable these transactions and play a critical role in facilitating eCommerce sem scelerisque erat, eget Duis34,000 mattis lacinia odio, registered

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Maecenas pretium, turpis ac venenatis tincidunt, eros nisi pellentesque massa, non imperdiet erat Frerk-Malte Feller

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EXECUTIVE SUMMARY

A

ustralians are now seeing the true benefits of online retail. Over the last year a number of major retailers have entered the online space, and retailers are beginning to respond to consumer demand by offering broader ranges online, along with transparent transaction,

shipping and return policies. Another key driver of this growth is consumer adoption of new channels and technologies. Consumers are no longer satisfied with a separate ‘in-store’ and ‘online’ retail experience, they want to be able to buy what they want, from where they want, how they want. This calls for a truly multi-channel approach from retailers, providing the ultimate consumer experience. With the explosion of web enabled mobile devices, PayPal Australia has seen a 12 fold increase in mobile payment volumes over the last year, increasing from a value of $2.7 million in 2009 to $35 million to date in 2010. This trend is just emerging, we predict that this number will continue to grow at such rapid pace as retailers respond to consumer demand and offer consumers an innovative customer experience. One of the most gratifying findings from our research is that recent category growth is being driven by domestic retailers, and this is a trend that is set to continue. The convenience that consumers are being offered is a great credit to the calibre of the online retail offerings that are already available in Australia. PayPal Australia’s growth figures are outpacing those of the industry and we have seen double digit growth in the last year. Our research shows that consumers prefer buying from merchants who accept PayPal as it provides them with a safer, more secure and convenient payment process. We are also pleased to see a strong desire by our retailers to continue to improve this experience, embracing both social and mobile trends to deliver more fluid and integrated online stores, thereby increasing sales. While domestic eCommerce is growing fast, Australian retailers cannot ignore the number of Australians shopping overseas. Indeed, PayPal figures show a 74 per cent increase in the amount of money sent overseas in the last year alone. The number of overseas shoppers using PayPal is also increasing, at the beginning of 2008, approximately 465,822 customers made an overseas transaction and in September 2010, a staggering 1.2 million Australians bought online from overseas retailers. Surprisingly, it is not the strength of the Aussie dollar that was the main driver for consumer shopping overseas, it is the range of goods on offer overseas that is really driving local shoppers to buy offshore. Our research demonstrated a strong preference to “buy Aussie” with nearly a quarter of Australian adults only shopping online with domestic websites. Retailers need to realise that they are not solely competing with their international counterparts on price, presenting a call to action to expand their online offerings and capture the share of the market that is going overseas. As cliché as it may sound, the online world is a huge global shopping mall. The merchants that get noticed are those whose online stores deliver a best-practice end to end customer experience. Product range is not sufficient; it must be paired with an easy to navigate site, a great checkout experience, a clear returns policy, accessible customer support, and a good packaging and handling solution. PayPal can help by ensuring that consumers experience a safe, secure and convenient

eCommerce Secure Insight - Page 2

INTRODUCTION

EXECUTIVE SUMMARY

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eCommerce not merely about shifting is about providing fantastic Suspendisse at velit nisi, sitisamet vehicula lacus. Nam boxes, itneque, ultrices quisaposuere sitcustomer amet, imperdiet et lorem. experience. is quite simplysapien about responding to consumer demand in the most effective way sit amet malesuada dolor. It Donec ultricies, nec possible. justo Somenibh consumers see et benefit in havingPhasellus access toeu a vast of inventory, others pellentesque vehicula, mattis velit, volutpat justorange sed risus imperdiet condimentum. appreciate theidconvenience of having at bulky items home delivered. Merchants must assesstellus auctor felis nibh id dolor. Curabitur elit metus. Phasellus Aenean fermentum augue condimentum need and thensitlook to the best to deliver the experience be it online, off-line lacus eros, euconsumer blandit arcu. Maecenas amet nunc at solutions ornare. Curabitur dolor dolor,– laoreet eu iaculis in, varius on mobile devices. turpis pulvinarorporttitor. Sed euismod fringilla diam ut

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This fantastic customer experience needs to roleviverra out across the entire eCommerce process. odio iaculis eros aliquet in venenatis nulla dignissim. bibendum. Proin sollicitudin, tortor ut sollicitudin Both and consumers need to feel confident thatleo they can cursus both pay, and be paid nulla securely Vestibulum sed elitbusinesses dolor, id pretium eros. Mauris blandit interdum, augue nisi, at tempor eros sit and this isEtiam where comes into the equation. We are proud to be dui considered by many asgravida the venenatis consectetur. atPayPal leo velit, id ultricies amet neque. Integer neque, laoreet eget nec, safest,lacinia most secure and most convenient pay and be paid mauris. Duis mattis odio, pulvinar dictum mauris way toconsectetur quisonline. ligula. Curabitur condimentum nisi nec dapibus et. Vestibulum urna nunc, condimentum non

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But we’re not resting on our laurels, and are heavily investing to make that process even simpler consequat laoreet, consectetur sit amet augue. Nullam arcu. and easier. We have just launched a simple 2 click payment process for iPhone applications and a cursus, sem sit amet euismod lobortis, augue nulla newsodales digital goods that enables to pay content in context without having ultrices arcu, non lacus experience metus adipiscing libero. consumers Quisque id mifor nisl, vitae dictum nunc. Nullam id mi ut to leave the nec experience are enjoying news article, streaming movies, orrisus the purchase Integer elementum, diam egestasthey ultrices, lacus – be it anisi laoreet semper. Mauris sodales sit amet nisl a new character a video game.commodo Needless to say, customer experience along safety and ipsum posuereofmauris, ut gravidainsapien mauris commodo id pellentesque lacus with ullamcorper. Praesent purus.

security sits at the core of all of our innovations. ultricies pharetra enim, eu venenatis nisi vehicula id. Curabitur facilisis, felis vel mollis rutrum, nisi nibh

In five nibh yearsvitae or less, when ornare, there isnisi far less cash floating around world, augue we willnibh do everything Phasellus euismod, tincidunt commodo nibh,the a cursus vel nibh. Curabitur from catch a bus tonibh work, buyeget our lunch, a news article, pay ouraliquam personal trainer, buy eros dictum magna, nec fringilla ligula tortor.download pretium lorem at mauris tempor hendrerit nisi our partner present and order a Friday using a webmollis, enabled mobile device pretium, In viverra quam eget sem aaliquet hendrerit in eget dui.night takeaway, tristique.allSuspendisse tortor in porttitor with just a couple of clicks every time. Mobile devices shaping the way we liveeget our lives today Praesent convallis mattis nunc, adipiscing ullamcorper ipsumare sem condimentum libero, posuere arcu nibh andMauris businesses are risus challenged to integrate their gravida offerings, a user-friendly wayligula. onto these devices. metus varius ac. rhoncus, ut tristique semper, mi.inPellentesque et est Curabitur dignissim Whilst a substantial challenge, we have greatante successes, and at PayPal, we look eros tortor pellentesque ligula, in ullamcorper velit eratalready seen convallis a sodales. Nullam congue, lorem luctus to working with businesses tovel enable customer transactions, wherever theynon maypharetra take ut eros. Etiamforward et velit orci. Proin mollis laoreet nunc mollis blandit, dui mi aliquet turpis, enim mi place, in the eleifend fastest, safest andfeugiat most secure ullamcorper. Ut venenatis nulla, nec quam wayidpossible. enim. Quisque nisl augue, aliquet sit amet dignissim id, I hope you enjoy the report and find the results both informative and valuable in helping to understand the future shape and key drivers to the Australian eCommerce industry in Australia. We at PayPal look forward in shaping this future together with you. Yours, Frerk-Malte Feller Managing Director PayPal Australia

eCommerce Secure Insight - Page

eCommerce Secure Insight - Page 3

eCommerce Secure Insight - Page

forrester research. The Australian eCommerce landscape has evolved rapidly within the last twelve months. Small businesses in Australia are increasingly adopting online business models and we have seen a number of well established bricks and mortar businesses building an online presence. With over 34,000 Australian businesses transacting online with PayPal, a number that is rapidly growing, we thought it important to provide a comprehensive overview of the eCommerce market in Australia along with strategic insights into business attitudes towards online retail. We partnered with leading global researchers, Forrester Research to investigate.

eCommerce Secure Insight - Page

Forrester consulting - The business of Australian online retail

The Business Of Australian Online Retail The Challenges And Opportunities Facing Australian Business During The Online Retail Boom Of 2010 November 2010

Table Of Contents Executive Summary

6

Australian Online Retail Is Strong And Growing

7

Companies Experience Growing Pains As They Expand And Adapt

9

Key Recommendations

13

Appendix A: Methodology

13

Appendix B: Supplemental Material

13

Appendix C: Endnotes

13

© 2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com. 1-HLJSMR.

About Forrester Consulting Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester’s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit www.forrester.com/consulting. Executive Summary 2010 has been a year of extraordinary growth for online retail in Australia. But this boom has not just been economic. There has also been an increase in debate about the sector, as Australian merchants think again about whether and how they should serve their customers via the Internet. Unfortunately, there is the perception that Australian business has largely missed the online retailing opportunity. However, a private market size evaluation and forecast that eBay commissions from Forrester Consulting each quarter shows that domestic online retail is booming in Australia. Australian businesses that are willing to experiment, innovate, and learn from their

Australian online retail is surging, but Australian merchants face challenges with recruitment, logistics, marketing, and price competition.

customers and their peers could find themselves in the perfect position to exploit this growth. To better understand the challenges and opportunities that face Australian merchants today, Forrester Consulting surveyed 114 Australian online retail professionals. This report is Forrester Consulting’s analysis of that survey of online retail professionals, as well as of an earlier, similar survey that Forrester Research completed in partnership with Online Retailer Expo & Conference 2010, and the private market size evaluation and forecast that Forrester Consulting prepares for eBay.

eCommerce Secure Insight - Page 6

INTRODUCTION

Forrester consulting - The business of Australian online retail

Key Findings Forrester’s study yielded four key findings:

• For multichannel retailers, one challenge is their reliance on traditional channels. Businesses that sell

• Australian online retail, including domestic retail,

through their physical stores as well as online channels

is booming. While imports are important, most online

still rely on the former channel for most of their sales.

retail purchases are local. Overall, Australian online retail

As a result, they tend to favor those channels, providing

— including auctions, imports, and travel — will reach

them with better access to product and protecting

$36.81 billion per annum in 2013. The largest segments

them against disruption whenever possible when

then will be the same as today: travel and groceries.

venturing online.

• Despite this boom, Australian online retailers

• Delivery is one challenge that many retailers are

face many challenges. Four of the biggest issues

willing to invest in defeating. Dissatisfaction with

that online retail professionals said they faced

current delivery methods runs deep, with the high

were recruiting and retaining appropriately skilled

cost of delivery being the most common complaint.

staff, managing logistics, responding to low-priced

Nonetheless, Australian online retailers will increasingly

competitors, and controlling the relative cost and

provide costly services, like free delivery and returns,

effectiveness of marketing.

in the year ahead.

Australian Online Retail Is Strong And Growing Every quarter, Forrester Consulting sizes and forecasts

The strength of domestic online retail is reinforced by

the Australian online retail market for eBay, using a model

the fact that many of the priciest items (like plane travel

that includes travel, auctions, and imports in addition to

and the most common online purchases (like groceries

domestic online retail. This private study shows that:

are largely fulfilled and supported through Australian Web sites.

• Australian online retail’s growth is strong and sustained. Australian online retail, including

• Travel and groceries combined are almost half of

travel, auctions, and imports, is growing rapidly in

all Australian online retail. Due to the frequency with

Australia, from $24.02 billion in 2009 to a projected

whichsome households buy groceries — which

$26.86billion in 2010 (see Figure 1). The rate of growth

includes pantry items, alcohol and other consumable

in 2010 was particularly high, driven by the launch

household goods like pet supplies — this is the single

of new online stores, a surging Australian dollar, and

largest category in Australian online retail (see Figure

continued increases in the proportion of Australians

2). This segment is closely followed by travel, where

who shop online. Likewise, the three years to 2013 will

vendors and consumers alike have quickly adopted

see growth driven by similar factors.

online retail because of its efficiency. In the three years ahead, the categories that will be the strongest will be

• Domestic retail is holding its own. The share of

those that already dominate Australian online retail

Australian online consumption that consists of imports

today. However, music and video will post the strongest

varies across categories, as well as between auctions

growth as the Internet continues to migrate from the

and fixed-price retail. It can also rise and fall in the

study to the living room and the pocket, encouraging

short term in line with the fortunes of the Australian

more consumers to buy content online via the same

dollar. However, despite this variation, the medium-

devices they use to consume it.

term trend is for roughly four-fifths of all Australian online expenditures to be placed with local Web sites. eCommerce Secure Insight - Page 7

Forrester consulting - The business of Australian online retail

Figure 1 Australian Online Retail - Both Imports And Domestic - Is Booming

$40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 0

Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3 2010 Source: Forrester Research, Inc.

Source: Forrester Research, Inc.

Figure 2-1 Travel And Groceries Are The Largest Segments In Australian Online Retail Figure 2-1 Travel And Groceries Are The Largest Segments In Australian Online Retail $1,437 $1,559 $1,772 $2,025

Apparel, accessories, and footwear Appliances and home improvement Art and collectibles Auto parts Books

$768 $839 $942 $1,079 $813 $875 $948 $1,004 $606 $646 $700 $751

Computerrelated Consumer electronics Flowers Furniture

$245 $266 $288 $310 $577 $636 $718 $792

Medicine and personal care Music/video Office products Sporting goods Toys and video games

$2,592 $2,897 $3,199 $3,604

$1,628 $1,879 $2,086 $2,319

$4,998

Groceries Jewelry

$2,664 $2,961 $3,249 $3,569

$5,541

$562 $612 $674 $752 $271 $293 $317 $339 $870 $1,002 $1,165 $1,293 $282 $303 $322 $343 $515 $542 $597 $662 $690 $756 $833 $943

$6,358

$7,175

2010 2011 2012 2013

Total online spend on auction and retail in millions of $AU Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3 2010

Source: Forrester Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3 Research, 2010 Inc. Source: Forrester Research, Inc. eCommerce Secure Insight - Page 8

INTRODUCTION

Forrester consulting - The business of Australian online retail

Figure 2-2 Travel And Groceries Are The Largest Segments In Australian Online Retail

Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3 2010 Source: Forrester Research, Inc. META#

Source: Forrester Research, Inc.

Companies Experience Growing Pains As They Expand And Adapt META#

Source: Forrester Research, Inc.

Many Australian merchants are growing strongly, in line

• Smaller firms face challenges with logistics.

with the overall surge in online retail. However, they face

Smaller firms tend to have shorter histories with

significant challenges that will affect how well each of

managing inherently complex tasks such as receiving,

them can ride the wave.

warehousing, and dispatching goods. Likewise, the smaller the retailer, the less able it is to fund major

While Growing, Australian Online Retailers

investments in software or facilities that could help

Face Challenges

streamline processes like these. For small companies, managing logistics can be a major cause of angst.

Certain challenges that confront online retailers are more common with some types of firms than others. The size

• Pure plays face challenges with marketing.

of the retailer’s online channel and whether the retailer

A significant brand name is a huge head start when

has a bricks-and-mortar channel are both important in

it comes to marketing. An Australian business that has

determining which challenges matter most to each market

built up its brand through decades of traditional retail

(see Figure 3). Specifically:

can interact with its customers many thousands of times a day, through events that range from physical

• Larger firms and multichannel retailers face

store visits to online traffic. Each of these interactions

greater challenges with recruitment. Larger

is an opportunity to cost-effectively market the online

firms have more to lose than smaller firms, as do

store. By contrast, Australian pure plays must fight

multichannel retailers with successful bricks-

harder for every customer. For them, the cost and

and-mortar channels. As a result, such retailers

effectiveness of marketing are eternal challenges.

can be risk averse. Their appetite for on-the-job learning and experimentation is lower, and they

Multichannel Retailers Are Still Traditional

prefer to hire eCommerce professionals who have

Retailers First

the proven ability to manage large budgets, multichannel relationships, and/or complicated

Managing multiple sales channels — such as an online

eCommerce projects. Such experienced professionals

store plus traditional retail — is difficult because of the

are hard to find and keep, especially in Australia,

large number of customer touchpoints, the complexity

with its smaller eCommerce market.

of managing operations and the customer experience across channels, and the tendency for each channel to eCommerce Secure Insight - Page 9

Forrester consulting - The business of Australian online retail

compete with the others for the attention of the business.

investment in delivery services in the year ahead, adding

Freed of these cross-channel constraints, pure plays have

options that customers value highly such as free shipping

flourished in Australia. On the other hand, multichannel

and returns.

retailers are evolving more slowly, which is reinforced by the fact that:

• Overall, cost of delivery is the greatest source of

• Traditional channels still dominate their

that were dissatisfied with delivery were able to provide

retail trade. Online retailers that have bricks-and-

an explanation of their experience. The only retailer

mortar stores still make most of their sales through

who explained why it was dissatisfied with having its

those stores. Of the 40 multichannel retailers that

own staff deliver its goods said it was because of the

felt able to estimate how their sales were split across

high cost of this form of delivery. High cost also

channels, 31 said that online channels accounted for

accounted for three of the seven explanations

30% or less of their total sales. What’s more, 24 said

of dissatisfaction with Australia Post, three out of

they expected online channels to still account for 30%

four regarding local courier companies, one out of

of less of their total sales in the year ahead. For some

two regarding customers collecting their purchases

time into the future, most multichannel retailers will

themselves, and the only explanations given for

rely on their traditional channels.

dissatisfaction with direct downloads and global

• Traditional channels still enjoy greater access to

dissatisfaction. Some of the online retail professionals

courier companies.

product. Theoretically, an online store can provide

• Other factors compounded merchant

customers with infinite product variety. However,

dissatisfaction with the cheapest delivery

the reality is that the cost of online ranging and product

methods. Two of the four retailers that explained

content management can increase with the number of

their dissatisfaction with local courier companies cited

products. The result is that multichannel retailers

unreliable delivery, as did four out of seven that

tend to offer a fuller range of products in their bricks-

explained their dissatisfaction with Australia Post

and-mortar stores (see Figure 4). Of 46 multichannel

Geographic reach accounted for two out of four

retailers, 37 sometimes, often, or always offer products

explanations of dissatisfaction with local courier

through their bricks-and-mortar stores that they do

companies. With Australia Post, three out of seven

not offer online. Conversely, just 24 of these

explanations mentioned maximum shipment sizes.

multichannel retailers sometimes, often, or always offer

This was in addition to the dissatisfaction they

products online that they do not offer through their

expressed with the price of these services.

bricks-and-mortar stores.

(Multiple responses were permitted.)

• Traditional channels usually command equal or

• Despite these challenges, retailers will invest to

higher prices. Of the 41 multichannel retailers that

improve their delivery. While costly, providing better

were able to identify a consistent pattern in their

delivery options is one of the most important ways in

online and physical store prices, 17 sometimes or

which online retailers can compete. In particular,

usually charged a lower price online, 21 usually charged

providing free delivery and return helps customers

the same across channels, and just three usually or

to become more comfortable with high-risk online

sometimes charged a higher price online. Among the

purchases, such as ordering clothing and footwear that

stores that sometimes or usually charge less online,

might not fit. Aware of this, Australian online retailers

the average price differential is 10%.

are planning costly improvements to their delivery

Delivery Is A Headache For Australian Online Retailers, But It Is Also A Key To Success Australian online retailers struggle with the price of delivery, and to a lesser extent with issues of reliability of delivery, geographic reach, and maximum package sizes. Nonetheless, they are planning to increase their eCommerce Secure Insight - Page 10

service in the year ahead (see Figure 5). Twenty-two percent will introduce next-day delivery, in addition to the 31% that already provide it. Twenty-one percent will introduce free delivery, taking the total that provide this service to 62%. Sixteen percent will provide free returns, on top of the 26% that do this already. And 18% will let customers select the time of delivery, which only 18% of Australian online retailers support today.

INTRODUCTION

Forrester consulting - The business of Australian online retail

Figure 3 Size, Scale, And Focus Create Different Online Retail Challenges

META#

Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3Source: 2010 Forrester Research, Inc. Source: Forrester Research, Inc.

eCommerce Secure Insight - Page 11

Forrester consulting - The business of Australian online retail

Figure 4 Multichannel Retailers Are More Likely To Offer Products In-Store

Figure 5 Australian Online Retailers Will Invest In Better Delivery

Replace text with Forrester Research, Inc. meta id number >> META# Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Source: Q3 2010



Source: Forrester Research, Inc.

Figure 5 Australian Online Retailers Will Invest In Better Delivery 71%

47% Next-day delivery 31% Letting the customer select the time of delivery

22% 18% 11%

Currently provide

Plan to provide in the next 12 months

Do not plan to provide in the next 12 months

Base: 46 Australian online retail professionals who work for or own multichannel retailers Source: A commissioned study conducted by Forrester Consulting on behalf of PayPal Australia, October 2010

Source: A commissioned study conducted by Forrester Consulting on behalf of eBay, Q3 2010 Source: Forrester Research, Inc. META# Source: Forrester Research, Inc. eCommerce Secure Insight - Page 12

INTRODUCTION

Forrester consulting - The business of Australian online retail

KEY RECOMMENDATIONS While online retail is booming in Australia, it still faces challenges. New and existing merchants, suppliers to the sector, and the industry as a whole should take decisive action designed to relieve these pressures. In particular: •

Multichannel retailers should reorganize around customers, not channels. At present, traditional channels account for most sales in multichannel businesses, and this can be seen as a powerful argument against dramatic change. But from the customers’ point of view, channels are just a means to an end. From their point of view, the most important issue is that they can access brands, channels, and products at whatever time and place they want, using whatever means make sense to them. To better meet such customer needs, therefore growing the business over the longer term, multichannel retailers should organize their business and create team incentives that are tied to

customer goals, such as ease of doing business, more than to channel-specific performance metrics. • New players should disrupt Australian logistics. There are many operators in Australia’s delivery market, but most of the current delivery models are nearly identical: The provider delivers the product individually to the customer’s door. But other models are possible. For example, larger retailers that own their own fleets could deliver goods on behalf of other companies. For example, a customer might wait for her next grocery delivery to return clothing that doesn’t fit free of charge. Likewise, shopping centre owners could provide online order pickup bays for their tenants. The goal would be to make it simple and affordable for Australian retailers to provide unprecedented levels of service to their customers, including delivery. •

The online industry should promote Australia as a career destination in the US and UK. While online retail is booming in the US and UK, both economies are still suffering, and some experienced online retail professionals from the US and UK might expect greater job security or a more relaxed lifestyle in Australia. They would certainly find greater opportunities to fast-track their careers in Australia based on their existing

experience in their home markets. The online retail industry should work to relieve the skills shortage in Australia by encouraging temporary and permanent migration by overseas eCommerce professionals •

Domestic online retailers should trumpet their successes. Current debate in Australia highlights what’s wrong with Australian online retail, with a focus on imports as well as the handful of iconic Australian retail brands that are not currently selling online. Successful Australian online retailers should step forward to tell the other side of the story. If domestic online retail is to continue to prosper, it needs a continuous supply of talented individuals who have confidence in the sector’s ability to perform in Australia. Leading retailers and

the industry as a whole should encourage this optimism. Appendix Appendix A: Methodology In this study, Forrester conducted an online survey of 114 Australian online retail professionals to evaluate the opportunities and challenges they face during Australia’s current online retailing boom. Survey participants included decision-makers in leadership and full-time professional roles in the online retail sector in Australia. The survey asked participants about their online business performance, their use of all retail channels, and how they manage logistics and other challenges. Respondents were offered a free copy of this report as a thank you for time spent on the survey. The study began in September 2010 and was completed in October 2010. Appendix B: Supplemental Material Related Forrester Research “Online Retailing In Australia 2010: Technology Investment,” Forrester Research, Inc., August 19, 2010 “Online Retailing In Australia 2010: Performance And Channels,” Forrester Research, Inc., August 2, 2010 “Online Retailing In Australia 2010: Marketing, Merchandising, And Customer Service,” Forrester Research, Inc., July 6, 2010 Appendix C: Endnotes 1 On average, current Australian online retailers surveyed in Q1 2010 expected their sales to grow by 30% in the year ahead, outstripping the 3% growth that the IMF was then predicting for Australia’s economy as a whole. What’s more, 70% of respondents expected their business to grow by more than 10%, and only three out of 334 respondents were anticipating a contraction. Source: “Online Retailing In Australia 2010: Performance And Channels,” Forrester Research, Inc., August 2, 2010.

Overall, search marketing is the most popular marketing technique used by Australian online retail professionals because of its flexibility and cost-effectiveness. Cross-channel promotion is also popular with those who work in multichannel businesses. Source: “Online Retailing In Australia 2010: Performance And Channels,” Forrester Research, Inc., August 2, 2010.

2

3 Of the 334 Australian online retail professionals who responded to a Forrester Research and Online Retailer Expo & Conference 2010 survey in Q1 2010, 224 owned or worked for a business that had no bricks-andmortar presence. Source: “Online Retailing In Australia 2010: Performance And Channels,” Forrester Research, Inc., August 2, 2010.

4 Improved content on the site is the leading area of investment that Australian online retail professionals identified for their businesses when surveyed in Q1 2010. Source: “Online Retailing In Australia 2010: Marketing, Merchandising, And Customer Service,” Forrester Research, Inc., July 6, 2010. The core eCommerce platform and the content management system are the two leading technology investment priorities, driven in part by the need to reduce the cost and complexity of product content management. Source: “Online Retailing In Australia 2010: Technology Investment,” Forrester Research, Inc., August 19, 2010.

eCommerce Secure Insight - Page 13

INTRODUCTION

the leading edge research.

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The proportion Phasellus of Australian retail spend going sem scelerisque erat, eget eu justo sed risus dui mi aliquet turpis, non velit, id ultriciesis mauris. imperdiet condimentum. pharetra enimlearn mi id enim. tincidunt nibh arcu in nibh. online ever increasing as consumers Duis mattis lacinia odio, Aenean fermentum augue Quisque nisl augue, aliquet Maecenas pretium, turpis the benefits of clicks over bricks. Indeed, 3.5 pulvinar dictum mauris condimentum tellus sit amet dignissim id, ac venenatis tincidunt, dapibus et. Vestibulum auctor ornare. Curabitur varius eu leo. Curabitur eros nisi pellentesque million Australian consumers now transact urna nunc, condimentum dolor dolor, laoreet eu ullamcorper, est non mollis massa, non imperdiet erat online iaculis within, PayPal thisneque number is felis in odio. nonregularly consequat laoreet, varius id arcu.and auctor, sem facilisis consectetur amet Aliquamto lacinia enim in lacus, vitae semperare ante the rising.sitResponding consumer demand augue. Nullam cursus, sem libero viverra ultrices. erat non arcu. Phasellus Lorem ipsum dolor thousands of Australian businesses both large sit amet euismod lobortis, Curabitur at mollis dolor. adipiscing orci eget ligula sit amet, consectetur augue nulla ultrices arcu, Fusce condimentum ipsum malesuada nec interdum and small building their presence online. So whatadipiscing elit. Nullam non sodales lacus metus eu dui viverra bibendum. leo semper. Vivamus tempor, mauris volutpat doeslibero. theInteger Australian onlinetortor consumer look like? sodales dictum, sem lectus adipiscing Proin sollicitudin, dignissim fermentum nisl, elementum, ut sollicitudin interdum, suscipit diam aliquam felis, id venenatis Whatdiam arenectheir preferences whenultricies it comes egestas ultrices, lacus leo augue cursus nisi, at vestibulum at. Nam sed nisi erat eu nisl. Curabitur to online shopping and what do they really ipsum posuere mauris, tempor nulla eros sit amet faucibus lacus. Donec a auctor turpis in enim auctor ut gravida sapien mauris neque. Integer dui neque, augue diam. think about the world of eCommerce? PayPal at varius ipsum sollicitudin. commodo purus. laoreet eget gravida nec, Suspendisse at velit nisi, partnered with consectetur The Leading to find out. quis ligula. Edge Proin sit amet libero sit amet vehicula lacus. consectetur. Etiam at leo

Phasellus euismod, nibh eCommerce Secure Insight - Page

Curabitur condimentum

the leading edge research

Online shopping in Australia is booming and the demand from consumers for sophisticated and integrated online offerings from Australian retailers is ever present. Whilst Australian retailers are gearing up their presence online, Australian consumers are already there – ready and waiting. Understanding consumer behaviour and their drivers for shopping online is critical to any retailer in the online space. Working with PayPal, The Leading Edge conducted two studies to provide insight into the mind of the Australian Online Shopper. The Leading Edge is a strategic market research consultancy, working with many of Australia’s and the world’s biggest and best businesses and brands. The Leading Edge solves business problems through insights, uses creative solutions and delivers results. The Methodology •

The first study involved a nationally representative telephone survey of 1,000 Australian adults to understand the



size and make up of online shopping in Australia.



The second study consisted of an online survey exploring the opinions of 1,500 Australian online shoppers,



aged 18 to 54 years old and their behaviour and attitudes to online shopping in Australia

Online shoppers in Australia

Unsurprisingly, the next most important set of reasons for shopping online reflect consumers seeking ‘Value; Access

Online shoppers are no longer a niche of the Australian population and it is near impossible to classify them into particular segments of the market. An Australian online shopper is just as likely to be a teenage boy purchasing a new computer game as a middle aged woman purchasing her preferred perfume. However, whilst there is a sweeping online demographic, the research shows more than a third (35%) of online shoppers living in rural areas. This is somewhat surprising as rural Australian’s often have poorer connections and access to the Internet than their city counterparts. Drivers to online shopping The main drivers to shopping online from domestic websites reflect the desire for ‘Convenience’, stated as the most important factor by 39% of domestic online shoppers; ‘Availability 24/7’ (22%) and; ‘ Easier than Visiting a Store’ (17%).

to Offers Not in Store’ (18%) and ‘Less Expensive’ (15%). “When looking at overseas drivers, we found that these differ dramatically from domestic drivers. Firstly, it’s not about ease it’s about wider choice and selection of goods.” Almost one third of all those shopping from overseas websites state that ‘Access to Goods’ and ‘Services Not Available in Australia’ (32%) is an important driver to overseas purchases. This is a somewhat surprising finding for those who considered price to be the key overseas driver and a call to action for Australian retailers to increase the selection of goods that they offer online. Combining this with those who state there is ‘Greater Choice’ overseas (18%, it is clear that wider availability overseas than in the Australian market is the key driver to international websites. Value is also incredibly important to Australian consumers. ‘Less Expensive goods and services’ (19%) are at a similar level in terms of importance to ‘Greater Choice’

eCommerce Secure Insight - Page 16

INTRODUCTION

the leading edge research

“When looking at overseas drivers, we found that these differ dramatically from domestic drivers. Firstly, it’s not about ease it’s about wider choice and selection of goods.” Barriers to online shopping overseas

Barriers to online shopping domestically

Not all online shoppers in Australia shop overseas,

The most frequent reason for not shopping more online

which is both good news and an opportunity for domestic

is ‘Not Adequately Protected if Something Goes Wrong’

retailers; 23% of Australian adults only shop online with

(33%). Many online shoppers still feel exposed and

domestic websites.

there are a further range of concerns apparent from the ‘Possibility of Fraud’ (26%) to ‘Providing Details Online’ (14%).

A large number of Australians have a general Preference for Buying from Australian Companies. While this

Beyond the emotional concerns there are more functional

obviously reflects a “buy Aussie” mindset, it is also likely

issues at play that limit online shoppers’ spend. Of these,

that it reflects broader concerns of shopping overseas.

the biggest issue is shoppers ‘Don’t Like Paying Delivery Costs’ (28%). Beyond the costs, ‘Product Interaction’ is

One third of Australian consumers (33%) believe it is ‘Safer

an issue; ‘Correctly Identifying the Right Size’ (25%) and

to Buy from Australia’, while a similar number (30%) worry

‘Touch and Feel the Product’ (24%) are key issues where

about ‘Stories of Fraud from Overseas Websites’, again

online retailers can focus to help consumers make their

presenting an opportunity for domestic retailers to target

purchases with less stress, to activate further revenue for

these consumers.

the online marketplace.

Other concerns include ‘Worry about Giving Payment Details’ (25%), ‘Who can Help if Things Go Wrong’ (24%) and ‘Worry what I Buy Won’t be Delivered’ (23%), it is clear that there is concern about getting burned and having nowhere to turn.

Conclusion Australians are becoming smart online shoppers, looking to purchase goods both domestically and overseas. Although there are a number of barriers to entry, retailers are providing consumers with reassurance and tools to address their concerns such as safe payments and solid returns policies. Most notably is the opportunity for retailers to take advantage of the current Australian retail spend going abroad. The broader selection of goods, rather than price is the key driver to Australian retail spend going overseas and Australians are showing a genuine preference to shop at home grown retailers when they can. eCommerce Secure Insight - Page 17

eCommerce Secure Insight - Page 18

INTRODUCTION

staying safe online.

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The number one concern for consumers ultricies nisi, eu ultricies eget posuere arcu nibh faucibus odio iaculis eros ipsum quis ipsum. gravida mi. Pellentesque when shoppingsapien online is the security of their aliquet in venenatis nulla Aliquam tellus neque, et est ligula. Curabitur personal details. Asquis Australian businesses build dignissim. Vestibulum sed ultrices posuere sit dignissim convallis ante a elit dolor, id pretium eros. amet, imperdiet et lorem. sodales. Nullam congue, their presence online, the issue lorem of security Mauris blandit venenatis luctus mollis blandit, must Etiam always front ofsed mind. PayPal is built consectetur. at leo stay Phasellus eu justo risus dui mi aliquet turpis, non velit, id ultricies mauris. pharetra enim mi id enim. around securityimperdiet and condimentum. helping businesses, and Duis mattis lacinia odio, Aenean fermentum augue Quisque nisl augue, aliquet consumers, to condimentum transacttellus safely online sits atid, pulvinar dictum mauris sit amet dignissim dapibus et. Vestibulum auctor ornare. Curabitur varius eu leo. Curabitur the core of our dolor proposition. We ullamcorper, asked Alastair urna nunc, condimentum dolor, laoreet eu est non mollis Founder ofidthe Safety nonMacGibbon, consequat laoreet, iaculis in, varius arcu. Internet auctor, neque sem facilisis consectetur sit amet Aliquam lacinia enim in lacus, vitae semper ante Institute, an Australian industry body that augue. Nullam cursus, sem libero viverra ultrices. erat non arcu. Phasellus exists tolobortis, encourage the collaboration between sit amet euismod Curabitur at mollis dolor. adipiscing orci eget ligula augue nulla ultrices arcu, Fusce condimentum ipsum malesuada nec interdum businesses, government and international non sodales lacus metus eu dui viverra bibendum. leo semper. Vivamus organisations toProinprovide a safe online adipiscing libero. Integer sollicitudin, tortor dignissim fermentum nisl, elementum, diam nec sollicitudin interdum, suscipit diam environment, toutleoshare his views.ultricies egestas ultrices, lacus augue cursus nisi, at vestibulum at. Nam sed quis nibh lacus. Integer

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Phasellus euismod, nibh eCommerce Secure Insight - Page

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Nam sit amet malesuada

STAYING SAFE ONLINE

In the past few years online crime has evolved from a cottage craft to an industrial process. As broadband penetration increases, and Australians’ appetite for internet and mobile devices continues to grow, the problem will only become more important to address. Understanding online crime

Of course that is not to say central repositories are

For every crime we see online there is an offline analogue.

disregarded by cyber criminals. For example, in August

Hacking into a business’ computer is the same as breaking into their office and rifling through files. Spam emails are akin to junk mail. Website defacement is graffiti. Identity theft and fraud, is, well, identity theft and fraud. The list goes on. However, the internet does offer certain advantages as

2009, Miami resident Albert Gonzalez was charged for his part in stealing 140 million credit card details after compromising US credit card processor Heartland Payment Systems, 7-Eleven, and Hannaford Brothers supermarkets. In March 2010 he was sentenced to 20 years imprisonment.

a channel for criminals: increased geographic reach; a

But it is not all doom and gloom.

large and growing potential victim base of well over a

While criminals have been highly efficient at stealing

billion people; a poorly regulated series of markets with

identity and financial credentials to a point where there is

insufficient governmental, business and social responses;

now a glut, resulting in dramatic price drops on criminal

and an unwary public.

black market trading portals. That efficiency has not transferred to those who try to strip money out of the

In recent years we have seen that ‘malware’ - malicious

system by exploiting those credentials. This is the point

criminal programs which perform functions not authorised

where the crime moves from online to offline: people

by the user like leaving a ‘back door’ open to the computer

(‘mules’) are needed to ‘cash out’ from bank accounts and

or transmitting passwords or sequences of keystrokes to

wire money to criminal syndicates offshore via Western

online collection points - has proliferated, exponentially

Union. Even though recruitment for mules is carried out on

Oftentimes such malware is combined with ‘social

the internet via work from home and dating websites, as

engineering’, aimed at convincing users to undertake

well as within certain ethnic communities, criminals have

activities they otherwise would not. It is this amalgam

not been able to find enough participants.

of devious software and human trickery which has compounded the problem.

But criminals adapt. We are seeing an increase in largescale “breakout” frauds with coordinated geographically

A tipping point occurred around 2003 with the advent

dispersed activities, taking money out of the system in

of ‘phishing’, where criminals realised consumers

very tight windows. There has also been a shift towards

held information of value and began masquerading as

stealing EFTPOS and debit card credentials at ATMs

reputable businesses, using fake emails and websites to

and point of sale (POS) devices, so cards can be used to

trick consumers out of their passwords and other identity

withdraw funds directly rather than having to transfer

credentials, like credit card and bank details. Countless

money via internet accounts.

millions of people globally have fallen victim. eCommerce Secure Insight - Page 20

INTRODUCTION

STAYING SAFE ONLINE

The consumer response

The business response

Australians are amongst the most active internet users

The internet is a highly competitive place for businesses.

in the world, and there are few signs demand will slow.

This, coupled with a weak regulatory environment

Online consumers have shown a capacity to rise above the

(fostered by these businesses) and fast-paced

actual crime threat level. Some of this may be misplaced

technological advances, has meant cooperation between

bravado; some a disinterest in their safety; most, probably

businesses and industry good citizenship has been

due to a failure on the part of IT security and crime experts

largely lacking over time. Instead, an anarchic ‘gold rush’

to adequately articulate the threat.

mentality has prevailed.

It is easy to see how problems keep occurring. The March

But the longer term viability (and profitability) of the

2009 Australian Communications and Media Authority,

internet depends upon business taking a more cooperative

Australia in the Digital Economy Report 1: Trust and

approach towards chronic issues like criminal exploitation.

Confidence highlighted the complacency of the Australian

Just as we would see a group of shopkeepers banding

internet population with less than 50 per cent of survey

together offline to help remove graffiti and beautify a

respondents having anti-virus software, and even fewer

landscape, to work with local government and improve

with firewalls or other protective measures. This is

the amenity of a shopping district to lift the mutual

inviting computer compromise and theft of personal and

economic prospects for all by creating a better, safer, user

financial data. It is a cavalier act on the part of individuals,

experience for their customers, we need to see internet

threatening not just themselves but the rest of us online.

businesses do the same.

Other surveys indicate that the biggest fear Australians

Businesses need to view online crime as a customer

have online is the loss of their personal financial

retention issue, certainly as a customer activity issue,

credentials. This has been a major factor driving consumer

even as a customer acquisition issue. Widespread losses

uptake of online payment services such as PayPal which

(even if attributable to the customer’s computer or actions)

allows online payments to occur without the sharing of

will erode the internet channel through lost consumer

personal financial information.

confidence, brand and reputation.

Consumers are also very rational in that positive

At a tactical level, fraud against online businesses is also

experience leads to more activity, and negative

a major issue. How do customers prove they are who they

experiences have been shown to reduce online activity.

say they are, and that they have legitimate control over the financial instrument they are presenting? One of the

On the whole, consumers need to do more. They need to:

enduring problems for using credit and debit cards online is that they were just not designed for that purpose.

• Be more wary of how and where they expose personal and financial credentials

Card not present transactions leave merchants at risk of

• Use safer payment methods online

chargebacks. By the time a consumer charges back, the

• Install and update anti virus and firewall software,

merchant will have shipped the goods or provided the

as well as regularly patch their operating systems

services. Every fraud perpetrated against a business will

and software applications

require several legitimate sales to cover the loss simply

• Begin to demand security and privacy from companies they do business with online, and if not satisfied, withdraw their custom While there is no doubt individual end users need to be more responsible in reducing their own risk, the mantra of end user responsibility has often been taken as an opportunity for governments and businesses to play a minimalist role and that is where the biggest failings have occurred. eCommerce Secure Insight - Page 21

because of the margin most businesses operate on: if you have a 25% margin you need 4 legitimate sales to cover a fraud, if you have a 10% margin, 10 sales, and so on. In response, many businesses have built various fraud rules ranging from credit card BIN limitations, IP blocking, through to blacklists of physical and email addresses where they have lost money previously. The process tends to be highly manual, and inaccurate. Most online criminals will be able to bypass these simple rules and are doing so at a greater rate. More sophisticated scalable third party fraud detection engines are needed. Collectively, online businesses need to offer safer services to their customers, where education, security and encryption are built into the product, rather than - oftentimes - added as an afterthought. They should prove their security credentials, by outlining plain English privacy policies; demonstrating their understanding of payment card industry data security standards (PCI DSS); and their overall site security (trust marks from legitimate third party website security firms). And businesses need to engage the Australian government as an ally, to offer their deep knowledge of the internet to assist government’s role in protecting

“We need an internet crime complaints ‘shopfront’ for people to report matters, and to seek advice.” Additionally, governments have pursued a ‘light touch’ approach towards telecommunications and broadcast regulation (co-regulatory and industry self-regulatory models) expecting those businesses to deliver solutions greater than or equal to the threats. And they - in most cases - haven’t. And the bureaucracy has taken a narrow definition of cyber security (based on the criminal code definition of

its citizens.

cybercrime: unauthorised access to, or impairment of,

The government response

the victimisation which occurs at the consumer level.

While Australian policy on cyber security and safety has progressed (and in the right direction), the gap between Australia’s capabilities and our needs is widening. The uptake of information and communications technologies has been so rapid and corresponding threats and exploits have been exponential, making it hard for government institutions to keep pace with the unintended consequences.

data on computer systems), thereby excluding much of The reality of online victimisation is that it is a combination of technical and social vectors used by criminals, often undistinguishable by the victim. The multi-jurisdictional nature of the internet hampers efforts to fight its abuse. Law enforcement, domestic intelligence and regulatory agencies are jurisdictionally bound, and criminals exploit the inefficiencies of jurisdiction to their own advantage. The small nature of many individual online incidents means that much of the time they go unnoticed even

eCommerce Secure Insight - Page 22

security

INTRODUCTION

if reported. One individual act may be spread across

in the internet industry such as registrars (who issue

many jurisdictions and be replayed against thousands

domain names), and they could play a much greater role

of victims, all of whom have a small loss that combined

in protecting us. But for a long time many of them have

becomes something of much greater magnitude.

argued that as providers of a commercial service, they

The fragmented and often opaque nature of incident

are unable to assist. Banks sit in the same boat, but many

reporting prevents us from seeing a true picture.

years ago governments recognised that they could play an important part in fighting crime through financial

We need an internet crime complaints ‘shopfront’ for

monitoring, and thus introduced anti-money laundering

people to report matters, and to seek advice. A recent

and ‘know your customer’ requirements.

Federal Parliamentary committee inquiry into cybercrime called for the same thing.

Additionally, businesses need to have strong incentive to collect and store less information and better protect

Such a ‘shopfront’ would deliver significant benefits,

the information they do collect. Some of this change can

including an ability to:

be brought about by the government acting on the data disclosure changes suggested by the Australian Law

• aggregate complaints to better determine the scope

Reform Commission in its review of the Privacy Act.

of crime, and to pass on that information to relevant

In particular the need for businesses to notify individuals

agencies

if data is lost.

• gather intelligence and trends on scams, illegal content, crime, and IT security attacks from

Lastly, government education efforts have been well

Australian households and businesses

intentioned but sporadic, failing to reach most homes

• provide a single point of education and remediation

and businesses, and certainly not changing behaviour.

for Australians

The Australian Government needs to undertake a

• give a sense of redress to victims, reducing feelings

sustained ‘public health’ style approach - in conjunction

of helplessness and frustration

with responsible online businesses - to change poor

• pass on relevant information to other countries for

internet habits.

their action • reduce individual victimisation and losses • provide information back to industry to reduce further victimisation. It is time for the Australian government to consider whether the current ‘light touch’ approach towards the internet has served its use-by date. It allowed Australia to develop its internet capacity in a relatively unfettered and competitive way, but at the cost of safety and security, which may now be inhibiting future growth. Internet Service Providers (ISPs) play a crucial role in connecting Australians to the internet, as do others eCommerce Secure Insight - Page 23

eCommerce Secure Insight - Page 24

PAYPAL OVERVIEW What is PayPal? PayPal is a secure payments system that lets people buy online without sharing their personal financial information. A PayPal user can purchase goods or services online through their PayPal account with a credit card, debit card, bank account or PayPal balance. PayPal enables businesses to get paid electronically, in a number of different currencies. PayPal’s advanced security techniques enable safe online transactions, offering both businesses and consumers a convenient and safe way to pay and be paid online. HOW PAYPAL HELPS ONLINE BUSINESSES With no set up fee and an easy fee structure, PayPal is easy to manage and easy to implement. Recognised globally as a trusted payment method, PayPal gives consumers both peace of mind and choice when shopping online, helping to foster greater sales conversion rates. With unrivalled anti -fraud technology, transaction and financial information is kept safe and private protecting both consumers and businesses. For more information please visit www.paypal.com.au or speak to a member of our team on 1800-729725 (1800 PAYPAL). PayPal in Australia PayPal has operated in Australia for 5 years and over this time the total number of transactions processed by PayPal Australia has grown 5 fold. With3.5 million active users and 30,000 Australian businesses now using PayPal , the number of transactions grew 32 per cent between calendar year 08 and 09. Half of Australia’s top 100 retailers now use PayPal and since 2005 PayPal’s off eBay business has grown 10 fold and now representing almost half of all payment volume. Enabling payment for both large and small businesses, PayPal’s total payment volume in 2009 was almost US$2 billion, an increase of 32 per cent from 2008, demonstrating rapid growth as consumers and businesses seek fast, safe and secure ways to shop online. With more than 87 million active accounts in 190 markets and 24 currencies, PayPal enables global eCommerce.

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