ID Theft Impacts Online Spending, Consumer TrustID Theft Impacts Online Spending, Consumer Trust

Recent failures of financial institutions to protect personal information have increased U.S. consumers' concerns about online security, making them less likely to buy products and conduct financial transactions over the Internet, a research group said Thursday.

In addition, more than 13 percent of Internet users say either they or a member of their household has been a victim of identity theft, according to The Conference Board.

More than 4 in 10 Internet users are purchasing less online, due, in part, to the string of reports of misplaced or stolen data from major financial institutions, the research firm's survey of 10,000 households showed. More than half of the respondents said they now opt-out of special offers to avoid security risks.

"We're seeing right now just the tip of the iceberg from security breaches and breaches in trust," Lynn Franco, director of consumer research for The Conference Board, said. "Consumers are already curtailing what their purchasing online, and that has had a negative ramification on retailers."

While The Conference Board isn't predicting the end to e-commerce, Franco said, "it's taking a little bit of a pause and probably hasn't grown as fast as it could."

Among the security breaches on consumers' minds are misplaced or stolen data reported by Citigroup, Bank of America, Wachovia, and the recent mishandling of credit-card data by bill-processing company CardSystems Solutions, The Conference Board said.

The reports have rekindled fears among consumers, who were feeling more comfortable with conducting business online, as companies became more upfront with their privacy policies, Franco said. The CardSystems incident, however, highlights how security breaches can occur among third-party companies working with personal information.

CardSystems, which processed credit-card transactions for MasterCard, acknowledged failing to follow procedures set out by its customer.

"It's one step forward, two steps back," Franco said. "Companies have to comeback and readdress their security efforts before consumers will be willing to go forward."

The survey found that conducting financial transactions and buying products were the online activities that produced the most apprehension among Internet users. Nearly 3 in 5 said they were "extremely concerned" about the security of their information when conducting financial transactions, and almost half felt the same about purchasing products.

Less than 30 percent, on the other hand, expressed a heightened level of concern in using email and instant messaging or a search engine.

As expected, younger Internet users were less concerned with security than older users. Only 49 percent of respondents under age 35 were "extremely concerned" about the security of their personal data, compared with 63 percent of consumers 55 and older.

People, however, tend to become more concerned with security as they get older and accumulate more wealth and assets.

"There's more to lose," Franco said.

The Conference Board, a non-profit research group, and custom-researcher Taylor Nelson Sofres plc produced the Consumer Internet Barometer. The Conference Board also produces the widely used Consumer Confidence Index.