A consumers’ perceived risk is an important barrier for online consumers who are considering whether to make an online purchase. Jacoby and Kaplan had identified seven types of risks: financial, performance, physical, psychological, social, time, and opportunity cost risk. In the case of online shopping, there are three predominant types: financial risk, product risk, and information risk (security and privacy). Product risk related to the product itself; for example the delivered product may include some faulty parts and they affect the whole product. Financial risk, including opportunity cost and time, is not associated with product but to the marketing channel (the Internet); for example the online transaction may be duplicated because of technological error or the customer unintentionally click the purchase button twice. Information risk is associated with transaction security and privacy; for example, we often require customer to submit credit card information through filling in an online form and this can leak their personal information due to the possibility of credit card fraud.
A consumer’s perceived risk has been found to influence his or her online decisions. It is common that a customer who has experience in making online transaction will be unwilling to buy something from a Website because comparing to the traditional way of shopping, there may rise a sense of risk. Unlike walking into a physical store where customers can touch, smell and even try on the product before making up their mind about bringing it home. This will definitely reduce the amount of perceived risk, and certainly encourage customers to shop more at the brick-and-mortar stores. Contradictorily, customers have to provide their personal information and even confidential credit card number to place an order when purchasing products from an Internet store. After completing all steps, buyers can only hope nothing bad would happen to their orders. There are some arising problems such as late or wrong delivery or even cancelling order due to out-of-stock situation, waiting for days to receive products or services is an issue that the shoppers had to deal with. Thus, it should not be surprising that consumers will be attentive to risk in online transactions, and such risk may influence their decisions about whether or not to purchase from an online vendor