An empirical study of customers’ perceptions of security and trust in e-payment systems Changsu Kim a,1 , Wang Tao a,2 , Namchul Shin b, * , Ki-Soo Kim a,2 a School of Business, Yeungnam University, 241-1, Dae-dong, Gyeongsan-si, Gyeongsangbuk-do, 712-749, South Korea b Department of Information Systems, Seidenberg School of Computer Science and Information Systems, Pace University, 163 William Street, New York, NY 10038, United States article info Article history: Received 2 May 2008 Received in revised form 31 January 2009 Accepted 28 April 2009 Available online 23 June 2009 Keywords: e-Payment systems (EPS) EPS use Electronic commerce Security Trust abstract It is commonly believed that good security improves trust, and that the perceptions of good security and trust will ultimately increase the use of electronic commerce. In fact, customers’ perceptions of the secu- rity of e-payment systems have become a major factor in the evolution of electronic commerce in mar- kets. In this paper, we examine issues related to e-payment security from the viewpoint of customers. This study proposes a conceptual model that delineates the determinants of consumers’ perceived secu- rity and perceived trust, as well as the effects of perceived security and perceived trust on the use of e- payment systems. To test the model, structural equation modeling is employed to analyze data collected from 219 respondents in Korea. This research provides a theoretical foundation for academics and also practical guidelines for service providers in dealing with the security aspects of e-payment systems. Ó 2009 Elsevier B.V. All rights reserved. 1. Introduction Electronic commerce (EC) is built upon e-payment systems (EPS). As EC becomes a major component of business operations for many companies, e-payment has become one of the most crit- ical issues for successful business and financial services (Hsieh 2001, Peha and Khamitov 2004, Stroborn et al. 2004, Linck et al. 2006, Cotteleer et al. 2007, Kousaridas et al. 2008). In comparison to the traditional payment methods, e-payment techniques have several favorable characteristics, including secu- rity, reliability, scalability, anonymity, acceptability, privacy, effi- ciency, and convenience (Chou et al. 2004, Stroborn et al. 2004, Tsiakis and Sthephanides 2005, Linck et al. 2006, Cotteleer et al. 2007, Kousaridas et al. 2008). EPS have gained recognition and have been deployed throughout the world. Countries such as France, the US, and the UK have fully developed systems, while re- gions such as the Asia–Pacific rim provide the growth impetus to the industry. Our research uses Korea as the site of the empirical investiga- tion because the supporting infrastructure required for the EPS development has been put in place. Korea has aggressively pursued the development of IT and networks and created a world-class IT infrastructure (Au and Kauffman 2008). Since the mid-1990s, the Korean government has enforced a number of policies for spread- ing and promoting EC. As a result of these focused investments, Korea now boasts a world-class infrastructure for EC. According to the annual report of EC published by the Korea Ministry of Com- merce in 2007, the total EC market size in Korea was USD 507.42 billion with a growth of 34.6% compared to the previous year. Meanwhile, Korea also has one of the highest per-capita usage sta- tistics for the Internet; the number of Internet users was 34,430,000 (or 75.5% of the population aged six or older) and con- tinues to rise. In the meantime, online shopping and transactions have become a normal part of life for average consumers. The e-commerce market in Korea is expected to double annu- ally in the next five years. Since Korea is the world’s second-fast- est-growing IT market, EPS will play an important role in executing wide-ranging activities and actively confronting chang- ing economic conditions. In fact, many EPS brands such as Easy- cash, Easypaydirect, Inipay, iCash, eGate, eCredit, Smartpay, mypay.net, Payplus, and Paymatics have been established in the recent years. While good EPS have a number of advantages over the tradi- tional payment methods, they must be free of security breaches (Hegarty et al. 2003, Linck et al. 2006). The Gartner Group reports that 95% of customers are somewhat concerned about privacy or security when using credit cards on the Internet; Harris interactive also reports that six in ten respondents fear credit card theft. A key factor for the success of EPS is security, a requirement that is becoming even more crucial in the current global EC environment 1567-4223/$ - see front matter Ó 2009 Elsevier B.V. All rights reserved. doi:10.1016/j.elerap.2009.04.014 * Corresponding author. Tel.: +1 212 346 1067; fax: +1 212 346 1863. E-mail addresses: c.kim@ynu.ac.kr (C. Kim), w.tao@ynu.ac.kr (W. Tao), nshin@ pace.edu (N. Shin), k.kim@ynu.ac.kr (K.-S. Kim). 1 Tel.: +82 53 810 2752; fax: +82 53 810 4652. 2 Tel.: +82 53 810 3213; fax: +82 53 810 4652. Electronic Commerce Research and Applications 9 (2010) 84–95 Contents lists available at ScienceDirect Electronic Commerce Research and Applications journal homepage: www.elsevier.com/locate/ecra