New moves to eliminate
e-commerce card fraud


30 Mar 2004

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New technology systems for authenticating credit card payers on the internet may go a long way to removing barriers to adopting e-commerce, a seminar audience heard yesterday.

Speaking at last night’s Irish Internet Association event ‘Practical Guide to Online Selling’, Colm Lyon of Realex outlined new initiatives from Visa and Mastercard aimed specifically at reducing the risk of selling over the web and eliminating the chance for credit card fraud.

These services should also mean that it is no longer as expensive for a merchant to provide e-commerce services. “If I can reduce the risk, I can bring down the cost,” said Lyon.

The proposed systems, dubbed ‘Verified by Visa’ or alternatively ‘Mastercard Secure Code’, differ from previous online transaction methods in one crucial respect; they involve the bank that originally issued the credit card to the user. Until now, it was very difficult to for a merchant to determine if the credit card being used to buy products from a website actually belonged to the purchaser.

Fundamental to buying and selling online is the concept of ‘cardholder not present’ transactions – the owner of the credit card is not physically at the store when he or she is making a purchase. According to Lyon, the risk involved with these transactions has made many people wary of providing products online because it would leave them exposed to possible fraud. Under current trade rules, merchants who accept credit card numbers this way are liable if the transaction goes wrong. If the credit card turns out to be bogus, or the number was used by an unauthorised person, the merchant must absorb the cost.

With the Verified by Visa system, for example, the bank that originally issued the credit card becomes involved and it is their responsibility to authenticate the user of that card. In practice, when a buyer was about to make a purchase online, the bank’s website would open a separate window and ask the user to log in using their ID code. This would verify to the merchant that the buyer was bona fide, allowing the transaction to proceed. The authentication process would take place before payment was authorised. “It brings an element of trust to the equation,” said Lyon.

“These systems offer guaranteed payment because you the merchant have followed a specific process,” he added.

Thousands of retailers around Europe have implemented the Visa system; the credit card firm has statistics which claim to show that 70pc of online shoppers would be more likely to buy from a site if it carried the ‘Verified by Visa’ stamp. Lyon stopped short of saying that its takeup was imminent among Irish merchants but he pointed out that some organisations have begun using it and others may be encouraged to do likewise. “As you eliminate the risk, people are not going to worry, they will sell online,” he said. “There is an expectation that this will happen over the next year or two.”

By Gordon Smith