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Visa says this is the first system that alleviates merchants of the risk of accepting transactions. Other card-association initiatives have required actions such as asking the cardholder for the card verification number on the back of the card. The thinking was that knowing the number would indicate that the cardholder had the card in hand and was not using just a stolen number. But while that may have prevented some fraudulent transactions from taking place, it had the dual problems of introducing another inconvenient step for the customer and still leaving the merchant liable for the transaction. “Those things are great but those tools are all geared to help the merchant help themselves,” says Jim McCarthy, senior vice president of the eVisa group. “They do nothing to alleviate risk; they only mitigate it. Verified by Visa is the first thing that helps reduce fraud on the Internet.”
McCarthy says the password shifts more liability to card-issuing banks. “The process represents signing the receipt at the point of sale,” McCarthy says. “If it’s authorized then it can’t be charged back. We’re not trying to move the fraud around. We’re trying to drive transaction disputes out of the equation.”
McCarthy says Visa hopes to reduce chargebacks to at least the level of direct mail’s 14 to 18 basis points.
Safety = sales
CDNow.com, online seller of music and videos, last October became one of the first merchants to try the Verified by Visa program. So far, it is pleased with the results and customer acceptance of the system. “We saw the program as a great idea for two reasons: it helps consumers feel more comfortable about using their card online and it helps use reduce chargebacks,” says Samantha Liss, vice president of marketing and promotions, whose group handles the Visa relationship. She says the software was not onerous to install and the process is seamless to the consumer. “They know they have a VPAS card so the process doesn’t’ slow them down,” she says. Visa says the program is too new to track the number of transactions using the system.
Visa is promoting Verified by Visa to consumers with print, online and television advertising, while participating banks also are marketing it to their cardholders. CDNow, for one, expects to acquire additional customers once the marketing campaign gets underway. And, Liss says, CDNow expects those customers to be more likely buyers than other prospects because Verified by Visa will alleviate their fraud fears.
The choices available to fight fraud are myriad and each merchant needs to understand its own problems and culture before choosing one, analysts say. The decision, they add, rests not just on technological solutions. “The three things merchants should balance are using technology to reduce fraud, increase sales by making smarter risk management decisions and automating some of those processes so they don’t need a roomful of people to check up on fraud,” says HNC’s Wilhelm.
Using different components in a risk management system is key, says Mikael Hook, lead analyst for Internet payments and billing technology at Current Analysis, a Virginia-based company that evaluates products and market developments. He says every merchant should include the human component in conjunction with fraud-fighting technologies. “Technology can flag fraud but human review can check and even save orders,” Hook says.
Wilhelm also stresses the importance of cost-benefit analysis in developing a risk-management strategy. Merchants must assess their own level of fraud, the potential for fraud based on the fraud history for the products they sell and how much they can afford to spend in time and money.
Even with all the new technologies, the fight against online fraud is far from over. And if the real world is a guide-and it surely is in this case-fraud will always be with us. But technology is a good first step because it can help eliminate some of the facelessness of online transactions. Say Qsent’s Keene: “Anything retailers can use to make buying online less anonymous will help them reduce fraud.”