January 30, 2003, 12:00 AM

Making the web feel safe

The perception that web shoppers expose themselves to heightened risk of credit card fraud and identity theft by ordering online is dead wrong.

It is disheartening to read the research in this month’s special report on e-payments security (see report following page 34) which suggests that 40% of web users do not shop online because they feel threatened that their credit account and other identifying information might be stolen. Another 30% of online shoppers sharply restrict their web purchases out of the same fear. While e-retail sales grew nearly 30% last year, think how stunning the growth might have been were it not for the lingering perception that the web is unsafe when it comes to securing payments.

The perception that web shoppers expose themselves to heightened risk of credit card fraud and identity theft by ordering online is dead wrong. Cases of thieves hacking into an e-retailer’s secure web site to steal credit card accounts are extremely rare. A consumer takes a much greater risk of credit card theft when he gives his card to the waiter to pay a dinner check. Skimming-illegal recording of card data from mag stripes during the payment process-is a serious problem. But it’s also an old one, and local TV news shows get better ratings with a story on the Internet fraud "crisis" than with a piece that rehashes older credit card scams.

It’s true that credit card fraud at retail web sites is 3 or more times higher than at the store, where the customer presents her card in person and signs the receipt. But most of that difference is accounted for by what direct retailers euphemistically call “friendly fraud,” the consumer who buys on the web and disowns the transaction when it comes time to pay the card issuer or the kid who gets hold of Dad’s credit card to order a DVD player. Cardholder-not-present payments are harder to prove and are even more easily purged from the cardholder’s statement. Catalogers and telemarketers have lived with higher fraud rates for decades, and yet their growth hasn’t been restrained by consumer fears of card fraud. Ironically, the fact that fraudulent credit card payments on the web are so easily removed from the consumer’s account provides cardholders with even more protection on their web purchases than they have at stores.

Accurate or not, however, perceptions rule consumer behavior. So long as people perceive that web payments are inherently more risky, web shopping will be prevented from reaching its potential. I have long thought that smart cards held the greatest promise for creating a sense of security about web payments, but I recognize the obvious problem of having to attach smart card readers to the nation’s massive base of PCs. Visa and MasterCard have skirted this problem by cooking up a password scheme for authorizing card payments on the web, but it requires an enormous amount of coordination and support by card issuers, retailers and consumers, not to mention that for many web shoppers the request for a password is tantamount to flashing an abandon cart order.

I still hold out hope for smart cards and wish the card associations the best of luck with their newest initiatives. Yet increasingly I believe that fears about card fraud on the Internet are best dealt with through an aggressive program to educate consumers that those fears are unwarranted. Working behind the scenes, the nation’s electronic payments processors are steadily beefing up their systems for spotting card fraud online, and their efforts are gradually reducing it. It is time for card associations, card issuers and retailers to mount a media campaign to convince consumers that paying by card or check online is as safe as paying for things in line. This is primarily a problem of changing consumer perceptions. Madison Avenue knows how to handle that.


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