Mon, 12 Jun 2000

MasterCard Int'l boosts confidence in e-shopping

KUALA LUMPUR (JP): MasterCard International, expecting greater revenue from the rapid growth of the Internet, has launched a number of solutions to boost the public's confidence in the security of shopping through the Internet.

MasterCard's chief executive officer Robert W. Selander said in Kuala Lumpur last week that many people remained doubtful about the security of making purchases through the Internet despite the fast growth of the Web globally, including in the Asia-Pacific region, over the past several years.

"Our research shows that more than two-thirds of consumers who start to make a purchase on the Internet abandon their effort. Either the form is too long or too hard to fill out ... or they are afraid to give personal information, like address and payment card information.

"(The security issue) is the number one reason that many people don't shop online," Selander said in his speech in front of 600 top banking executives from across the region during the company's Asia/Pacific Annual Meeting 2000 from May 29 to June 2.

According to industry data made available during the meeting, thus far Internet transactions account for only 1 percent to 2 percent of the sales volume of payment card companies MasterCard and Visa, but the share is projected to increase to 15 percent in the next five years.

Forecasts indicate consumer spending on the Internet will grow to almost US$500 billion in the next five years, while business- to-business transactions will be worth at least $1 trillion in just a few years,

MasterCard 's vice president of acceptance development Mark Patrick told The Jakarta Post that many people were still reluctant to send their card information to website owners -- who are called merchants in the card industry -- to make purchases online for fear that their card information would be intercepted by criminals during the transmission process or would be abused by the merchants that receive the card information.

On the other hand, Patrick said, many website owners were also concerned about receiving orders from someone using a credit card illegally.

In those cases, it was merchants rather than cardholders who suffered the losses, Patrick said.

"As a cardholder, I am protected. If somebody gets hold of my card number and uses it, I have a minimum liability depending on the bank. It could be down to zero. I may not be liable for anything

"As a merchant, if somebody comes to my site and uses a forged card and I ship the product, then it comes back and the cardholder says 'I didn't order it' or 'I didn't receive it' or for whatever reason the cardholder says 'not me', the merchant loses the product because they have shipped it and they lose the money because they get chargeback from the issuers.

"So they lose on both ends," Patrick said, adding many website owners had closed their e-businesses due to the high risk.

Patrick said the payment card industry had put in place several security technologies to encrypt the card information transmitted through the Internet to protect against it being intercepted or stolen by hackers during the transmission process.

To avoid hackers stealing card information stored in the merchants' databases, the payment industry has also introduced a system that enables all the card information to be directly sent to the acquiring banks rather than to merchants, Patrick said.

Under the traditional card payment system, a MasterCard cardholder who wants to make a purchase shows his or her card to a shop owner or merchant.

The merchant then seeks confirmation about the validity of the card from his or her acquiring bank, who then contacts the bank which issued the card through MasterCard's network.

After obtaining confirmation from the issuing bank through MasterCard, the acquiring bank authorizes merchant to go ahead with the transaction. In this case, the merchant knows the card information.

An acquiring bank, also called an acquirer, is the bank that has signed agreements with merchants to process transactions. Merchants do not necessarily have accounts with the acquirer. The acquirer is not necessarily the same bank that issued the card, which is also called the issuer.

According to Patrick, under the new payment system on the Internet, a cardholder sends his or her card information to a website owner who may never receive the card information as the information is directly sent to the acquiring bank or the bank with which the website owner has signed an agreement for the processing of transactions.

Despite the technological innovations, Patrick admitted that shopping on the Internet was not completely safe.

"There are always risks associated with using your card on the Internet. There are always risks associated with using your cards with physical merchants as well. What we are telling people right now is 'just be smart about it. Go to merchants you know. Shop at merchants you know. And use common sense when you put your card (information) on the Internet.

"If you go to a website and there is a deal on that that seems too good to be true, it's probably not true. It's probably a site set up to capture your credit card details," Patrick said.


Patrick said several companies in Indonesia, including E- Secure and Lintasarta, had established good infrastructure for website owners and banking companies to conduct secure online transactions in the country.

"Infrastructure has been actually very well established in Indonesia. For enabling e-commerce, Indonesia is sitting very well. Now, we are down to consumer education and merchant education to raise the awareness level that the infrastructure does exist," Patrick said, adding that MasterCard had been cooperating with E-Secure to set up the infrastructure for secure e-commerce in Indonesia.

Aside from improving security technology for e-commerce, Patrick said MasterCard had also launched its ShopSmart program, which was aimed at addressing the issue of public confidence in websites that run e-business.

He said MasterCard, along with other players in the payment card industry, had introduced technology to secure transactions on the Internet, but many cardholders still felt insecure doing transactions on the Internet for whatever reasons.

"The issue is not only securing the Web but building consumer confidence," Patrick said.

Under the ShopSmart program, MasterCard puts its logo on certain websites to assure cardholders that shopping on the websites are safe.

The issue was crucial because a website is a global shop, where people from across the world may stop by for shopping, Patrick said.

Websites which are popular in Indonesia are not known in other parts of the world. This might discourage people from making purchases on the websites.

The placement of such a globally well-known brand as the MasterCard logo will strengthen public confidence across the world on the payment security of the websites, Patrick said.

Merchants who want to place MasterCard's logo on their websites are required to send applications to MasterCard's websites. MasterCard then reviews the website to ensure that it is using the latest technology to ensure secure online transactions, Patrick said.

After ensuring that the website uses the latest technology for secure online payment, MasterCard places its logo there and regularly monitors the websites' security system through the acquiring banks. MasterCard does not charge any fee for the service.

"If you go to a website and you see the MasterCard logo and you click on it, it will push up a message that tells you that it's safe to shop at this merchant," Patrick said.

Patrick said the ShopSmart program was launched in the Asia- Pacific region eight months ago and would be immediately promoted in Indonesia. A survey indicates that the program has had some success in building cardholders' confidence.

There were 391.7 million MasterCard cardholders worldwide in 1999, with the Asia-Pacific region accounting for 19 percent. Of the total 74.4 million cardholders in the Asia-Pacific region, 1.67 million are in Indonesia.

The company booked a gross dollar volume (purchase and cash transactions) of $726.9 billion in 1999, up 12.7 percent from $651 billion in 1998.

The company's gross dollar volume in Indonesia rose 32.7 percent to $400 million in 1999, from $244 million in 1998. (jsk)