Online shopping just got safer

When I made my first online purchase about five years ago, there were two problems I encountered: First, not all e-stores had international shipping and if they had it was mostly to US territories such as Guam. The second problem was online security. Just how safe was it to input one’s credit card number and information and leave it forever floating in cyberspace? If people could hack banks or multinationals’ databases, how much easier would it be to hack an online store that was open 24/7 and could be accessed by anyone – from pimply teenagers to malevolent gangsters – in any part of the globe?

That was five years ago. Today, more and more online stores are shipping to Asia, but online security is still a contentious issue. In the US alone, total online sales last year reached $81.7 billion while total online fraud made up one percent of that, costing companies a whopping $811 million.

The biggest losers in such an unsafe environment are the merchants because it’s keeping potential consumers from buying and because they have to absorb the losses. Next are the consumers whose cards may be used just by anybody who has their information.

This was one of the topics discussed at MasterCard’s recent e-briefing in Singapore. Jeff Porteli, MasterCard senior vice president for Product Delivery Group, says merchants and acquiring banks (the latter are ones who pay the merchants) assume the biggest risk in these non-signature based transactions.

We all know that all sorts of fraud could occur on the merchant’s site, just as fraud could occur at the gasoline station where you give your credit card without even thinking. When you make a transaction in cyberspace, your credit card number which theoretically means that when it’s traveling online it cannot be unscrambled, but hackers have proven that it can be done.

But how does fraud occur from the consumer side? First, he orders an item using his own credit card and when it appears on his billing, he calls up his bank and disputes it by saying he wasn’t the one who ordered the item. Cards issued in the United States absolve the consumer from any liability and because online shopping is neither a signature nor a face-to-face transaction, the merchant and the bank do not have the means to prove that it was indeed the consumer who did it. They have no choice but to reverse the charge. The merchant has just lost the goods that he shipped, the bank just paid for charges that won’t be paid back, and one dishonest consumer has just received goods without paying for them.

This particular type of chargeback, according to Mark Patrick, MasterCard VP for Business and Technology Integration, is costing the e-industry a great amount of money. Not only from reverse charges but also from the mounting costs of processing online disputes. "Consumer confidence in online channel is also being affected by the stream of fraud reports in media. It’s barring merchants from accepting consumers with cards issued outside the United States," he says. (Many discount book websites claim they do not have the payment facilities to process overseas orders.)

On the other hand, if somebody picked up your credit card bill from the trash can, he can easily use the information on it and order for himself all the goods even you can’t afford.

MasterCard now has the solution that addresses this kind of fraud and at the same time protects cardholders from unauthorized use of their MasterCard or Maestro card. How? SecureCode works the way an ATM card’s PIN works. First, you have to register your personal SecureCode and then you can start using it at participating merchant sites. Every time you enter your MasterCard or Maestro info, you will be prompted for your SecureCode, just like an ATM machine asking for your PIN. Within seconds your identity is confirmed and your purchase complete. If you input the incorrect SecureCode, your purchase will not go through.

In a world full of distrust, the neatest thing about SecureCode is that "it is off-line authentication," says Patrick. The authentication process or verifying the cardholder’s identity doesn’t go through the merchant. For instance, you’re ordering from, say, Amazon.com (which is not yet a member site by the way) even the site won’t see your SecureCode because you’re going straight to MasterCard. You can register all your MasterCard cards as long as your issuing bank is offering the program.

Patrick says that in a more secure environment, e-business will surely thrive. Many websites have folded up since the late ‘90s – if not entirely because of chargebacks, certainly a large part of their losses was because of fraudulent transactions.

With MasterCard’s SecureCode, banks don’t have to put extra infrastructure while consumers just need to register their cards online.

Just like with one’s ATM card, with SecureCode the liability shifts from the merchant and bank to the consumer, because nobody can use your card but you.

When The Internet Bubble Burst

Jeff Porteli, MasterCard senior vice president for Product Delivery Group, says that ironically during the previous MasterCard e-briefing, the dot-com industry was at its peak. "People built it, but after the crash, people didn’t come."

Why is e-business skyrocketing in the US and hardly making a whimper in Asia? The answer may go beyond merely dollars and cents. It lies in the difference between cultures. The American society, which has perfected the fast food, the 30-minute-delivery service, the mail-order catalogue, was primed for this kind of never-leave-the-house shopping years before e-business was even conceived.

"In Japan, people are aghast that somebody might deliver a package in their house when they’re not there," says Porteli and adds that websites deliver the goods to a local 7-11 and the Japanese consumer picks it up there. (Here, they are delivered to the post office, where they are assessed for taxes and holding fees.)

Twenty percent of US online merchants’ customers are in Asia, yet there have been very few Asian-based websites that deliver within Asia. Meaning, while Asians are becoming used to buying online, it’s not from websites in their countries but from websites abroad.

The point is, says Porteli, in Asia, shopping is still a "social activity" not a chore. It’s different in the US where people’s time is much valued, where every year the Christmas rush is analyzed to death, where people would rather order from a catalogue than go out and brave the crowds. Look at the way Americans construct their malls: they’re strip malls rather than indoor malls where you can park quick, buy what you need and leave.

When will e-commerce in Asia take off? The question may be more complicated than simply giving it a matter of years. "Once you get that fundamental shift in shopping culture, that’s when e-business volumes will go up in the region," he says.

MasterCard economic advisor for Asia Pacific Yuwa Hedrick-Wong, a business economist with 19 years of applied research and consulting experience gained in over 30 countries, adds, "The young singles in Asia Pacific are growing not only in numbers but in economic power. They’re postponing marriage, they want to indulge in a lot of their interests. The time value curve…they will have little time to shop in the future, their time will become very valuable. They will drive the transformation."

The Philippines may be in a unique position. Who would need online shopping for groceries when we have sari-sari store at each street corner, when we have multiple malls in every city?

Be that as it may, online shopping has come and pretty soon it will "disappear." Wong says that’s the real lesson from the history.

"When technology matures, it disappears from our consciousness, it becomes part of the environment, it gets absorbed in everything that we do, just like electricity," Wong explains. He compares the IT revolution to the building of the railroad tracks at the turn of the 20th century, when they built 21,000 miles of tracks. Wong points out that when the stock market crashed, only 2,000 miles were built, the rest were built after the crash.

The bubble may have burst, but we still have miles and miles to go on the information highway.