Verisign Embraces Mastercard's Online Anti-Fraud System

Mountain View-based VeriSign believes its adoption Wednesday of the credit card identification system developed by MasterCard will boost e-commerce by strengthening the protections against credit card fraud.

The proliferation of bogus credit card transactions has dampened the growth of e-commerce by exposing merchants to substantial losses and unnerving security-conscious shoppers.

Credit card fraud accounted for $1.2 billion, or just under 2 percent, of total online sales of $65 billion last year, according to Gartner Research. Merchants pay for most of those losses.

To offset the costs of credit card fraud, banks also charge an average fee of 2.5 percent for online transactions compared with 1.5 percent for in-store purchases, Gartner said.

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The MasterCard system -- called a "Universal Cardholder Authentication Field" -- depends on a technology that enables merchants to verify online shoppers are using credit cards that actually belong to them.

The system verifies cardholders' identities through a special password that serves as the equivalent of a signed receipt issued in a brick-and-mortar transaction.

VeriSign's endorsement is significant because it processes about one in every four online transactions in the United States. About 75,000 merchants that accept MasterCard use VeriSign to process online transactions.

Merchants have had to buy special software to use MasterCard's anti-fraud system. VeriSign is removing that hurdle by installing the technology on a common gateway that will open in November.

"We think this is a major step forward to building greater trust in commerce on the Internet," said Barry McCarthy, general manager of VeriSign's payment services.

VeriSign wouldn't say whether it planned to raise its processing fees under the new program. The company reported losses of $4.8 billion while taking in $645 million during the first half of this year.

Purchase, N.Y.-based MasterCard is providing merchants with a powerful incentive to sign up for the anti-fraud program.

Merchants who verify transactions through the anti-fraud system won't have to pay for any losses should the transaction turn out to be illegitimate. The liability instead will fall on the credit card issuer, an about-face from the rules governing most online transactions.

The MasterCard system and a similar program developed by Visa requires banks to issue special passwords to consumers, a concept likely to draw mixed reactions, said e-commerce analyst Avivah Litan of Gartner Research.

Survey after survey shows many consumers remain reluctant to shop online because they fear their credit card account numbers will be heisted.

At the same time, surveys also have shown that consumers want to check out of online stores as quickly and easily as possible, a process that could become more cumbersome if additional security measures require shoppers to enter additional data.

"There are still a lot of barriers to overcome," Litan said. "You would think people wouldn't mind putting in another (password), but if they become frustrated, they might just go shop somewhere else."

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