Password Please

In his article in a recent New York Times, Saul Hansell explains why Visa is proposing to require that consumers ultimately use their passwords when using their debit cards to order goods and services online. Presently, somebody who obtains your credit card number from a discarded receipt can use that number to order items on line without providing a password. Granted, the consumer will not be held liable for the fraudulent purchase, but the crime is still costly to merchants and credit card issuers. Further, consumers have the unpleasant and time-consuming task of challenging the fraudulent charges on their accounts. Visa argues that it is inconsistent for banks to require that consumers provide their passwords when they wish to pay their bill or check their balance at the bank. Consequently, Visa is now seeking to curb the fraud by offering cardholders the opportunity to provide passwords when using their Visa cards to order items online. Merchants that are set up to use the new system, called "Verified," will be asking for the password from consumers as they check out. MasterCard will be offering a similar, but somewhat more complicated system early next year.

Initially, the Visa system will be optional for all of the parties: retailers, banks, and consumers. Since consumers, banks and online retailers have to adopt the system to make it work, it will be quite some time before it will be commonly used. For example, Marc Britto, director of corporate development of Amazon.com, commented, "From our standpoint, the amount of friction that Verified introduces for the customer outweighs the benefit from reducing fraud." Visa predicts an adoption rate in the first year of only six percent. In the long run, Visa hopes that a password will be required for online purchases, assuming, of course, that all three groups participate in this effort to curb fraud. A successful outcome could greatly benefit all parties. Presently, about 30 percent of the dollar amount of purchases at regular retailers is made on general-purpose credit cards. In contrast, about 90 percent of online sales are made with general-purpose credit cards. Moving consumers' purchases online by reducing the potential for fraud could increase the volume of credit-card purchases.