Saturday, February 28, 2009

Incentives and rewards for secure online payments

Paypal plugin, and one-time credit card numbers are some of the innovations taking place in the online commerce space which are helping the consumer tackle online fraud.

One-time credit card numbers address the online fraud associated with phishing (malware capturing the card details as it goes across). Many card issuers / banks offer one-time credit card numbers on their sites. Paypal plugin, addresses threats from keyloggers. Citi offers similar plugins. Products, such as, Roboform offer similar security features.

I am wondering whether the fraud mitigation features used by a consumer (in association with the issuer) can result in lower interchange discount rates for the entity bearing fraud risk (merchant or issuer). The lower interchange rates received can be translated into loyalty points or similar benefits to the consumer. This would provide the right incentives for the ecosystem to take innovations around anti-fraud to the next level.

Presently, there are few incentives to encourage use of secure online payment solutions by the consumer. Interchange rates are broadly broken up into Card Present rates and Card Not Present rates. I am wondering whether there is scope for something in between the two. I understand that there already a myriad of interchange rates and are very confusing. My suggestion would only add to this 'mess'.

There may be a precedent, with Visa providing better interchange rates (a few basis points) for merchants offering VbV (Verified by Visa) on their sites. Would it be possible for similar to get similar incentives for using one-time credit numbers, secure plugins, updated browsers with the latest security patches...

What are your thoughts on how to motivate and reward safe online payment behavior?