he Verified by Visa and MasterCard SecureCode programs have not really caught on with cardholders or merchants since their introductions in 2001. The programs were designed to increase both cardholder and merchant confidence in Internet purchasing and reduce disputes and fraudulent activity related to card use.

Since the liability shift from acquirers to issuers for fraudulent card use became effective, however, the programs have provided real value for merchants. For merchants to use Verified by Visa and SecureCode on their e-commerce sites, they must purchase a simple plug-in software module that determines cardholder participation in the service and establishes an Internet connection.

This enables issuers to authenticate cardholders. The implementation process for merchants was at first somewhat complex, but today the various vendor solutions have made it much easier. For ISOs and merchant level salespeople (MLS), program use can mean additional income earned from merchants and decreased exposure to fines from the card Associations' chargeback monitoring programs.

The programs provide ISOs and MLSs with the ability to continue to receive income from merchants who might otherwise have to be terminated because of "excessive chargebacks." They also give them the opportunity to reduce merchants' overall risk exposure because the transactions are considered better quality.

The card Associations have marketed Verified by Visa and SecureCode to increase cardholders' confidence in making more online purchases, but the programs really do nothing for cardholders.

In fact, they may take away some of the cardholders' chargeback rights because the issuers cannot pass on the loss to the acquirers and are less likely to credit cardholders when the funds come from the issuers.

The card Associations' zero liability policies have already virtually eliminated consumer liability in cases of card fraud for all transactions.

More for merchants

The programs do a lot for online merchants, though, especially now with lower interchange rates for Verified by Visa and SecureCode transactions. When properly used, the programs eliminate chargebacks for fraudulent transactions. The risk of loss remains with issuers. This is a huge benefit to acquirers and online merchants who have been plagued with "I didn't do it" chargebacks, such as:

• Visa Reason Code 83: Fraudulent Transaction-Card Absent Environment
• Visa Reason Code 75: Cardholder Does Not Recognize Transaction
• MasterCard Reason Code 37: No Cardholder Authorization.

Interchange rates lowered

Now the card Associations have lowered interchange fees by up to 15 basis points for Visa-branded transactions and up to 59 basis points for MasterCard-branded transactions for using these programs. The savings for using SecureCode is particularly dramatic, although the new rates will apply differently to credit and debit cards. According to MasterCard, effective Oct. 1, 2005:

• The interchange rate for merchants (Merit 1) not participating in SecureCode increased by five basis points, from 1.90% + $0.10 to 1.95% + $0.10.

• For fully authenticated SecureCode credit card transactions, however, the interchange rate dropped from 1.95% + $0.10 to 1.73% + $0.10, a difference of 22 basis points.

• For MasterCard credit card transactions that are not fully authenticated in SecureCode, the interchange rate for merchants dropped from 1.95% + $0.10 to 1.63% + $0.10, a difference of 32 basis points.

• For MasterCard debit cards, the interchange rate for merchants (Merit 1) not participating in SecureCode remained at 1.64% + $0.16.

• For fully authenticated SecureCode debit card transactions, the interchange rate dropped from 1.64% + $0.16 to 1.15% + $0.15, a difference of 49 basis points and $0.01.

• For MasterCard debit card transactions not fully authenticated in SecureCode, the interchange rate for merchants dropped from 1.64% + $0.16 to 1.05% + $0.15, a difference of 59 basis points and $0.01.

These lower interchange rates for MasterCard SecureCode transactions offer an incentive for both ISOs and MLSs and their merchants to participate in the program.

Free network vulnerability scans

To make it easier for merchants to understand, adopt and comply with the Payment Card Industry (PCI) Data Security Standard, MasterCard recently announced the global availability of free network scans for merchants.

Scanning is one of the steps required for many merchants to achieve compliance with PCI. This offering by select companies will allow merchants to learn more about network vulnerabilities and how they can improve network security and achieve PCI compliance. (Go to www.mastercardsecurity.com to find links to the participating security companies.)

Merchants have been slow to adopt Verified by Visa and SecureCode primarily because of the added cost and because of the fear of lost sales due to consumer abandonment before finalizing the transaction.

The true measure should be the merchants' net income rather than the gross sales. Many abandoned sales are fraudulent transactions anyway. The savings from reduced chargebacks and fees and lost product and the new interchange discounts may offset the merchants' upfront expense and extra cost for the services. Both card Associations have a lot of information available on their Web sites that ISOs and MLSs can review to learn more about the programs and to find information helpful to their merchants. Visit:

• usa.visa.com/business/accepting_visa/ops_risk_management/vbv.html

• www.mastercard.com/us/merchant/security/what_can_do/SecureCode/index.html

David H. Press is Principal and President of Integrity Bankcard Consultants Inc. Call him at 630-637-4010, e-mail dhpress@ibc411.com or visit www.ibc411.com .