To get online merchants to adopt the new Secure Electronic Transactions credit card processing technology, MasterCard International, Inc. and Visa International, Inc. yesterday announced similiar, but clearly competing, incentives that will apply in the future for SET purchases on the Internet.
Today, when merchants selling a product accept a card number by telephone or online without seeing the card itself to check the signature, they accept the risk that a customer may claim they did not order it. This can result in a "chargeback" for the cost of the product which the merchant must shoulder.
To erase this risk, MasterCard and Visa each have come up with new rules aimed at minimizing the "chargeback" risk for merchants that use SET.
SET is a client/server protocol that can ensure end-to-end encryption of credit card orders based on public-key digital certificates identifying the cardholder and the merchant.
For end-to-end SET processing, the online buyer, merchant, banks and card associations all must be using an electronic wallet, a merchant server, bank servers and gateways to make it work. Some, like Gartner Group, Inc., are skeptical about the network complexity of SET, questioning whether it can work at all.
But the credit card industry wants to prove naysayers wrong, and the Visa and MasterCard plans are aimed at giving merchants an incentive to move away from Secure Sockets Layer (SSL) for card encryption. SSL does not authenticate the cardholder or merchant, and leaves the card number exposed in decrypted form on the merchant server.
Under the MasterCard plan, starting April 1, merchants that support SET on their servers to process credit cards will have the right to contest any chargebacks from customers - something they cannot do today.
In the case of a chargeback dispute, the merchant would present a record of the SET transaction to the card-issuing bank, which would coordinate settlement of the problem with the merchant's bank. In this case, the merchant bank might have to swallow the chargeback cost.
"We fully expect that chargebacks for merchants in the emerging electronic commerce market will decrease as a result of the rule change and the broader adoption of SET," said Steve Mott, MasterCard's senior vice president of electronic commerce/new ventures.
Visa, which said it had formulated a policy for chargebacks last fall but decided to go public yesterday after the MasterCard announcement, claims it will go one better than the MasterCard plan. According to Visa spokesman Greg Jones, Visa's rules will ensure that a Visa card-issuing bank cannot ever charge back a transaction to a merchant for alleged fraud if the purchase involved end-to-end SET processing over the 'Net.
For merchants - and for vendors such as IBM and GTE CyberTrust Solutions, Inc. that are trying to sell SET equipment and certificates - the news was good.
"This is great," said Scott Dueweke, IBM's marketing manager for electronic payments. "This is exactly what has to happen to propel this into the mainstream. We have the technology worked out. What we need are the business issues taken care of."
"The banks will be able to overcome the hurdles they have getting merchants to accept SET," said Joe Vitnaly, director of marketing and business devlopment at GTE CyberTrust, which has started to issue SET certificates to banks.
There are a number of SET pilots under way, such as the one Mellon Bank is conducting with the U.S. Department of the Treasury for selling Treasury bonds online using SET. But until Web merchant sites boasting SET logos become commonplace - something the card associations hope will occur this spring - SET remains an idea with backers, and there are no takers beyond the 60 or so experiments going on worldwide.
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