IMRG Research on e-Payments

Inadequate e-payments solutions are a huge obstruction to the online retail industry's progress. Three quarters (72 percent) of the Interactive Media in Retail Group (IMRG) recently voted 'payments problems' as the main issue to be solved in the next year. This is according to the IMRG's 'Payments Review' workshop held earlier this month.

Consumers are currently spending close to half a billion pounds per month online in the UK. Most pay for their shopping by credit cards in Card Not Present (CNP) transactions. Banks do not guarantee payment to the merchant for these, mainly because the e-retailer does not actually see the consumer's payment card or have access to anything physical. As a result, many Internet retailers routinely experience CNP 'chargebacks', i.e. their acquiring bank stops or retracts a payment.

The IMRG has stressed that chargebacks remain the No.1 payments problem for e-retailers. They are costly in terms of both lost revenue and administration - costing on average 1% of the value of all e-retail transactions, plus a further 0.5% for their administration (these figures can be a much higher and uncapped for some merchants) - and are also a 'wild card' that undermines the e-retail business case. However, at just 3% of all retail sales, Internet shopping is of limited importance to the banks.

Hopefully this situation is about to change. The IMRG believes that Visa is introducing Verified by Visa (VbV) as a possible solution. VbV is a global programme, based on 3-D Secure technology, for identifying and authenticating cardholders when they make a purchase on the Internet. When shopping at a participating Internet merchant, the cardholder will be put in contact with their Issuing bank, where they will be required to enter their password to authenticate payment and complete the transaction. Visa claims that VbV should almost totally eliminate online fraud.

Visa's plan is that Issuing banks will mass-enrol all of their Visa cardholders as VbV cardholders in return for an increased share of online transaction volume. This is growing 85% year-on-year anyway and is expected to be worth close to £1 billion per month by November 2002 - about 4% of all retail. Cardholders will be informed by their banks of the opportunity to sign up to the VbV authentication payment system, which they can achieve by simply visiting the VbV website for 'just a few seconds' and choosing a personal security password.

Visa, agreed earlier this year that, from 1 April 2002, the liability for repudiated payments on the Internet would no longer be the responsibility of any retailer that had signed up to VbV. May arrived, however, without any UK bank yet facilitating VbV, so no merchants were able to offer it. IMRG is advised that the first UK VbV merchants will go live during June. Visa has already mandated all Visa Issuing banks worldwide to offer this system to consumers by April 2003. Within Europe, all Visa Acquiring banks must also offer VbV to merchants by April 2003.

The official conclusion from the IMRG appears to be that, whereas VbV offers an excellent potential payments solution for the e-retail industry, experience suggests caution: VbV might suffer years of 'delays'; it might not work; or it could be withdrawn for any number of reasons as of yet unforeseen.

All articles 2006-22 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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