Proposed Steps to Make Online Purchases More Secure

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Credit card holders in Malaysia may soon find it easier to shop online through their mobile device as the three biggest U.S. payment networks, Visa Inc., MasterCard Inc., and America Express Co., have proposed a new standard that they say will make online and mobile payments more secure. The three companies are proposing the use of “digital tokens” that will simplify the shopping experience of consumers who use their mobile devices.

If the proposed standard takes off, consumers will no longer need to provide their account number when shopping online so there will be no more need for merchants to store account numbers. The tokens will contain the customer’s information akin to how the magnetic strips on traditional cards store this information.

To improve security, the proposed digital token will contain more information about the transaction thereby improving fraud detection and make the approval process faster. The digital tokens would also complement EMV-chip technology, which has become the global standard for payments made with credit cards and debit cards and are now used in over 1 billion cards worldwide.

The press release of the companies cited an August 2013 report from the U.S. Census Bureau that shows that around six per cent of all retail sales today are conducted digitally. This is a 200% increase from the first quarter of 2004.

“As more consumers make purchases with mobile phones, tablets, and PCs, we are committed to showing industry leadership in the development of new standards that offer the same interoperability, reliability, and security as traditional card payments,” said Jim McCarthy, Global Head of Innovation and Strategic Partnerships at Visa Inc.

Growing Credit Card Fraud Problem

According to The Nilson Report, global credit, debit, and prepaid card fraud losses increased to US$11.27 billion in 2012, a 14.6 percent increase from the previous year’s figures. The same report said that merchants and acquirers experienced the most losses on card-not-present (CNP) transactions on the web or through call centres.

Counterfeit card fraud continues to grow in the U.S. due to the absence of EMV cards and terminals. The country also has high CNP fraud losses because it’s the world leader in online sales.

Malaysia and the rest of its neighbours in Southeast Asia are set to experience tremendous growth in terms of e-commerce. Malaysia’s Internet users are expected to grow from 17 million in 2011 to 21 million by 2016.

In Malaysia, 61% are internet users and 27% have smartphones while 9% of the population have tablets. You could just imagine how many of the country’s population uses their credit cards to purchase something online through their mobile devices.

The same report says there are 8.2 million credit cards in Malaysia that are in circulation. Malaysians are also getting more and more comfortable using online banking as online banks have experienced 16% year-on-year growth in January of 2011.

What items do Malaysians spend more money on online? Airline tickets; basically, Malaysians used their credit cards and debit cards to pay for RM268 million worth of airline tickets in 2011. This was followed by general insurance with RM184 million and fashion and accessories with RM130 million.

Any effort by credit card companies to protect Malaysians who are spending millions to purchase stuff online should be welcomed by the industry. The mobile commerce market size is expected to continue its upwards trajectory and reach RM2.68 billion by 2014 and RM3.43 billion by 2015. What’s surprising about the exponential growth of the mobile commerce market is that it was only RM0.10 billion in 2010.

The advancement of the digital tokens for credit cards and its eventual adoption in Malaysia is a welcome step in the right direction.

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