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Enabling your ecommerce site for secure payments

Posted by Manju Murthy On October - 21 - 2009
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All online retailers are concerned about minimizing charge-backs and payment fraud. This is one of those costs that can be minimized if appropriate and proactive steps are taken.  Manju Murthy has done a good job of providing a background on online payment fraud and some of the new initiatives such as two factor authentication. Thanks Manju!

Malware on the PC (and elsewhere) can harvest credit card numbers when entered during ecommerce payments.  Such harvested numbers can be used by fraudsters to purchase goods with purchase showing up on the users credit card bill.  This results in chargebacks, penalties and increase in interchange rate.  In India, online merchants see chargebacks of around 3% (some verticals have over 20% fraud).  In a market that is at $5B and growing at a CAGR of about 30%, you can quickly compute the impact of online payments fraud in India.

To prevent such fraudulent use of credit cards, Reserve Bank of India (RBI) has issued directive for 2FA (Two Factor Authentication) for online / ecommerce payments that has come into effect from Aug 1, 2009.  According to this mandate, it is necessary validate an additional factor of authentication while collecting online payments.  This applies to all online merchants based out of India.

A quick overview on 2FA.  The first factor of authentication is what you have, which is the information on your credit/debit card (name, card#, expiry date…).  The second factor of authentication is what you know, which is information that is known to you but is not on the card. If you have done any online purchase since the new law went into effect, you would be aware of what I am talking about.  The second factor of authentication supported by most online merchants is Verified by Visa (for Visa cards) or SecureCode (for MasterCard cards).

A related noteworthy point, online fraud in UK declined 23% in the first half of 2009 (the first time ever), thanks to 2FA [and sophisticated anti-fraud systems deployed by ecommerce service providers].  European Commission Payments group indicate that online fraud can be reduced by 80% by deploying strong authentication.  Therefore, there is a lot of benefit awaiting Indian ecommerce industry.

Deploying these secure online payment is simple.  Adding a few lines of code to your payment page.  Secure payments increase conversion rate as customers are more comfortable doing business at a more secure site.  Additionally, reduced fraud results in reduced chargeback, thereby reducing merchant discount rates and profitability.

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5 Responses to “Enabling your ecommerce site for secure payments”

  1. Sourojit says:

    The introduction of 2FA by RBI has it impacted sales of online shopping.
    has sales gone down in last few months.

    Is it by 30% or less.

  2. Manju says:

    Based on conversations with industry insiders and online retailers, initial indicators are that online fraud is down and online sales is up. Contrary to experiences in other geos, shopping cart abandonment has not been a huge problem in India.

    Do you hear/know otherwise?

  3. mgb says:

    I understand that buying an SSL certificate to secure your site goes a long way in protecting customer data and thereby reducing online fraud.However,all major ssl certificate providers are still very expensive.Would request anyone with a fair idea to comment on which ssl service provider to choose amongst verisign,thawte,geotrust and others.

  4. Upasana Taku says:

    Hi Manju

    Can you please provide sources for all the numbers you have quoted? I am interested in this space and would love to dig more information on the chargeback %, online fraud %, abandonment rate, etc.

    Thanks in advance!

  5. Praveen says:

    What ever new payment gateways come, there are more ways for the online frauds to happen. The banks had made the V by V mechanism, the number of orders have come down for all the online shopping portals, but still the online fraud had not come down as they have figured out a way to play in V by V also. The maximum affected organizations are the airline industry and you can also see a lot of online fraudulent transactions in online shopping sites.

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