Thursday, October 9, 2008

Online Shopping Options Offer Credit Card Safety

Going into the holiday season, it's likely many credit card users will do their shopping online. And, as anyone who uses a credit card online should be aware of, there is the potential for fraud. The credit card fraud rate, once as high as 0.15%, has been flat at around 0.06% for some time now. In other words, for every $100 in credit card charges, only $0.06 goes for unauthorized transactions.

For consumers who only shop at secured websites (with web addresses beginning with "https") and ignore phishing e-mail come-ons, the likelihood of losing credit card information online is less than that of losing it to a thief who swipes the physical credit card through a skimmer. Still, some added steps will provide even greater credit card security online.

Virtual credit cards allow consumers to shop using a temporary number connected to their existing account that functions for the length of the transaction or just at one store. Credit card issuers including Citibank and Discover offer virtual cards. While virtual credit cards may differ between issuers, one example would involve a card number being generated along with an expiration date based on your request and a card identification number (the code some websites requests as a further anti-fraud precaution).

That information could then be used to make a payment on any online merchant that takes the underlying credit card, with the charges appearing on your regular credit card statement. While virtual credit cards can be used to minimize the exposure of your credit card information online, they cannot be used in real world shopping, such as at the grocery or for movie tickets.

PayPal, owned by eBay, is probably the most well-known credit card alternative. Consumers looking to make payments with PayPal need to provide the service with a source of funds, in the form of either a credit card or a bank account. Instead of giving account data directly to a seller, you tell PayPal to transfer your payment to the seller's account, with PayPal only identifying you to the seller through your e-mail address.

Although an increasing number of smaller merchants accept PayPal, most large commercial websites do not. And, while PayPal promises complete refunds for unauthorized transactions, its safeguards against unethical merchants are much less complete. Payments of up to $1000 are covered for qualified eBay purchases where you do not receive the item or it is "significantly not as described.

However, "qualified" means that the sellers meets specific requirements, such as 98% or better positive feedback, and that the merchandise is tangible and physical, rather than a service or software. For non-eBay transactions, even if PayPal decides the claim is valid, PayPal will see to a refund only if the seller's PayPal account has sufficient funds to cover the claim.

Using a credit card to fund your PayPal account could enable you to recover money via chargeback through the credit card company. But since PayPal is responsible for the entire amount, it expects you to exhaust its dispute resolution process before turning to your credit card issuer. That delay could mean you miss the credit card issuer's own deadline for reimbursement.

More recently, some websites have begun relying on electronic payment systems that many consumers already use to pay their monthly bills. With ModaSolutions' Secure-eBill, where it is offered, the electronic payment system generally is offered as an option for payment in addition to credit cards or PayPal.

Customers who select this option receive an invoice in the e-mail from the merchant. (First-time customers need to establish that merchant as a payee with their bank or electronic bill-paying service.) After making the necessary payment, you should be e-mailed a confirmation that the merchant has received the funds. Instead of merchants getting your bank information, ModaSolutions just informs them that a payment has been posted to their account in your name.

The difficulties for consumers with electronic payment include the fact that you could end up waiting a couple days for the payment to be processed, as well as having to set up numerous payees that you won't give repeat business to. Additionally, since the payment is a direct debit from your bank account, you will have no chargeback remedy if you are unhappy with the purchase.

Regardless of where you shop, major credit cards have zero-liability policies for credit card transactions without the cardholder's authorization. However, it can be a major headache to clean up if your credit card number is stolen. So for extra safety, shop online at merchants who take part in the Verified by Visa or Verified by MasterCard programs. To shop at a participating retailer, first enroll with your credit card issuer. Then create a user ID and password that you will then enter on the merchants' website.

The number of merchants using these two programs in relatively small -- with many more asking for the card identification number to ensure the card is in the shopper's physical possession.

Finally, actively keeping an eye on your credit card account online can alert you very quickly to any fraud. Experts recommend going online to look for unauthorized charges that may be a sign of identity theft -- which is a much more serious problem than credit card fraud.

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