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Card networks promise higher online shopping traffic

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Online shopping continues to grow and is expected to go mainstream soon, but credit card security and online fraud still the biggest concerns.

By all accounts, online shopping is slated to become mainstream, including in Asia. Customers are showing greater readiness to part with their money online. As proxy, Visa, which controls about 50 percent of all online transactions, claims its e-transactions in South Korea grew by 200 percent by the end of 2002, and in Japan and Australia, by about 100 percent each, followed closely by Hong Kong and Taiwan.

Despite a lacklustre economy, online spending has grown consistently over every holiday season in the last two years. A recent eSpending Report revealed a 24 percent year-on-year growth as consumers spent nearly $15.7 billion online by the end of the 2002 Christmas holiday.

However, shoppers' concern about security and information privacy continues to be the chief reasons, globally, for not purchasing online. In the same study by TNS Interactive, non-online shoppers preferring not to shop online due to security reasons have upped by five percent in 2002 to 30 percent.

Large online merchants are also finding online fraud a key issue on the bottomline. According to consulting company Gartner, international losses from online fraud, particularly among the largest online retailers, reached $1.64 billion out of $91 billion in online sales in 2002. This is double the figure in 2001, which was estimated at $700 million or 1.14 percent of $61.8 billion online sales, and in 2000, at 1.13 percent of the $44.2 billion of annual online sales.

Given that credit cards still dominate Internet transactions world-wide, card network players like Visa and MasterCard seem to believe that driving away security fears and lowering fraud will propel further growth in card usage and online transactions. After rolling out the initial services in the US and Europe, the focus is now on Asia.

However, the crux of the matter is whether the card-issuing banks in Asia also see clear value proposition in signing on to security propositions like "Verified by Visa" or "SecureCode".

One hurdle for card network players is that some of these banks are still unconvinced about the need to provide added voluntary security services for cardholders transacting online because these are limited to cardholding online shoppers. Banks require an integrated, one-step security and authentication function to embrace all aspects of e-banking and to facilitate user-friendliness in the virtual banking experience.

Secondly, banks may not see sufficient correlation between growth in online shopping as a priority impact on e-banking growth. Asian Banker Research found that conversion of Internet users to e-banking is currently less than 10 percent, lower than expected. At Taiwan's Sinopac Bank, a fully integrated banking environment proved to be a key driver to e-banking growth. As the first to completely overhaul for a fully integrated platform, Sinopac saw a 70-percent growth in online accounts.

But banks are thinking about how to increase online transaction and profitable churn. Using HSBC as an example, payment and securities trading each constitutes more than 25 percent of transactions online at the moment, while others have visibly lower take-up. Pushing for greater absolute growth in bill payments could be the driving factor for banks in Asia to warm up to solutions like "Verified by Visa".

From a card player's perspective, bank issuers will find it easier to "prove" a suspected online transaction made with a bank card. Identity authentication service transfers transaction liability from the issuer to the online shopper subscribing to the service.

These might explain why a number of banks in Visa's key markets - South Korea, Japan, Australia, Hong Kong and Taiwan - have committed to rolling out "Verified by Visa" between April and October 2003. Meanwhile, Visa also expects committed merchants to increase from the current 40 to 4,000 by the end of 2004.

According to e-Visa International Asia Pacific's senior vice president, Mark Burbidge, the challenge now is whether the banks can accelerate online growth by gaining the needed critical mass of cardholders to subscribe to the "Verified by Visa" service in the months ahead. - Chen, Yih Lin

--The Asian Banker E-Newsletter (February 6, 2003)--

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