E-commerce rule woos merchants

MasterCard will announce a rule change that will make Internet transactions under the SET protocol more attractive to merchants.

3 min read
Aiming to boost Internet commerce, MasterCard today will announce a rule change that will make Internet transactions under the Secure Electronic Transactions protocol (SET) more attractive to merchants who now accept phone and mail orders.

The rule change affects "chargebacks," which are charges that merchants must absorb because the purported buyer claims not to have made the purchase.

Chargebacks are a major issue for merchants, and Mastercard is providing an incentive for merchants to move credit card purchases onto the Internet from the telephone or U.S. mail, which are not covered by the new SET chargeback rule.

But rival card company Visa says it made a similar change in September without publicizing it, and Visa claims it has gone farther that Mastercard has gone. Visa and MasterCard jointly created the SET protocol for secure online credit card purchases.

The Visa and Mastercard changes are part of their effort to give SET purchases on the Internet a preference over orders taken by phone or through the mail.

Last year Visa waived certain fees charged to banks on SET transactions, hoping the banks would pass them on to merchants to encourage them to adopt SET. But Mastercard claims chargeback incentives mean more financial benefit to merchants.

Visa says its chargeback rule states that if a buyer uses a SET digital certificate and if the merchant is SET-enabled, the merchant doesn't have to absorb the cost of the disputed transaction. Mastercard's change, to take effect April 1, gives merchants the right to resubmit a disputed transaction. Although Mastercard did not specify the fee for such "representments," Visa says it charges merchants $25 to $40 for resubmitted charges.

Mastercard's new rule permits a merchant to appeal a SET transaction repudiated by a buyer claiming that they have been charged for merchandise or services not ordered. Mastercard estimates that buyer repudiations account for nearly half of the chargebacks on phone and mail orders.

The Mastercard and Visa rules also represent concrete endorsements of "digital certificates," a kind of electronic identity card used in online transactions or communications to validate the identity of the person or Web site at the opposite end.

Mastercard said the digital IDs provide a higher level of authentication for SET transactions than for payments made under other Internet protocols, such as Secure Sockets Layer (SSL), or in phone or mail order transactions.

"This is one incentive for merchants to get off the sidelines and take the plunge in Internet commerce," said Steve Mott, Mastercard's senior vice president for e-commerce and new ventures. "1998 is the year of the merchant--our goal is to get the merchant on board."

Mott said the change was endorsed by an advisory committee of more than 90 banks in 32 countries that are involved in nearly 70 SET trials.

The goal is to get enough Internet merchants to use SET to enable purchases so that consumers will find enough merchandise on the Net to make shopping worthwhile. Both card companies hope the incentives will lure major direct marketers like Lands' End and retailers like Walmart to encourage consumers to make purchases over the Internet.