Visa Ventures to Save Merchants - Analyst Blog

In order to protect its merchants from fraud, Visa Inc. (V) launched a global effort to reduce the amount of information stored in the merchant account payment systems.

Fraudulent card transactions are on the rise with the increase usage of credit cards on the Internet. Frauds can be of two types -- theft of physical cards or hacking of the user’s data from the cards when they are used online. In both the cases, the criminals use the cards to make transactions. While a physical theft can be remedied immediately by blocking the card, a virtual theft is only noticeable when the card has already been used to make transactions.

However, federal laws protect the cardholders by rendering the merchants liable to bear the loss in case of fraudulent transactions. The credit card company does not bear the loss. The merchant loses the value of any goods or services sold, along with incurring a charge-back fee. Charge-back is the process the cardholder uses to reverse the charges. However, fear of such losses often induce merchants to be overly cautious, banning legitimate transactions and losing potential revenues.

Merchants who sell their products and services online have an added risk of their accounts being cancelled by the financial institution with whom they conduct transactions. This results in loss of business. In many cases, merchants have little ability to fight fraud, and must simply accept a proportion of fraud as a cost of doing business. At times taking advantage of this law, customers just refuse to make payments even if they have entered the transaction. As such, merchants have been requesting for quite some time to bring changes in the federal laws to protect themselves and their customers from fraud.

Visa tries to remedy the inconvenience faced by the merchants and is simplifying the existing operating regulations. Thus, Visa now requires the merchants and the retailers to store reduced sensitive information relating to the credit cards. For example, the merchants can keep their records as a truncated, disguised or masked card number instead of the full 16-digit card number, which they can provide in the case of resolving disputes, if any.

Visa and the National Retail Federation (NRF) both agree that merchants and retailers should not bear the burden of storing card numbers for every transaction required by banks for a card retrieval process. Visa also made sure that the merchants will not be penalized for not storing the information.

This step by Visa is a major effort to curb online fraudulent card transactions by erasing the data wherever possible, thus providing relief to the merchants and the retailers.
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