n a move to entice online merchants to implement MasterCard SecureCode and Verified by Visa, both card Associations have now reduced their interchange rates for transactions made using these security programs. Visa U.S.A. announced rate reductions in 2003. MasterCard International first announced reductions in October 2005 and then again in January 2006 as part of a package designed to provide incentives, tools and education to help merchants better safeguard consumer data.

"MasterCard understands that merchants are on the front lines of commerce," said MasterCard Chief Risk Officer Chris Thom. "This is a critical part of our strategy for ensuring security in the payments system." Online merchants supporting SecureCode will be eligible for lower rates comparable with those for face-to-face card transactions, up to a 16% reduction.

According to merchant services provider Cardinal Commerce Corp., merchants can lower their transaction costs by as much as 59 basis points with SecureCode and by as much as 10 basis points with Verified by Visa. Another merchant incentive: The programs shift liability to the issuing bank, away from merchants and their acquiring bank.

MasterCard and Visa rolled out their respective products several years ago to add an extra layer of security for online transactions. Neither, however, has caught on to the extent that they would like. For example, only about 100,000 U.S. merchants, roughly 10% of Visa's e-commerce transaction volume, have implemented Verified by Visa.

Both products use an extra code or password, known only to the cardholder and issuing bank, that is entered after the other card information. This code is confirmed at the time of purchase. The products also use the same protocol, 3D Secure, which makes it easier for merchants to implement both Associations' products at once.

For additional information, see David H. Press' article, "Time to use Verified by Visa and MasterCard SecureCode?" in this issue of The Green Sheet.