Visa Sees First Fruits of a New Sales Push for Verified by Visa

Visa U.S.A.'s consumer authentication system for Internet transactions, Verified by Visa, will see its merchant base expand by 50% in the next few days as online-shopping aggregator 2checkout.com switches on 10,000 Web retailers for the service. It's a significant lift for VbyV, and represents the first fruits of a new and much more aggressive push by the San Francisco-based card network to increase merchant adoption of the service by marketing to the largest online merchants, Internet gateway processors, and online shopping-mall operators. Merchants have been slower than issuers to embrace VbyV, leaving merchant adoption rates short of what Visa executives had planned when the service was introduced three years ago. Some 20,000 online retailers have adopted VbyV, says Jim McCarthy, senior vice president of emerging technology at Visa, a small handful of all Internet retailers accepting Visa. Among merchants that have installed VbyV, about one-third of all Visa transactions are authenticated by the technology, which is based on a system called 3D Secure that Visa devised and has since been adopted by other card networks, including MasterCard International. McCarthy says 5% of all Visa e-commerce volume is now flowing through VbyV. Based on the 722 million online transactions Visa processed in 2003, that comes to about 36 million transactions annually. But McCarthy says merchant adoption has been disappointing. “I'd go beyond saying we hoped, we expected” that more merchants would have signed up by now, he says. Visa has rolled out incentives to merchants to install VbyV, including a shift of liability for chargebacks on all transactions, whether or not the issuer or the cardholder has enrolled, to the issuer. Last year, it added a further sweetener, offering to cut interchange rates for VbyV transactions by 5 basis points. Rates on credit card transactions were cut first, in August, followed by signature debit in January. But word of such incentives has been slow to get out to the online merchant base, McCarthy says, adding that this accounts for the tepid merchant takeup of VbyV. He blames passive marketing by Visa, something that is now changing. “We expected we would have carried the day without a whole lot of marketing,” he says. “But [the liability shift] was not well understood.” The rollout of VbyV by Columbus, Ohio-based 2checkout.com is the result of a new marketing push by Visa to reach transaction gateways and aggregators in an effort to enlist them to help sell the authentication service to their merchant clients (Digital Transactions News, June 29). McCarthy's salespeople are also making personal sales calls on the top 500 Internet merchants, emphasizing the liability shift and interchange savings. As a result, he says, “the understanding [of VbyV] has increased 10-fold.” Given the savings on chargebacks and transaction fees, McCarthy argues, retailers will see a near-term return on investment on the cost of installing and certifying 3D Secure systems. Many observers have said this cost has also held back merchant adoption (Digital Transactions News, Feb. 27). With 3D Secure programs like VbyV, consumers at checkout are prompted by a pop-up window to enter a secret password, much as they would enter a personal identification number at a physical point of sale. In addition to the cost of installation, some merchants have complained that the system represents too much of an interruption at the very moment when they are clinching a sale with consumers, and so have avoided the technology.