Higher credit processing cost no security guarantee

Backend security forms an integral part of online credit card payment processing, however higher processing costs charged to consumers does not equate to greater security, an industry player said.

Teresa Wong, Asia-Pacific marketing director at e-commerce payment management vendor Cybersource, told ZDNet Asia in an e-mail interview that payment processing costs differ according to the security system that merchants opt for.

"While one can generally expect additional costs with more investments in security, it is not always the case that greater security correlates to higher costs," she pointed out. "Some investments provide equivalent or better security than others at lower costs--a merchant buying and maintaining fully encrypted systems internally...[is a costly approach] versus outsourced tokenization which is more inexpensive."

More importantly, e-commerce players cannot afford to neglect spending on security, she warned.

"Merchants looking to cut costs by under-investing in online security should note that it is considerably more costly in the long run to operate in an unsecured environment," Wong noted, adding that firms which compromise on security risk getting fined and losing the right to transact business online. This could lead to loss of credibility and reputation.

Figures from Symantec's VeriSign showed that there was an average of nine new threats unleashed onto the Web every second last year. This "creates renewed concerns about fraud and identity theft", Ronnie Ng, systems manager for Symantec Singapore added.

He also highlighted that information protection and cloud security are among top challenges faced by online merchants today.

Cost of transactions
When quizzed on the real costs of online transactions, Wong declined to comment, stating only that these costs "are a combination of internal expenses needed to keep a global, fully redundant architecture in place with 24-7 support, third party costs and associated overheads".

While banks and credit card companies typically charge between 1 and 5 percent to cover online transaction costs, the booming e-commerce market has seen a myriad of charges for credit card payment. Merchants such as low-cost airlines, travel agents and event ticketing companies impose charges, usually a flat fee for such payment methods.

For example, budget carriers Jetstar Asia and AirAsia impose a "convenience fee" of S$8 (US$6) per passenger per sector, while Tiger Airways charges S$7 (US$5.50). In Europe, easyJet slaps an 8-pound (US$13) fee for debit card payments, with credit cards invoking an additional 2.5 percent surcharge.

Other merchants which do not specify the charges typically include them in the category "administrative surcharges" visible to consumers.

Jetstar Asia's communications advisor Leong Wen Shan declined to break down the carrier's credit card transaction costs, but said the airline provides other payment options for which a surcharge is not imposed.

Cathay Organisation, which runs a cinema and entertainment business in Singapore, also was unable to provide insight into such costs. Its assistant manager for corporate communications Poo Zhi Hui would only reveal that "the processing cost has been increasing".

Cathay, together with other operators Golden Village, Shaw, WE Cinemas and Filmgarde, charge a nominal fee of S$1 per transaction. Poo noted that the amount is not an industry agreement.

"Despite the rising cost, we have capped the cost of online credit card booking at S$1 (US$0.80) per transaction to keep it affordable for our patrons," she said.

Wong pointed out that additional charges for use of credit cards are "the exception rather than the rule", and are typically negotiated between merchants, banks and card schemes. Any costs for gateway processing and fraud management, she added, fall under the cost of doing business for merchants and their acquiring banks.

Consumers told ZDNet Asia while they appreciate that there are costs to securing Web payments, merchants should be mindful of the fee increments.

Kelly Lim, a merchandiser, said she considers the total cost of the transaction instead of the individual cost items.

"If the transaction fee is relatively low and online payment saves me a lot of hassle then I'd go ahead with the transaction," the 25-year-old explained. "However, if the 'miscellaneous fee' component makes up more than 10 percent of the original cost, then I would think twice about purchasing the service or item [via the Internet]."

Web designer Peter Chong concurred. "Relatively speaking, while S$1 is an alright amount to offset inconvenience, I don't think S$10 (US$8) is fair.

"The backend costs that merchants have to bear may not necessarily be that high, and consumers will disadvantaged if businesses are allowed to increase costs abruptly without justification," he commented.