American Express follows Visa to cull online merchants storing credit cards

American Express Australia has become the second major credit card scheme to launch a push to stop merchants from keeping customer credit card numbers on file, announcing it will offer a tokenization service just a week after rival Visa revealed similar plans.

The popular credit card scheme on Thursday said it had partnered with transaction and data security vendor Rambus to offer “an off-the-shelf retail token gateway solution with American Express embedded.”

The move follows conspicuous public pressure from the Reserve Bank of Australia for card schemes and card issuing banks to clean up online credit card fraud in Australia.

Credit card fraud losses to nearly $500 million a year in the latest release of official statistics, with online credit card fraud making up around 85% of those losses.

The introduction of tokenization is widely regarded as the credit card industry’s last chance to make a significant dent in online fraud in Australia to try and head off intervention by regulators that saddle losses from fraud with banks and issuers rather than allowing institutions to pass through the losses to merchants.

While official figures on the degree of losses sent back to merchants are not tallied at the moment, trade groups including the Australian Retailers Association and the National Online Retailers Association of Australia say the pick up the bulk of the fraud sting, despite paying banks for ostensibly secure online payment services.

Tokenization works by substituting sensitive card numbers with a non-sensitive proxy specific to a transaction.

It largely supplements clunky PCI-DSS security measures loathed by merchants and banks alike because of high rates of transaction abandonment at the checkout coupled with poor usability.

Rambus’ “Token Gateway” service is one of a number of services it says lets “merchants to connect to tokenisation services from various payment schemes in the payment industry.”

“This new partnership with Rambus will mean merchants can offer our card members even more secure payment methods at the time of checkout,” said Robert Tedesco, Amex Australia’s vice president, global consumer services.

“We’ll also to be able to offer merchants access to our digital payment capabilities such as Pay with Points and Smart Offers, to further build customer loyalty with their customers that use American Express cards.”

Points have historically huge deal for American Express with the loyalty programs previously being used to lure customers ahead of other schemes.

However a recent interchange fee reset has reduced the degree to which banks and schemes can offset point costs by bulking up acceptance costs for merchants so that customers don’t have to pay.

And while schemes may not be talking about the problems of previous fraud control, Rambus is happy to dine pout on them.

“Fraud continues to rise for e-commerce transactions and we need to give consumers more secure payment methods without compromising usability, said Jerome Nadel, head of Payments and Ticketing at Rambus.

“By facilitating the use of tokens online, merchants and card issuers can increase trust in transactions throughout the ecosystem to drive higher authorization rates and improved customer conversions.”