Have you ever had to cancel your credit card or debit card because it was lost or stolen, or because you received a message from your bank about a transaction you didn’t make? How much time and effort did it take for you to deal with the issue? Sure, the payment card associations and banks provide their “Zero Liability” promises, but that doesn’t help compensate for the time, effort and frustration involved in canceling and changing your payment card after it is lost or stolen. One possible solution is to use prepaid debit cards for some, or all, of your online shopping.
How many times have you used your debit card online to make a purchase?
In the early days of the Internet, we carefully protected our card information. Then the payment associations (including Visa, MasterCard and American Express) introduced their Zero Liability policies and convinced us that it was safe to use our cards online. Now, consumers rarely think twice about using credit or debit cards to make online purchases.
But how safe is it really?
According to the Web Security firm, Symantec, one of the biggest selling items online is stolen credit card and debit card information. According to their most recent Internet security theft report ,
Credit card information was the most commonly advertised item for sale on underground economy servers known to Symantec, which accounted for 28 percent of all goods and services advertised—an increase from 17 percent previously.
The price range of credit cards this quarter ranged from $1 to $30 (all figures in USD) per card number. There were three main factors that influenced the price of credit cards: the type of card, the country of origin, and the amount of bundled personal information used for card holder verification. Symantec observed bulk purchase offers of 1,000 credit cards for $1,500.
The second most commonly advertised item for sale on underground economy servers known to Symantec this quarter was bank accounts, accounting for 24 percent of all advertised goods. The advertised price for bank accounts ranged from $10 to $125 and bank balances ranged from $373 to $1.5 million.
According to the Federal Trade Commission, identity theft is the fastest growing form of fraud in the U.S., and credit card fraud was the most common form of reported identity theft in 2009. Federal laws (such as Regulation E) and bank and credit card rules (such as MasterCard’s Zero Liability Policy) protect consumers who use debit or credit cards in certain transactions.
Certainly, these forms of protection help make it less of a risk to use a credit or debit card online. However, consider the other issues that theft of a debit or credit card raise. When your payment card information is compromised, you need to cancel the card. You need to get a replacement card. You need to contact billers to let them know of your new card information. The cost, in terms of time and effort, can add up quickly (and Visa or MasterCard are not going to reimburse you for that time or your frustration!).
Recurring Payments Make the Problem Bigger
The amount of time and effort you’ll need to take to deal with a lost or stolen credit or debit card increases with the number of automatic or recurring payments you’ve linked to your card. For example, if you have linked your card as the funding source for Apple iTunes Store, Amazon.com, Netflix, and other merchants, you’ll need to deal with all of those merchants if the card is lost or stolen.
Online retailers work hard to make it easy to use credit and debit cards for everything from single pay transactions (such as when you buy a book at Amazon.com, or a airplane ticket through Expedia.com), to recurring pay transactions (such as for subscriptions). Apple recently sold its 10 billionth song through the iTunes Store. Most of those songs were purchased using debit or credit card accounts linked to iTunes.
Some think that subscription or recurring payments will be the predominant revenue model on the internet starting in 2010.
But what if you could proactively control or limit your risk (and minimize the frustration associated with credit or debit card theft)?
You can, using prepaid debit cards.
Prepaid debit cards that have a Visa or MasterCard logo on them are typically entitled to the same Zero Liability Protection as regular debit or credit cards. Unlike a debit card linked to your checking account, however, a prepaid debit card is only at risk for the amount of funds you have deposited (or “prepaid”) into the account. Further, you can have multiple prepaid debit cards, and use them for different purposes.
Here are a few examples of ways you could use prepaid debit cards to minimize your risk of conducting transactions online.
Tactic: Use a prepaid debit card for all of your Internet transactions.
Benefit: If your account information is lost or stolen, your total losses are capped, and you won’t need to cancel (and replace) your primary credit or debit cards
Tactic: Use a prepaid debit card for recurring Internet transactions (for example, if you are a regular iTunes buyer, use a separate prepaid debit card with a balance equal to your budget for iTunes).
Benefit: Better budgeting and control of expenses (you can only spend what you put on the card), and reduced exposure to loss or theft of your card. If your account information is lost or stolen, your total losses are capped, and you won’t need to cancel (and replace) your primary credit or debit cards.
But what about the fees associated with prepaid debit cards?
It’s true that many prepaid debit cards charge monthly and other usage fees. However, many prepaid debit cards are available that have extremely low fees, making them perfect choices for the above tactics. For example, the Yap Prepaid MasterCard can be almost fee-free (if you load at least $500 each month onto the card). Other cards are available with similar fee structures.