Secure online payments: In safe hands

If you don't feel safe flashing your plastic online, there's a range of secure payment services you can use to pay for goods instead. We investigate

The internet is a fantastic place to find bargains. Whether it's your weekly grocery shopping or the latest addition to your wardrobe, there are numerous sites that offer great deals. Shopping online also means you don't have to do battle with hordes of other bargain hunters in a shopping centre; instead, you can have your purchases delivered to your door.

Until very recently, paying for goods purchased on the internet meant using a credit or debit card. Not everyone has one and some of us simply don't feel confident using them online. In this feature, we'll be looking at alternative payment methods for buying online products and services and investigate whether they provide additional security, convenience or peace of mind to users.

We'll also be taking a look at the various payment services offered by mobile phone operators that allow you to charge the cost of purchases made online to your mobile phone bill.

These days, online shoppers have a far greater choice about how to pay for the purchases they make on the internet. One way of doing things is to use an online payment service. At their most basic level, these services allow you to transfer money to other users registered with that service and have been adopted by websites such as auction site eBay as the preferred way of paying for goods.

The way these services work is very simple. Users register for the service by submitting their name, address and credit card details. They can then make purchases from websites that accept this service as a method of payment and the cost of the goods they purchase is debited from their card.

Your card details will only be accessible by the payment service provider, which will essentially broker the transaction. One of the major advantages here is that these services can be used by people who don't have or don't want to use a credit card online.

By supplying your bank account details (account number and sort code) you can have the cost of goods purchased online debited directly from your bank account, or transfer money to the accounts of other individuals who have signed up to the same payment service.

You can receive money from other users just as easily, giving you the ability not just to buy products but to receive payment from selling them.

Mobile payment services are a more recent development. Some mobile phone companies now offer their customers the ability to pay for small purchases by charging them to their mobile phone bills. The registration process is similar to that of online payment services.

Users can create an account online, choosing a user name, password and Pin to verify their identity. They can then make purchases from participating merchants on the internet, or from WAP sites accessed using a mobile phone.

Instead of selecting Visa or Mastercard as a payment method, users click on the appropriate button for their mobile payment service and are asked for their login details. After logging in, a text message containing an authorisation code is sent to their handset by the service provider. The user then enters this authorisation code into their web browser, clicks OK, and the transaction is completed.

Progress report
There are numerous advantages to using online payment services. Some argue that these services offer a greater degree of security, since they eliminate any need to divulge your credit card details on every retail website you buy from.

Although the majority of online retailers have reliable security measures in place, there is the possibility that some smaller vendors do not. The goods advertised on auction websites, for example, are mostly sold by ordinary individuals rather than large retailers.

As most banks - and your own common sense - will tell you, giving your credit card information to people you meet online isn't a wise move.

By submitting credit card information to a reputable online payment service once, you can authorise multiple transactions simply by entering a user name and password. This method of payment is potentially safer, but more importantly it is also a far more convenient way of authorising payments.

User names and passwords are easier to remember than the 16-digit credit card numbers and expiry dates used to authorise card payments.

As we've already mentioned, online payment services also allow shoppers who don't have a credit card to make internet transactions. This is a useful facility for adults but also offers tremendous benefits to young people, since they have limited payment options when buying goods and services.

Many websites do not accept the Solo or Electron debit cards that younger shoppers are more likely to possess. The situation is improving, but it is very rare for websites outside of the UK, for example, to accept these types of card.

Phone for funding
Rather than charging the cost of items you buy online to your bank account, you can also elect to add the cost of purchases to your mobile phone bill. It's a handy way of buying low-value items such as ring tones or news and sports updates. But these services are now evolving to become a viable alternative to card transactions, and mobile payment services are now being adopted by a growing number of online retailers.

In Japan, where the technology has been in use for a few years longer, consumers are already using mobile phones to purchase everyday items in the world of offline retail. By 'scanning' their mobile phone on a special display, shoppers can pay for items at convenience stores, vending machines, restaurants and even arcade machines.

This has the tremendous benefit of reducing the amount of small change you need to carry and, since users normally carry mobile phones with them wherever they go, it makes great sense to use it as another method of payment.

Try before you buy
There are a number of secure online payment services currently available, and many more being developed for release in the near future. Yahoo has already launched its Yahoo PayDirect service with the high street bank HSBC in the US.

The Email Money payment tool lets you send money over the internet to other users of Yahoo PayDirect; the recipient is notified of the payment by email and can then transfer the money to their bank account. Depending on how well the service is received in the US, a similar service may soon be launched on this side of the Atlantic.

PayPal operates in a similar way and has been available to UK users for some time. Once you've signed up by entering your bank account, credit or debit card details, you can then send money to anyone with an email address.

Microsoft's MSN Wallet service lets you store address and credit card details in a secure online database. Whenever users shop at websites that are a part of the MSN Wallet network, they are asked to enter their username, password and a four-digit Pin and their payment information is retrieved. There are a handful of US sites that use the technology, but at present no UK retailers have signed up.

Mobile payment services are scarcer but Vodafone already has a number of services available, including M-Pay Bill, which lets users buy ring tones and video updates from its Vodafone Live! service.

This has since been extended to Vodafone M-Pay Cards, a service that takes a payment from your debit or credit card instead of your mobile phone bill. A growing number of websites will accept M-pay Cards for transactions costing between 5p and £5. All you need do is select M-Pay as your payment method, confirm that your details are correct and authorise the payment.

Other mobile operators are getting in on the act too. T-Mobile, Orange, and Three are currently in talks to develop a system of secure mobile payments. Finding a reliable method of authenticating transactions is a major issue here and, fortunately, some big names are preparing to take up the challenge.

Spread the word
Presently, there aren't many online retailers that accept mobile phone payments. Those that do include Pets Direct, CDWow and Friends Reunited but the number looks set to increase. It is arguably only a matter of time before more websites realise that it offers consumers a secure and convenient way of paying for goods and services.

Secure online payment services are more widely accepted but they have not yet become as widespread as traditional card payments. They are most commonly used by auction websites and those who arrange the buying and selling of goods between individual consumers.

Peace of mind
While some web shoppers may feel more comfortable using a secure payment service to pay for online transactions, it's worth bearing in mind that no payment method is without its security risks. If you use a publicly accessible computer or a password that can easily be guessed, your account and your finances could be at risk.

There have been a growing number of attempts by hackers to discover user login information for online payment services, often by phishing: creating emails that look as if they originated from legitimate companies, enticing users to divulge their usernames and passwords.

Online payment services are without doubt a handy tool for the online consumer, providing peace of mind to those who feel uncomfortable entering their card details on retailers' websites and those who don't possess a credit card. We'll be sure to keep you informed as more services become available in the UK.

Protection racket
If you shop online using your credit card you get a certain level of protection from fraud. Most credit card companies state that if any unauthorised persons use your card without consent, you'll never pay any part of the fraudulent charges incurred.

Some credit card companies also provide a 24-hour fraud detection service that watches your account for uncharacteristic or unusually high charges. If your identity is not verified, the purchase is stopped.

Online payment services do not provide the same level of protection. Some sites such as Paypal.com require you to file a complaint within 30 days of a fraudulent transaction, and will only reimburse you for 'tangible' items. Services and intangible items such as e-books or music downloads do not qualify under the scheme.

In many cases there is also a maximum pay out under buyer protection policies. Paypal UK, for example, will not pay out more than £250 per item. A higher limit is available if you purchase insurance, but whether you are eligible for protection of any sort may depend on which country you live in. Before using one of these services, we recommend you read the user agreement thoroughly.