What are the benefits, and is it worth getting one if you plan on doing a lot of online shopping? In this feature, we'll be looking at some of the current deals to see just what they have to offer.
Where credit's due
AOL was one of the first companies to launch an internet credit card, in the form of the AOL Credit Card, which was aimed specifically at subscribers to its own internet services. This boasts a 'zero liability' policy, which basically means that you're not held responsible if someone gets hold of your card number and uses it to go on a spending spree.
However, since many ordinary credit cards already have a similar policy, it could be argued that this feature is really just a marketing ploy rather than a genuine innovation. The main attraction of the AOL Credit Card is probably the rewards scheme that offers subscribers a discount on their monthly AOL subscription.
The new SonyCard is similar, providing a no-liability policy in the event of fraudulent use of your card, as well as discounts on a variety of Sony electrical gadgets. And, of course, some of the newer online banks, such as Egg, Cahoot and Marbles tend to focus on internet users as well.
These banks specifically aim their services at young, technology-aware customers who feel comfortable with the web, so their credit cards boast various anti-fraud policies that are intended to appeal to online shoppers. We even came across a Texaco credit card that has a 'purchase guarantee' protecting you against unauthorised use of your card on the internet.
But these cards aren't necessarily as wonderful as they would like you to think. Many standard credit cards offer similar anti-fraud policies even if they don't make much fuss about those features in their marketing campaigns. However, there are some cards, such as the Cahoot Webcard that (as we will see a bit later on) have managed to come up with some genuinely interesting ideas to help make online shopping a little bit safer.
On the cards
Before we get down to the details of individual deals, the first thing to realise is that UK law provides you with a basic level of protection whenever you use a credit card of any type. Most important of all is the principle of 'equal liability' - any product that you buy from a UK retailer must be of suitable quality. If it isn't, then the retailer is in breach of contract, and you're entitled to take legal action against them if they don't offer you a refund or a decent replacement.
That's fine if you're dealing with a retailer on your local high street, of course, but UK law can't always protect you if you're dealing with an internet company that's actually based half way around the world. However, Section 75 of the Consumer Credit Act of 1974 states that your credit card supplier is, in fact, "equally liable" in the event that there's a breach of contract, so they do have to help you get your money back if you can't get a satisfactory response from the retailer by yourself.
There are quite a few loopholes to watch out for, though. The Consumer Credit Act doesn't apply to debit cards or charge cards, and the price of the item in question must be more than £100. Admittedly, most credit card companies will help you out regardless of the cost of the item, but they're not actually required to by law.
Additionally, the Consumer Credit Act doesn't always cover items bought on internet auction sites such as eBay, because you're generally buying from private individuals rather than a retailer. Nor does it give you much protection if your card is stolen or if your card number is used to make fraudulent purchases on the internet.
As we have already mentioned, most card companies have their own no-liability policies to protect their customers from fraud, but you'll need to check the small print in your card contract to find out if that's the case or whether, say, there's a minimum excess that the cardholder is liable for. It's loopholes such as these that can make it worth considering one of these special internet cards.
Security and scams
The main thing that people worry about when using their credit card is the threat of 'hacking' - that is to say having your card details stolen by online fraudsters who then use your details to purchase items and withdraw funds on your card.
This really isn't a risk as long as you're using a respected retail outlet and you make sure that you're entering your credit card details onto a web page that is 'secure'. As soon as you hit a button that says 'Buy' on a web page, you should be taken to a new page that automatically puts a message on screen to tell you that the page you are entering is 'secure'.
You can double-check this by looking for a small padlock symbol in the status bar that runs along the bottom of your browser window. The presence of the padlock symbol confirms that this is a secure page. And, in the address bar that lists the address of the web page, you'll see that the address begins with 'https' rather than the standard 'http'. The extra 's', of course, stands for 'secure'.
A secure web page will encrypt your credit card details before sending them to the online retailer, and these encryption systems are virtually lock-tight, so there's not much chance of anyone intercepting your card details as they travel across the internet.
There have, however, been incidents where hackers have broken into the central computer systems of a number of banks and retailers and stolen credit card information. Both Visa and MasterCard suffered from major hacking attacks last year, resulting in the theft of information relating to some five million credit card accounts. This, however, is something that could happen whether you choose to shop online or not.
Also worth keeping a watchful eye out for are the infamous 'phishing' scams. These usually occur when criminals send out fake emails that look as though they come from a genuine online retailer, bank or credit card company, but which are actually scams to try to get you to go to an authentic-looking website and reveal your card details.
The online auction house eBay uses a company called PayPal to handle all its credit card transactions and one very common scam is for crooks to send out fake emails that pretend to come from PayPal. Most people are canny enough to ignore these emails, but there are always a few people that 'bite' (hence the angling analogy) and unwittingly give away important financial information.
Virtual plastic
All the cards mentioned in this feature have zero-liability policies to protect you if someone manages to get hold of your card details and uses them without your permission. The most ingenious approach, though, comes from the Cahoot Webcard. Rather than being a conventional plastic card that you can carry around in your wallet, it is actually a piece of software that you can use in conjunction with your Cahoot bank account or credit card.
You can download this software from Cahoot and install it onto your PC. It then adds a little Cahoot button to your web browser. Suppose you wanted to buy the latest Harry Potter novel from Amazon. When the Amazon website asks for your credit card number, you press the Cahoot button on your web browser and this opens up a new browser window that allows you to connect to the Cahoot website.
Once you have identified yourself to the Cahoot site it will generate an onscreen 'virtual credit card' that has its own unique 'transaction number'. That transaction number can only be used for that particular purchase and can never be used again to buy anything else. This means you're safe even in the highly unlikely event that someone manages to hack into the Amazon website and steal the information you have given to the online retailer.
The Cahoot Webcard even allows you to specify a maximum limit for that purchase, so you can't be accidentally overcharged, or charged twice, as can occasionally happen. The Webcard can be used to spend money on your Cahoot credit card account or to directly debit your current account (in which case it acts like an online Switch debit card rather than a credit card).
If you debit your bank account directly you don't have to worry about paying credit card interest rates. Remember, though, that the protection you get under the Consumer Credit Act only applies to credit cards, so it could be safer to use the Webcard in conjunction with the Cahoot credit card rather than using it like a debit card. Simply paying off the card as quickly as possible will help to avoid interest charges.
Purchase protection
One other little bonus feature that's worth looking out for is some form of 'purchase insurance'. Many credit cards offer such a feature, but details can vary from one card to another so it's again worth checking the small print on your credit card.
The Marbles credit card, for example, offers an insurance policy that specifically concentrates on online shopping. Its Internet Delivery Insurance gives you up to £500 worth of cover on any item you buy online in the event that it gets damaged or lost while it's in transit.
Of course, strictly speaking, any loss or damage that occurs before you receive an item should be the responsibility of the retailer, but chasing companies on the internet can be difficult, especially if they're based outside the UK. And you can bet your boots that they'll try to pass the buck on to their courier company if they can. An insurance policy such as this can help to make life easier for you if anything does go wrong.
Egg's credit card provides a similar insurance policy for items that may be damaged in transit, although the Egg policy doesn't cover items that get lost in transit. Egg argues that this qualifies as a 'disputed transaction' under the terms of the Consumer Credit Act, which means that recovering payment would be the card company's responsibility anyway.
It's also worth noting that many credit card insurance policies stop the moment your item reaches your doorstep. Some credit cards, however, such as the Sony Card and Texaco Credit Card provide an insurance policy that extends up to 90 days after the original purchase date. These policies cover items that you buy for yourself, as well as gifts you have sent to other people, so it's handy for buying pressies over the net.
Cashing in
Before you sign up with any credit card, make sure you have read all the small print and that the repayment scheme, interest rates and credit limit are all suitable for your needs. Using a credit card online is just the same as using one in a shop, and you will be covered by the basic protection provided by the Consumer Credit Act, should you get into any dispute with an online vendor.
It's also true that some of these 'special' internet credit cards don't actually offer any special protection that you can't get from ordinary cards. Online shopping is cheap, convenient and - usually - safe. However, extra options, such as the Cahoot Webcard and Marbles Internet Delivery Insurance, can provide a useful extra level of security and make shopping on the web just that little bit safer.
Safer still
Both Visa and MasterCard are working on ways to make their credit cards even safer for online shopping. Visa has come up with a security system called Verified By Visa, while MasterCard's alternative is called SecureCode.
Their systems work in essentially the same way. If the bank that issued your credit card is enrolled in either of these schemes then you need to sign up for it on your bank's website. This allows you to create a new password that will be needed in order to verify any purchases made with your card.
If the retailer that you want to buy something from is also enrolled in the scheme, its website will first ask for your credit card number. It will then connect to your bank's website where you will be asked for your account details in order to identify yourself, and then asked to enter your card's new password.
Your bank will then verify that you are the genuine owner of the credit card, and your purchase will proceed as normal. This means that someone who steals your credit card won't be able to use it online unless they have also managed to get hold of both your bank account details and your special password.
The only problem is that, so far, relatively few online retailers have actually signed up for these schemes. A search around the Visa and MasterCard websites reveals only a few dozen UK companies taking part. The big two credit cards will need to push these schemes much more strongly if they want them to be taken seriously.
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