Have Online Payments Become Safer Than Offline? (2024)

The long-standing narrative of credit card security is that offline transactions are more secure than online. Today, this narrative is more fiction than fact.

Online transactions are more popular and secure than ever before, thanks to advancements in digital payments technology, demographic shifts, and the evolving cyber-security landscape. At the same time, offline payments seem more insecure than ever before. The outbreak of high-profile security breaches at major retailers has shed light on the fact that offline transactions are vulnerable to attack.

These trends lead us to consider a number of important questions that affect every consumer and retailer — are online transactions more secure than offline, and will this realization propel ecommerce into its next stage of growth?

Offline and Off-Guard

The reality is that security concerns exist whether you are online, offline, or on a mobile device. They exist with credit cards, debit cards, and even cash. A common misconception is that offline is safer than online, but this is changing as a result of the massive security breaches that hit the headlines over the past year.

Target announced that hackers stole personal information from as many as 70 million customer accounts between November 27th and December 15th, 2013. Then, Home Depot announced that 56 million cards were compromised in a five-month attack on its payment terminals. 1.1 million credit cards were exposed in a three-month hack on Neiman Marcus. Hackers also hit grocery chain Supervalu multiple times, which has thousands of locations, and Asian bistro chain P.F. Chang’s saw data stolen from eight of its locations over the course of eight months. Even before these huge hacks took place, retailers were already losing roughly $3.5 billion in ecommerce sales a year due to credit card fraud, according payment processor CyberSource.

If this laundry list of major security breaches isn’t enough to convince consumers that offline payments are just as risky, if not more so, than online payments, I don’t know what is.

When you physically offer up your credit card in a retail store, that merchant still stores data on a computer; those computers are generally Windows PCs running old-school Point-Of-Sale software and storing data in environments that are inherently insecure and inadequate. To process transactions, the payment application has to communicate with the payment terminal, POS, and payment processor, which means sensitive data is constantly being circulated. This makes it vulnerable.

“You walk out of the store while the transaction continues to ricochet across the country — using technology from the 1970s,” Jason Oxman, CEO of the Electronic Transaction Association, told NPR.

“What we need to do in the U.S. is completely replace an architecture that has been deployed over the course of the last 40 years. That’s how long mag stripe cards have been on the market.”

The security guidelines put in place by the major credit card companies were designed for collecting data at rest. That is no longer the world we live in, and today these standards don’t do enough to ensure retailers are protecting consumers’ data. The guidelines don’t require credit card information to be encrypted while traveling through a private computer network, and so hackers can steal data as it moves. PCI data security standards are failing us.

Is Online Safer?

In general, big box retailers don’t make the same commitment to security as online retailers. Overhauling their entire system and taking extra security precautions is an expensive and time-consuming proposition, and so they neglect to take extra measures. This stands in contrast to online retailers, who are built from the ground-up with strict security in mind, because just one hack could destroy their business.

Online retailers also have a greater array of security tools at their disposal — tools that were created for the world we live in today, not the world of a decade ago. Square, for example, encrypts card data on the device. Stripe encrypts all card numbers on a disk with AES-256, and stores decryption keys on separate machines. PayPal’s security key offers a second authentication factor when you are logging in to your account. Online transactions from any reputable vendor are also protected by SSL certificates (to protect data in transit), firewalls, and regular systems scans. Furthermore, consumers are empowered to add extra security layers to online transactions. They can create strong passwords, sign up for identify theft protection services, and keep their anti-virus software up-to-date.

Perhaps the most exciting advancement in security technology is tokenization — described by Bain Capital Ventures managing director Matt Harris as “a system where you substitute a proxy set of identifying information for the real payment card data, so that merchants don’t have to handle this sensitive and regulated data and it isn’t exposed more than necessary.” Tokenization not only limits exposure, but also enable more rigorous identification features, such as a fingertip or picture of your face (as opposed to a pin number or signature). It will play a pivotal role in eliminating consumers’ fear of digital payments.

The Rise of Ecommerce

For all the reasons outlined above, online transactions can be more secure than offline transactions. Now let’s consider how that shift will affect the ecommerce industry as a whole.

Ecommerce is already experiencing significant growth. To put it simply, more people are buying more things online than ever before. Today, there are 191.1 million online buyers in the U.S.. and a whopping 80% of the Internet population has purchased something online. Ecommerce is growing fast at 9.5% a year, and is expected to outpace sales growth at brick-and-mortar stores over the next 5 years. eMarketer estimates that U.S. retail ecommerce sales will increase 15.5% in 2014 to reach $304.1 billion, up from $263.3 billion in 2013. That growth will represent more than 20% of the year’s $199.4 billion increase in total retail sales. Forrester estimates that by 2018, ecommerce will represent 11% of the market, which means a hefty 89% will still happen offline. Despite all this growth, we are still at the beginning of the shift to online.

There are a number of driving forces here, the first of which is the raw fact of Internet penetration. More people with access to the Internet means a greater pool of online shoppers. Secondly, we’ve got e-commerce innovation. Hordes of companies are creating exciting, new, and convenient online shopping experiences. Amazon (of course) puts anything you could ever need just a few clicks away, and offers bottom-of-the-barrel prices. Etsy makes it easy to browse and buy from millions of talented craftspeople you never would have encountered on your own. Wanelo makes online shopping social. Gilt and Zulily offer limited time sales for high-quality items at a steep discount. The list goes on, and there is an ecommerce experience out there to suit just about any preference.

Third, demographic shifts are driving the growth of ecommerce. Millennials were raised with online shopping and remain its key age demographic. This generation represents 80 million people in the U.S., who spend more money online than any other age group. Within this group, members of “Generation Z” (aged 18 to 24) spend almost one in ten of their dollars online, and a higher share of their income. As they age and make more money, these numbers will go up.

Ecommerce isn’t just growing in the U.S.. eMarketers project that global ecommerce sales will hit $1.5 trillion this year, driven by growth in emerging markets. Considering the astonishing rate that people in emerging markets are coming online, this growth is only going to get steeper. Further driving this curve is the fact that cash transactions are shrinking around the world as well.

Online payments are clearly the way of the future, but security concerns remain a barrier to its growth. Security is still one of the top reasons why people don’t shop online, or do it less than they might otherwise. Kapersky Lab found that 49% of participants worldwide felt vulnerable while shopping online or making online transactions, and 62% fear financial fraud on the Internet. These concerns all increase on mobile.

Millennials, however, are less worried about security, and more likely to make online purchases than older consumers. In addition, the high-profile nature of the offline security breaches have created much wider awareness about offline threats. A survey conducted by AP shortly after the breaches found that more than one-third of Americans are more likely to use cash instead of credit or debit cards.

Clearly, all-cash is not a long-term solution. Consumers have grown accustomed to the convenience of credit and debit cards, as well as the perks, and any changes in payment behavior will only be temporary. Even chip technology, which will help make credit cards more secure, is by no means a silver bullet for offline transactions.

What will change, however, is the attitude toward online payments. The move to online is happening, and I predict these breaches will accelerate the process. Older consumers, who were previously wary of paying for things on the Internet, will become less so. At the same time, millennials are increasing their spending power. Together, these trends will fundamentally tip the balance between online and offline payments.

Marc Summe is the Director of Product Management at 2Checkout.

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Have Online Payments Become Safer Than Offline? (2024)


Have Online Payments Become Safer Than Offline? ›

Digital payments are typically more secure than offline payments for a variety of practical reasons. First, paying for items using physical cash or cards requires that customers carry those items around with them, possibly exposing themselves to robbery. In such an event, their cash or cards could be lost permanently.

Which is better online or offline payment? ›

Since online ways are more preferred, considering the ease and convenience, there are only a few ways that allow you to transfer money from one bank account to another using offline methods.

How safe is online payment? ›

The safest payment type varies depending on the context, but direct debit, credit cards, and payment apps are generally considered safe. Direct debit is a secure method allowing customers to set up recurring or one-off card payments. Credit cards have robust security features, including fraud monitoring and encryption.

Are digital payments secure enough? ›

By implementing encryption, digital payment systems can provide a safe and secure way to make transactions. Authentication: Authentication is the process of verifying the identity of a user, It protects sensitive information, ensures confidentiality, complies with industry standards, and builds trust with customers.

Are online card payments safe? ›

Use a credit card for online payments

Most major credit card providers protect online purchases, and are obliged to refund you in certain circ*mstances. Using a credit card (rather than a debit card) also means that if your payment details are stolen, your main bank account won't be directly affected.

Is it safe to pay offline? ›

Offline payment method is one which does not require internet connection. Is offline UPI safe? Yes.

What are the risks of offline payments? ›

Risk with offline payments

That means it is possible that you will not receive the money for the goods that are taken by the shopper. There's also a higher risk that card fraud goes undetected. You are fully liable for the risk of failed captures, chargebacks, and disputes related to payments that you process offline.

Is there any risk in online payment? ›

Payment risk refers to the potential of losses due to a contract default or other payment event such as fraud, security breaches or chargebacks. Companies regularly handling a high volume of online payments are subject to such risks.

What is the safest payment method? ›

Debit and credit cards

Not only are they quick and easy to use, but they offer a relatively high level of security and protection of your private data. If you're using a credit card, you don't actually pay for the goods or services until your credit card bill is due.

How secure are online transactions? ›

Online bank transfers conducted between reputable financial institutions are generally very secure. Most banks now require their customers to complete multi-factor authentication when making payments from their account and use advanced fraud detection measures to prevent criminals gaining unauthorized access.

How safe are digital payments? ›

At the first level, each transaction made using a digital wallet is protected through a technology called tokenization. This process encodes your debit and credit card details so the numbers are never shared with a merchant. So if a retailer gets hacked, your credit or debit card number won't be compromised.

What are the risks of digital payments? ›

Security Risks: Digital payments carry significant security risks. Cybercriminals exploit vulnerabilities in payment systems to steal personal and financial data, resulting in identity theft, fraud, and unauthorized transactions.

How is online payment safe? ›

Websites protect payment information by encrypting the data before transmitting it. Two major protocols accomplish this encryption — Secure Sockets Layer (or SSL) and Transport Layer Security (or TLS). TLS is the newer protocol, with stronger encryption algorithms.

How to know if online payment is secure? ›

Verify the security of the website you're using by looking for ”https” at the beginning of the URL and checking for the closed lock or unbroken key in the browser, which indicates that your data will be secure and encrypted when submitted on that website.

Is it safer to pay bills online or by mail? ›

If you want to keep your money safe, use electronic bill payments instead of personal checks. Some people cling to their checkbooks, but the traditional checkbook is going the way of phone booths, VCRs and newspapers – all victims of the Digital Age.

Is online payment better? ›

For both the seller and the customer, online payments save a lot of time. People don't have to wait in lines, take time to write checks, or wait for paper bills. They don't have to wait for banks to clear their checks so that they can access the money.

What is the difference between online and offline purchases? ›

Lack of Tangibility: Online shopping lacks the ability to physically touch and examine products before purchase. This can be a drawback for customers who prefer a hands-on experience. Shipping and Returns: Shipping costs and return processes can be a challenge for online shops.


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