Some companies are betting heavily that consumers want a separate credit card for online purchases, though observers are divided over whether the card is needed.

NextCard Inc., which issues a Visa card that is meant to be used online (but can be used offline), has captured lots of attention, particularly for its marketing techniques and roster of online partners. And Citigroup Inc. has come out with a MasterCard-branded "virtual credit card" called ClickCredit, which can be used exclusively for online purchases.

Proponents of the products argue that consumers can use them to isolate their Internet purchases, and that those who worry about fraud may feel safer using a card that is dedicated to the single purpose of buying goods online. Citigroup, for example, says its program targets customers who are gun-shy about the potential for fraud.

But skeptics, including Avivah Litan, say the cards are a gimmicky flash in the pan, and that consumers will outgrow them and turn to other payment vehicles once Internet shopping takes even greater hold.

Ms. Litan, research director of payment systems for GartnerGroup in Stamford, Conn., says that one of the cards' selling points - relieving consumer fears about having their data compromised - is irrelevant in the United States, because card associations limit the liability consumers face for fraud.

The value of these cards, Ms. Litan said, will rest entirely on their value-added features. "It is not going to be a big hit unless it has favorable rates, and unless consumers are sure there is much more protection, and the credit card companies manage to convince consumers their data is more private," she said.

Last year MasterCard International issued a set of guidelines to banks for the virtual card. Instead of an embossed card with a magnetic stripe, consumers get a plastic card with a number printed on it, such as might be issued for a frequent-flier program. That number is used for all online purchases, and there is a separate credit line attached to the account. Consumers get a separate statement for the Internet account.

Ralph Bianco, senior vice president for global product management and development at MasterCard, said that so far the virtual card seems to be more of a hit outside the United States. Nearly 50 overseas banks, including Hong Kong's Hang Seng Bank and Brazil's Unibanco, have created virtual card programs, while only one U.S. company, Citigroup, has done so, he said.

Overseas consumers typically are not protected from liability for fraudulent use of their credit cards, Mr. Bianco said. Also, Brazilian banks traditionally do not do business with consumers they do not know, and this is a way for the banks to acquire new customers, he said.

Citigroup launched its virtual credit card program in October, though spokeswoman Maria Mendler says it did so independently of MasterCard's guidelines, and without any input from the card association. "We had it ready to go prior to MasterCard's proposed rules," she said.

So far, the bank says, it has signed up 170,000 accounts.

ClickCredit is for customers who have expressed interest in having a separate statement to keep track of Internet spending, Ms. Mendler said. "It's a way for them to separate purchases and manage their credit card accounts better," she said.

The credit lines are generally lower than for standard plastic cards, she said. Customers apply online and can have a credit line approved for immediate spending within five minutes, she said.

In May, Visa International also issued regulations for members that want to create virtual card products.

While it is hard to predict what will coax consumers to spend online, industry observers say the Visa and MasterCard guidelines may be a step in the right direction, because they may allay people's lingering fears.

Frank Martien, senior consultant for First Annapolis Consulting in Linthicum, Md., said the virtual cards are "probably a good entry product for those who have been afraid to use cards online today."

In issuing the guidelines, MasterCard and Visa trail a host of card companies that are already actively involved in virtual credit cards. Companies like NextCard, Orbiscom, and eCharge hope to take the fear out of online shopping for consumers by offering a combination of virtual accounts with good rates and beefed-up security.

Mr. Bianco said the chief purpose of the MasterCard guidelines was to extend the association's brand to all payment channels. The company also wanted to help consumers who worry about their credit card information being compromised, he said.

"Consumers have either a real or perceived need to manage their Internet spending, and therein lies the evolution of the Internet card," Mr. Bianco said. "Some might be driven by wanting a card for Internet spending, and others might say they are not ready to trust the Internet for security, and they want to limit their exposure."

Mr. Martien said that, while virtual card programs can reduce consumer fears about exposure to fraud, issuers may have to spend a lot of money to establish the programs. "You have two sets of accounts, and you aren't leveraging the fixed costs," he said. "If you already have [an offline] plastic account, there might be some cannibalization from it, and then you send out two sets of statements, and processing costs can double."

Nevertheless, the virtual card may be a good customer retention device for the banks, Mr. Martien said. "This is a new spin on credit cards to make them seem as safe as they can be, and once customers are converted into online users, they will perhaps relax," he said. "There is some advantage to being the first account you use online, because people tend to be loyal to their first credit card product."


Mr. Quittner, a former American Banker reporter, is a freelance writer in New York.

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