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Merchants gain by signing up to these schemes because it indemnifies them against chargebacks. Buyers gain because once they have signed up, their cards cannot be used to buy goods from participating traders without a password. Even if a fraudster has had sight of both the card number and the three-digit security number on the back, they won't be able to use the card to buy from traders within the scheme, as they won't have the password. Although the card could still be used to make purchases from non-enrolled traders, some protection is better than none. To use either scheme your card issuer needs to support it. You can check support and sign up online at www.visaeurope.com or www.mastercard.com.

Auction payment systems

Payment systems for online auction sites combine facilities for the movement of money with tools that make it easier to create invoices, keep track of past and present auctions and make refunds. The most widely used payment mechanism for online auctions is PayPal (www.paypal.co.uk). Although it is part of eBay, it can be used on any auction site or to pay for non-auction transactions. A growing number of merchant traders are also starting to offer it as a payment option on commercial websites.

As a PayPal member, when you buy an auction item on eBay and choose PayPal as the means of payment, you are transferred to PayPal's website where most of the relevant information regarding the transaction is filled in for you. Just provide

Making payments is free, but sellers are charged a commission of 3.4 per cent plus a service charge of 20p per transaction. Sellers are required to link a bank account to their PayPal account so that funds can be transferred in and out, but money received is not automatically transferred to the bank account. It stays in the PayPal account, where it earns no interest until explicitly posted to the bank account, which takes five to seven working days and attracts a service charge of 25p for transfers of under £50.

Because bank and credit card details are revealed solely to PayPal, it's a very secure method of trading on auction sites with people you don't know. However, all that's required to make a payment is a username and password, so it is essential that these remain secret. Fortunately, there is a safeguard against the unauthorised use of accounts because every payment automatically generates an email to the account holder confirming the transaction. If you receive one of these and you haven't made the payment, you know your account has been compromised. There are no guarantees, but PayPal says it does not typically hold users liable for transactions they have not approved.

Outside the UK, BidPay is a popular alternative to PayPal, especially in countries where PayPal does not operate. Unlike PayPal, which can be used to transfer money between two parties for any reason, BidPay may be used only for purchases from approved online trading sites such as eBay, Yahoo! and Amazon. Sellers must have a US bank account, which means that if you live in the UK you'll be interested in BidPay only as a means of paying for items you've bought from international sites. When you click on the BidPay option, you are taken to the BidPay site where, after a simple registration process, you can pay using MasterCard or Visa credit cards.