While Visa, Mastercard, American Express (NYSE: AXP) and Discover all promise consumers zero liability if they are victimized by fraud, the inconvenience of having to replace stolen cards or deal with fraudulent purchases remains a significant burden.

Enter American Express' Private Payments.

You've seen the mysterious ads with faces blurred a la Crime TV. American Express is offering consumers the ability to obtain disposable, one-time use credit card numbers that are linked to their physical American Express cards. Download Private Payments software or visit American Express online at any time, enter your username and password, and you'll get your new randomly generated number.

E-tailers' risks are mitigated as well. The number becomes worthless immediately after the transaction is completed.

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Sounds great, but Private Payments may not be practical for everything. For instance, Private Payments doesn't work for one-click purchases using stored credit card numbers and shipping information. They're also impractical for replenishing groceries or pets supplies delivered at pre-set intervals. They're useless when Internet Service Providers (ISPs) ask to store customer credit card information for automatic monthly billing purposes. And what if consumers want to make a car or hotel reservation online for next month's vacation? Wouldn't they rather use their actual credit card number?

Fortunately, one-time -- or surrogate -- credit card numbers have more potential than the present incarnation of Private Payments.

Advanced forms of the technology will allow consumers to pre-authorize spending that matches habits and preferences. Consumers can set up merchant accounts and control the length and amount of authorization. For example, a consumer might authorize $300 in spending at his child's online campus bookstore over the next three months. Or he may activate a merchant number at Amazon that will accept up to $200 in purchases for the next year. The surrogate number is coded for consumer-set rules to prevent fraudulent use. Other features include integrated e-wallet capabilities, graphical elements such as a visual of the issuer-branded card and the ability to code authorization for purchase categories (food, office supplies, etc.)

Credit Amex for getting its product out first. Yet when all is said and done, several other issuers will be in the market with more advanced offerings and capabilities. Expect at least one competitor to make Amex sweat this Holiday season (overseas companies Orbiscom and Cyota are already working with domestic credit card issuers, as is U.S. competitor Auripay).

The success of surrogate number technology is also somewhat linked to the relative obstacles facing smartcards. Both surrogate number technology and smartcards offer solutions to online fraud concerns. However, the e-marketplace is much more likely to respond to surrogate numbers since merchants are already equipped to handle them. Let's look at some of the current requirements, preferences and limitations of the surrogate number marketplace. Here are a few places to start:

One-time use numbers are the first generation of surrogate number technology. The first requirement to promote advancing technology is to guarantee consumers don't have to give up the conveniences of shopping online. Despite clamoring for enhanced security and control, shoppers don't want to deal with the embarrassment or inconvenience of having their cards rejected when they utilize a site's relationship services or one-click purchasing options.

Fraud reduction. Under current regulations, the merchant bears most of the responsibility for an online transaction when a customer contests a charge. Nevertheless, consumer fears about fraud may be partially responsible for the 75% of shopping carts that are left abandoned prior to purchase. Highly publicized hackings at CDUniverse.com and Western Union certainly validate these concerns, and demonstrate the need for an immediate solution.

Change is slow. Unlike smartcards, surrogate number technology doesn't require merchants or consumers to add any hardware. The randomly generated numbers mimic the consumer's actual account number, making them virtually indiscernible to the merchant. Furthermore, surrogate numbers add less than 400 milliseconds to the authorization process, still keeping most processing times under five seconds. All this is good news for consumers and merchants who don't want transactions to become slower or more expensive.

Gomez sees great potential for issuers who adopt surrogate number technology. Consumers want a solution to fraud and aren't easily appeased by zero liability promises. Surrogate number technology realistically addresses the problem of online fraud, and returns the power to the purchaser.

Moriah Campbell-Holt is a Gomez analyst who follows online financial services.

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