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June 30, 2003

Off eBay - PayPal volume growth

eBay held its annual meeting last week -- a copy of the presentation is available online (PDF format). Among other things, it highlights that PayPal's "off eBay" volume grew at 50% year over year in the first quarter of 2003.

MasterCard announces rewards program for small and medium-size financial institutions

MasterCard announced a new turn-key loyalty and rewards program intended for small to medium-sized financial institutions called Preferred Rewards.
The MasterCard Preferred Rewards package offers similar competitive advantages to current customized card-user loyalty and reward programs without the large financial investment associated with development and implementation, staffing, and data processing resources. Cardholders earn points for using their cards and have options for reward choices in the three most desirable award categories: travel and entertainment, merchandise, and gift certificates. The program represents an affordable alternative to the fully-customized MasterCard rewards solutions available since 1997. "Preferred Rewards provides a comprehensive yet flexible payment platform that takes the expense and guesswork out of launching and managing a world-class payment card rewards program," said Barbara Hvasta, vice president, Loyalty Consulting and Rewards Services, MasterCard Advisors. "Our wealth of hands-on expertise is critical to providing a financial institution with everything from set-up and roll-out, to marketing support, and professionally staffed customer service capabilities."

June 18, 2003

Williamson to depart Visa in March 2004

Visa International has announced that CEO Malcolm Williamson will be departing in March 2004. A search is underway for Williamson's successor.

June 13, 2003

Britain's revolution at the retail POS

The UK is in the midst of a massive upgrade of its card payments infrastructure from magnetic stripe based signature cards to smart cards authenticated using PIN's. Richard Rolfe reports on this change.
The main reason for the change is the dramatic rise in card fraud. Fraud levels are estimated to have tripled in just six years, according to the London-based Association for Payment Clearing Services (APACS), the British banking industry trade group (chart, page 24). And some observers believe they could nearly double again in about three years. Experts attribute the higher losses to more Internet fraud, application fraud, and counterfeiting.
As the article points out, rule changes provide the economic incentive for merchants to upgrade their POS terminals. A 10-basis point reduction in card acceptance fees coupled with a shift in responsibility for liability to merchants in the event back-level POS acceptance devices are used both provide the business case for merchant adoption.

Fraud control tug of war

Linda Punch reports on how frustrated online merchants are coming together to attempt to develop their own solutions to online fraud.
It‚s understandable why Web merchants are looking for relief. A 2002 Gartner Inc. survey found that fraudulent transactions comprise 1% of total online transactions, 15 times higher than fraud in the physical world. Online retail sales increased 27% to $45.6 billion last year, according to the U.S. Census Bureau. And an e-merchant‚s losses can extend beyond the actual cost of the product or service charged to a fraudulent card. Because they operate in a card-not-present environment, e-merchants also are subject to the card associations‚ highest interchange rates, the portion of each transaction paid by acquirers to issuers in return for guaranteed payment. Visa‚s interchange rate for e-commerce is 1.80% of the sale plus 10 cents. That compares with Visa‚s card-present retail rate of 1.39% plus 10 cents. Under MasterCard‚s interchange rates, Internet merchants pay 1.90% plus 10 cents, compared with 1.40% plus 10 cents for card-present retail transactions.

June 12, 2003

First Data holds international investor day in London

First Data Corp. held an investor day on its international business yesterday in London. The company presentation is available online (5 MB - PPT format).

Make your identity useless to thieves

David Simons reports in about a little known feature offered by the three major credit bureaus.
The three major credit reporting bureaus--Equifax, Experian and Trans Union -- allow you to place on your credit files a notice telling prospective creditors to confirm with you by phone applications for new credit made in your name. You'll know immediately if there's been identity theft; and imposters will likely move on to easier targets. The credit reporting bureaus don't make clear that you don't have to actually be a victim to have an alert added to your file at no charge. The alert is only for verifying new applications; not using existing credit.

June 11, 2003

Fraudsters hit US retailer

The Guardian reports that a US retailer has had a number of credit card details compromised.
Visa yesterday said it was cooperating with the American authorities on the matter. It also said it had issued a fraud alert to its member banks after it was informed of an "internal security breach" at the American retailer's database.

Mobile credit card authentication reports that Arcot Systems and Diversinet have agreed to develop and co-market systems for mobile authentication of online credit card transactions.
Under the terms of the agreement, Diversinet will integrate its Passport SMS Messenger product into Arcot's TransFort e-payments authentication product suite, thereby extending the TransFort platform further in terms of support for SMS wireless access. The combined solution will provide banks and other card Issuers with a new mobile device channel for delivering Verified by Visa and MasterCard SecureCode online credit card transactions.

June 10, 2003

Government warns banks about virus-like infection

Ted Bridis of AP reports "the government is warning financial institutions about a virus-like infection that has targeted computers at roughly 1,200 banks worldwide, trying to steal corporate passwords."
Experts said the BugBear software was programmed to determine whether a victim used an e-mail address that belonged to any of the 1,300 financial institutions listed in its blueprints. If a match was made, it tried to steal passwords and other information that would make it easier for hackers to break into a bank's networks.

Keeping the faith: protecting personal data

In his last column for eWeek, Timothy Dyck comments on data security.
This year, California is again shaking the branches with SB 1386, a bill that goes into force just weeks from now on July 1. It requires any organization conducting business in California or?and this is a big "or"?storing personal information on any California resident to disclose to those customers when personal data is reasonably believed to have been compromised. The brand damage done by telling customers that a break-in has occurred, combined with the risk of lawsuits in case of noncompliance, add up to a powerful incentive to be serious about attack defenses and data encryption to limit damage if a break-in does occur. In addition, SB 1386 even exempts companies that have encrypted customer data from the notification requirement?one more example where this legislation makes good sense easier to cost-justify.

June 09, 2003

Payment risk mitigation for card issuers

Geoff Griffin of Edgar, Dunn has posted a piece on payment risk mitigation for card issuers.
We believe that collecting cardholder payments more quickly and optimizing the clearing and settlement channel based on a combination of risk and other factors provides a strong foundation for effective payment risk mitigation. The seven key payment risk mitigation strategies outlined here not only reduce risk exposures but can also lead to increased cardholder spend and fewer customer service calls.

BCG examines how the most successful banks create shareholder value

BCG is out with a new report today titled "Creating Value in Payments" that examines how the most successful banks create shareholder value.
Consolidation in global banking continues apace. The world's largest ten banking companies increased their share of worldwide bank market capitalization to 24 percent in 2002 from 19 percent in 1998.
Another interesting BCG study published in late May examines how banks might choose to use the strategies of Dell and Nike to compete more effectively by achieving scale in non-core business activities without paying acquisition premiums to get there.

June 07, 2003

Visa is eager to drop $5 million at the Belmont

Patrick McGeehan reports in the New York Times about Visa USA's $5 million prize if Funny Cide wins the Belmont Stakes later today.
A victory by Funny Cide would actually cost Visa very little. The company bought its title sponsorship for an undisclosed sum from Triple Crown Productions, which stages the series. That fee included the cost of insurance against payoffs each and every year, Mr. Pascarella said. Mr. Pascarella said another near-victory would not necessarily cause Visa to consider dropping the sponsorship. But he said a Funny Cide triumph "would give us a reason to want to re-up the sponsorship early."

June 06, 2003

Australia: People using credit cards less

Melbourne's The Age reports on Reserve Bank of Australia (RBA) governor Ian Macfarlane's comments to the Australian House of Representatives Standing Committee on Economics, Finance and Public Administration. READ MORE »

American Express questions Visa, MasterCard initiatives

Earlier this week, American Express CEO Ken Chenault presented at an investor conference. In his remarks, he shared his perspective on recent events in the payments industry.

June 05, 2003

Final settlement signed in VisaCheck/MasterMoney antitrust trial

Lloyd Constantine of Constantine & Partners, the lawyer representing the merchant class in the antitrust case against Visa U.S.A. and MasterCard International, announced today that the final settlement agreements for this lawsuit have been signed by the parties involved.
"The pay out to merchants will be easy, fair, and equitable. The payment amount will be based on a merchant's volume of debit card transactions between October 25, 1992 and the May 2003 settlement," said Lloyd Constantine, the lead counsel for the merchants and a principle in the New York firm Constantine & Partners. "The changes in Visa and MasterCard's business practices, beginning August 1, will bring even larger economic benefits for merchants as offline debit interchange fees drop. In the long run, this settlement offers more choice and a positive pricing effect for consumers."

Wells Fargo launches anti-fraud initiative

Wells Fargo has announce a new anti-fraud initiative to protect its customers from fraudulent checks and ACH transactions.
"Not all bandits walk into banks and demand money. Behind-the-scenes thieves are also a threat," said Steve Ellis, head of Wells Fargo's Wholesale Services. "There are organized gangs of criminals printing counterfeit checks, altering payees' names on checks, and sending unauthorized electronic debits (withdrawals) to accounts. We're as committed to stopping them as Wells Fargo was to stopping stagecoach robbers in our company's early days. First and foremost, we want to protect our customers' assets."

June 04, 2003

Value of online bill payment to banks

A while back, comScore Networks published some findings regarding the demographics of online bill payment customers to banks:
comScore found that online bill payment users were more than twice as likely to remain active online banking customers compared to non-bill payment users. Online banking customers who did not use their bank‚s bill payment services showed an online attrition rate** of 34 percent, compared to only 16 percent for those who were active bill payment users. The comScore analysis also revealed that online users of online bill payment services hold an average account balance of approximately $4,800, which is double the $2,400 balance carried by the average online banking customer. Further, comScore found that younger and higher income consumers are more prone to use online bill payment services.

June 03, 2003

California Governor says he'll support financial privacy bill

Jennifer Coleman of the AP reports that California Governor Grey Davis has announced his support of a financial privacy bill "that would tighten restrictions on how companies can share customers' financial information."

$32,000 a second - for a year

Visa USA announced this morning that, for the first time, its annual sales volume exceeded $1 trillion.
The record usage means that an average of $32,000 went through the Visa system every second of every day over the 12-month period that ended March 31 - or nearly 10 percent of the 2002 U.S. Gross Domestic Product. "One trillion dollars is an almost incomprehensible number, but it represents clear evidence of the silent revolution we're witnessing in the way consumers pay for goods and services. It means $12 of every $100 consumers spent in the U.S. is spent using a Visa card," said Carl Pascarella, president and CEO of Visa USA. "This is an important milestone in the history of U.S. commerce. Clearly, more and more people rely upon the security and convenience of Visa credit, debit and other payment products. To put it into context, $1 trillion could buy 162,000 Harley-Davidson motorcycles every day for a year." By comparison, $1 trillion is greater than the combined volume of all other U.S. payment organizations, a field that includes MasterCard, American Express, Discover and others.
Just before I left Visa in 1994, I remember having a discussion with a colleague about growth in sales volume. 1993 had just ended with $500 billion in annual Visa sales on an international basis. We were focused on that total growing to $1 trillion globally over the next five years. As I recall, the US in 1993 was about 40+% of the global total -- so the growth in US volume over the last nine years has been pretty amazing. Of course, this is also one of those statistics that has a nice built-in inflation hedge too (the numbers just keep growing!). $32,000 a second -- at a $50 average ticket that works out to an average of 640 Visa transactions per second.

June 02, 2003

CyberSource announces web services for payment transactions

CyberSource announced today "the availability of the first payment solution based on web services architecture, including payment-grade transaction security."
CyberSource is the first payment services provider to offer the full spectrum of web services compliant clients. These clients support the SOAP communications protocol, XML document format, and WS Security data signature specifications to provide the level of security required for payment transactions. With CyberSource support of Web Services standards, including transaction security, developers can more quickly implement payment functionality. By accessing the CyberSource Web Services Development Language from a CyberSource or a UDDI resource, developers will be able to enable payment functionality via most major toolkits that support SOAP, such as Microsoft's Visual, Apache Project's Axis, and any of the IBM developer kits, such as Emerging Technologies Toolkit.

Visa Check/MasterCard MasterMoney AntiTrust Litigation

The plaintiffs' legal counsel in the Visa/MasterCard debit antitrust litigation has posted on its web site additional information and documents on the settlement (including the settlement MOU's signed with Visa USA and MasterCard n April 30, 2003).

Stored Value Cards: Not as simple as they look

John Morgan from Perkins Coie writes about stored value cards and some considerations regarding their use.
Stored-value cards ("SVCs") are prepaid cards that may be used to purchase goods and services. SVCs are rapidly replacing traditional gift certificates due to their versatility and enhanced features such as the ability to reload, incrementally draw down balances, increase point-of-sale integration, and link to loyalty and other incentive programs. However, while SVCs provide convenience to customers, businesses offering SVCs need to be wary of the possible legal implications of using SVCs, including laws that concern banking, money-service businesses, financial privacy, anti-money laundering and unclaimed property.
Meanwhile, The Register comments on e-money in the context of prepaid accounts in Europe and the UK (see: UK FSA Consultation Paper 172 - Electronic Money: Perimeter Guidance).

Making RFID Payments Ubiquitous

Lynn DeRocco reports in RFID Journal on last week's announcement by Philips and Visa International.
Reinhard Kalla, VP and general manager of identification at Philips Semiconductors, sees contactless Visa payments using Philips technology as a big opportunity for both companies. He says the process will be not only convenient, but also private and safe for consumers and merchants. "Philips has been working for years in RFID with tags and labels, and contactless applications are also based on RFID," Kalla says, "You would use this technology as if it were a smart card." He adds that consumers will see "new and more exciting applications and content" resulting from the relationship with Visa in about a year.


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