PINcept.com: July 2008

U.S. Retail E-Commerce Growth Rates

RESTON, VA, July 31, 2008

comScore today released its Q2 2008 retail e-commerce data, which showed that while year-over-year growth rates rebounded slightly in April (up 15 percent) after a soft March, they slowed again in May (up 12 percent) and June (up 11 percent)

Nonetheless, total U.S. online retail sales (excluding travel) reached approximately $31 billion in Q2 2008. comScore CEO Magid Abraham and comScore Chairman Gian Fulgoni will discuss these data and other relevant e-commerce insights during the second installment of their quarterly webinar series, State of the U.S. Online Retail Economy, on Wednesday, August 6 at 3 p.m. ET (webinar details below).

Retail E-Commerce Growth Rates (Exclude Auctions, Autos and Large Corporate Purchases)

Total U.S. – Home/Work/University Locations - Source: comScore, Inc.

Month Yr Change

Jun-07 25%

Jul-07 22%

Aug-07 28%

Sep-07 19%

Oct-07 19%

Nov-07 20%

Dec-07 18%

Jan-08 12%

Feb-08 14%

Mar-08 9%

Apr-08 15%

May-08 12%

Jun-08 11%

“With the first round of the government’s economic stimulus checks having been mailed in early May, one would have hoped they would have bolstered online spending in May and June,” said comScore Chairman Gian Fulgoni. “However, recent comScore research reveals that fully two thirds of consumers said they had not planned to spend their stimulus checks and rather intended to use the cash to pay off debt or put the money into savings, a finding we’ll be taking a closer look at during next week’s webinar.

In addition, it’s likely the impact of the stimulus may have been felt more offline, where a variety of merchants made it particularly easy for consumers to cash their checks at retail stores.”

To find out more about the webinar, visit http://www.comscore.com/

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Posted by John B. Frank Thursday, July 31, 2008 0 comments

Is There A Perfect Storm Brewing in the Credit Card Industry?

I have recently posted various blog entries regarding "congress investigating interchange fees", "the DOJ putting antitrust pressure on Visa", "the booming growth of debit" as people either cut up or put away their credit cards, along with "Discover and AMEX's antitrust suits against V/MC". There's a lot of turbulence in the air.

There seems to be a perfect storm brewing here.

Interchange Fees are under attack for being too high, while at the same time, the "claimed" reason for the existence of Interchange Fees in the first place is to mitigate the risk if consumers don't pay. Interestingly enough, as I posted yesterday, more and more consumers are having a hard time paying their credit card bills.

Seems to me that during the next 3 years, the "credit card" industry will undergo drastic change..as this "perfect storm" develops. This article from Laurie Kulikowski for "TheStreet.com" paints a very interesting picture indeed.

The downturn in the economy and evidence of slowing consumer spending could put MasterCard and Visa in the hot seat. The financial sector has dropped to lows not seen in two decades. But the payment processing firms, each fairly new to the public markets when compared with banks and brokerages, have been labeled as two bright spots, since they have largely avoided pain from the credit crisis and housing fallout.

However, as the economy deteriorates, some observers are getting nervous. They question whether the two companies' strategy of capitalizing on consumers' increasing reliance on plastic to pay for purchases will be able to withstand the consumer troubles in the U.S. and potentially abroad.

Investors in MasterCard and Visa will be listening to hear how the firms characterize the depth of the downturn in the U.S. and will be on the watch for any forward-looking comments on their businesses, observers say.

"This is the quarter when the resiliency of MasterCard's business model will be tested, as the various data points we monitor all tracked somewhat weaker/slower in the quarter," writes Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, in a research note where he trimmed his quarterly earnings estimates on the firm. "These include weak retail sales in the U.S. and slower growth in revolving debt, anecdotal signs of slowing volume growth internationally and a flat dollar versus major currencies.

Adil Moussa, a payments industry analyst at Aite Group, says he is more worried about Visa than about MasterCard because the San Francisco-based firm is more concentrated -- Visa Europe is a separate entity. This leaves Visa "more at risk" and "at the mercy of economic downturn" than MasterCard, he says

On the whole, analysts expect both MasterCard and Visa to post healthy second-quarter profits this week. Visa, which reports late Wednesday, is expected to post 48 cents a share in earnings. It made $314 million, or 39 cents a share in the first quarter -- the only quarter so far when the firm has reported earnings on a GAAP basis since it went public.

MasterCard, set to report Thursday, is expected to post earnings of $2.01 a share, according to average estimates compiled by Thomson Reuters. It recorded a profit of $253 million, or $1.85 a share, in the year-earlier quarter.

Visa's stock is up by roughly one-third since its first day of trading. MasterCard shares, which went public in May 2006, have risen more than fivefold, even as the financial sector has plummeted amid the credit crisis. Both companies, which issue cards to bank partners and collect a fee on each consumer transaction, are aggressively expanding globally as consumers and businesses shift from paper to electronic forms of payment.

The companies also do not extend credit to consumers. Credit delinquencies and defaults from lending to consumers have pressured earnings at two other card companies, American Express AXP and Discover Financial Services DFS, as well as several banks with large credit card market share.

But even these two bright spots of the financial sector have seen their stocks taken hits recently, as the financial sector remains volatile one year into the credit crisis. Investors are worried that the U.S. economic slowdown could expand internationally, hurting Visa's and MasterCard's growth plans. Visa shares are down 13% this month, while MasterCard's have fallen roughly 4%.

"There is obviously going to be pressure on volume growth, but we do feel there are other levers to them to offset pain," such as expense cutbacks, says Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods. He maintains outperform ratings on both stocks.

MasterCard derives roughly half of its revenue from its U.S. business, while about 59% of Visa's revenue comes from the U.S., Fox-Pitt's Shapiro estimates. He remains "comfortable" with his earnings estimates on Visa of 47 cents a share for the quarter, according to a separate note.

Last week, American Express posted second-quarter profit that fell nearly 40%, as even wealthy consumers have trouble paying their bills these days. "The scope of the economic fallout was evident even among our longer term, superprime card members," Chairman and CEO Kenneth Chenault said in a company statement.

Discover Financial Services also recorded higher customer delinquencies when it reported earnings in June.

Several large banks, including Bank of America BAC, Washington Mutual WM and Citigroup C, also acknowledged that customers were increasingly having trouble paying their credit card bills because of the weak economy and rising unemployment.

BofA, which captures the largest market share of credit, debit and prepaid cards, said "managed" credit card losses of 5.96% represented "more than 60% of total consumer losses" during the second quarter.

"We've continued to see increased delinquencies in our card portfolio in those states most affected by the housing problems, while other states have actually shown some declines. California, Florida, Nevada and Arizona make up a little more than a quarter of our domestic consumer card book but represent about a third of the losses," CFO Joe Price said last week.

WaMu, which bought the subprime card company Providian in 2005, said it expects card charge-offs this year to rise to 10.5% of receivables, from 6.5% in 2007. Citi's "managed" net credit loss ratio jumped 202 basis points -- just over two percentage points -- to 6.53% in the quarter.

Higher credit costs reflected "the housing market downturn, higher fuel costs, rising unemployment trends and higher bankruptcy filings, as well as the continued acceleration in the rate at which delinquent customers advanced to write-off," it said on July 18.

To be sure, Visa is still consolidating its global businesses in the wake of a restructuring it completed in order to prepare for its March IPO. "As they standardize all their fee income structures, you could actually see an enhancement to the revenue yield," Sakhrani says. For MasterCard, "it's about maybe not reinvesting as much" by temporarily pulling back on certain growth initiatives, he adds.

Visa and MasterCard have each acknowledged the slowdown in consumer spending in the U.S. this year, but neither seems deterred regarding their growth forecasts as they look to expand globally with various products.

"There are more opportunities for us than threats," MasterCard CEO Robert Selander said in late May

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MasterCard and Visa Financial Results Released

MasterCard has reported financial results for the second quarter of 2008.

"MasterCard's worldwide purchase volume during the quarter rose 14.0% to $493 billion and its gross dollar volume increased 12.8% to $655 billion. Transactions processed grew 13.6% to 5.2 billion. MasterCard reported 951 million MasterCard cards issued, up 11%. Net revenue for the second quarter of 2008 was $1.2 billion, up 25.0%. Pricing changes contributed approximately 5 percentage points of the net revenue growth".

Click the links to view the webcast ...or to view the accompanying presentation.

Yesterday, Visa Inc. also released it's third quarter financial results) stating that:

"payments volume grew 19% to $652 billion and total volume, including cash, grew 22% to $1.0 trillion. Cards issued grew 14% worldwide to 1.6 billion and payments transaction volume grew 15% to 10.7 billion transactions. Total processed transactions were 9.5 billion, up 13%."

Click the links to view the webcast. or if you prefer, a presentation on the quarterly results can be viewed by clicking that link.

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Senators Ask GAO to Investigate Interchange Fees

FOR IMMEDIATE RELEASE: July 30, 2008

CONTACT:

Jennifer Mullin (Harkin) 202-224-3254
John Gentzel (Snowe) 202-224-8667
Sue Walitsky (Cardin) 202-224-4524

Harkin, Snowe, Cardin Ask GAO to Investigate Interchange Fees

WASHINGTON D.C. – U.S. Senate Small Business and Entrepreneurship Committee Members Tom Harkin (D-Iowa), Olympia J. Snowe (R-Maine), and Benjamin L. Cardin (D-Maryland) today requested that the Government Accountability Office (GAO) investigate the structure of credit card interchange fees, which are used to reimburse credit card companies for processing transactions. While credit card companies contend that consumers and businesses receive great benefits from the current system, merchants are concerned that card issuers are pushing the cost of credit card incentives and rewards programs onto businesses and consumers through interchange fees. To examine both sides of the issue, the Senators asked GAO to take a balanced look at whether fees are properly disclosed, how the fees are set, and the level of competition in the marketplace.

“This multi-billion dollar fee is blamed for higher grocery prices and credited for subsidizing popular cash-back and rewards cards,” Senator Harkin said. “A GAO study will help us to gather unbiased information on these fees so that we can help the average consumers who are in the middle of this tug of war. I trust the GAO to honestly and comprehensively study this issue and advise us on a fair way forward.”

“While the credit card companies assert that they are helping consumers purchase goods and services, merchants, many of which are small businesses, say the interchange fees charged are too high, not set competitively, and eat into already slim profit margins,” said Senator Snowe, Ranking Member of the Senate Small Business and Entrepreneurship Committee. “To get to the bottom of this dispute, we’re asking GAO to look at the facts and assess whether credit card interchange fees are set in a transparent manner in accordance with market principles. I look forward to reviewing GAO’s recommendations to determine whether legislation is necessary to address this issue.”

“Interchange fees constitute significant surcharges which are passed on to Maryland businesses and consumers,” said Senator Cardin. “We need a balanced review to determine if merchants have appropriate bargaining power to negotiate fair and reasonable rates with companies like Visa and MasterCard, who control the majority of the market. Greater transparency, negotiation, and competition can only be of help to the credit and debit payment system.”

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Debit Usage Will Continue to Soar as Americans Ditch Credit Cards

Survey Finds 40 Percent Using Their Credit Cards Less

STRATFORD, Connecticut (CNN) -- When Cappie and Don Perras saw their stock market investments tank this year, they decided to tighten their belts. They drive fuel efficient cars around their Connecticut town and eat at cheaper restaurants if they eat out at all. To avoid impulse buying, they avoid the mall. And for now, at least, they've put away the credit cards.

This marks a big change from their old attitude.

"I felt secure with my credit cards like, 'Oh well, I always have my credit cards,' " says Cappie Perras, a special education teacher. "Now I feel like, it's almost like there's a big caution sign in front of the credit card, 'Do Not Use, Only In Case of Emergency,' " she adds

The Perrases are examples of a trend building among middle-income and middle-aged consumers to cut back on credit card use, according to a new study by Javelin Strategy & Research, a financial research firm.

Forty percent of consumers surveyed said they're pulling out their credit cards less than they were at the beginning of the year.

Editor's Note: Translation...Debit Card Growth Will Continue to Soar...

Don Perras, a college professor approaching retirement age, says the family has stopped using cards, except for rare instances like booking hotel rooms on the road. Instead, the couple uses their debit cards.

The aim: to soon be free of credit card debt. "It would be a top priority," Don Perras said. But with the high cost of living, the Perrases are having trouble making a dent in their $8,000 credit card balance. "I used to be able to maybe put $600 towards the debt. ... Now it's maybe if I'm lucky, $200," his wife says. The Perras family has plenty of company...

Americans carry approximately $961.8 billion in revolving debt, according to the Federal Reserve Board.

Delinquency rates on credit cards are at the highest levels since the end of 2002. Even as consumers cut back on using credit cards, they're finding it harder to pay down their balances, says Javelin President James Van Dyke. "In some cases they're out of work or perhaps their wages have been cut back, or maybe they had a variable rate which they have to pay more for than ever before," Van Dyke said. When people use their credit cards less, "this changes what goes on in the industry because credit card companies typically make a lot of their money on the fees they charge merchants."

The reduction in revenue from new purchases, combined with concerns about new delinquencies, pose big worries for the credit card industry, Van Dyke says. "Credit card companies are running a bit scared right now, and for good reason, because people are having a difficult time paying off their balances; and everyday consumers, they're cutting into their purchases right now -- both luxury goods and even the basic necessities," Van Dyke says.

According to the Javelin study, nearly 70 percent of financial institutions say they have cut back on credit card solicitations. Six of 10 say they are limiting the amount of credit offered to customers.

Here's more from Glenbrook's Payments News

Javelin Strategy and Research has released a report on credit cards and consumer spending finding that Americans are cutting back on credit card use and having difficulty paying off balances. Javelin found "conservative spending behaviors as a result of the economic downturn and the ramifications of the mortgage crisis, soaring fuel costs and rising food prices."

“The sharp decline in credit card spending challenges the popular belief that more Americans are charging basic goods in order to sustain their quality of life,” said Jim Van Dyke, president of Javelin Strategy & Research. “Consumers are making deliberate cutbacks like shopping at superstores, eating out less and watching what they charge. We believe this is because most people have already been impacted by the downturn or they’re anticipating that we haven’t seen the worst of it. It’s very cautious behavior.”

Javelin analysts also found significant cutbacks among credit card issuers. Seven out of ten issuers have reduced efforts to solicit new customers and 62% have cut back the lines of credit they make available to consumers.

“From declining consumer use, rising risk levels, and possible new merchant fee legislation, the credit card industry is taking several hits right now, which could have unintended consequences on Americans,” said Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research. “If the economy continues to decline, consumers will likely be forced to turn to credit, but find it unavailable when they need it most.”

The report also highlights increasing “pressure” on middle-income ($25-49K) and consumers ages 35 to 64. A high proportion of these groups are less able to save money and pay off credit card balances, and are putting fewer purchases on credit. Javelin also found the greatest decline in luxury goods spending among middle-income and middle-aged consumers. Cundiff continued, “The middle-aged consumer is most adversely affected by the economic downturn in a number of ways and it is this group of consumers that needs the most assistance from financial institutions.

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Posted by John B. Frank Wednesday, July 30, 2008 0 comments

Chase Paymentech Breakup = New Payment Processing Option for Online Retailers?

More changes are coming in online payment processing. as more payment alternatives slowly gain traction, with more (can you say HomeATM?) on the way. Soon, online retailers will have another payment-processing option as a big processor plans to split into two.

That company is Chase Paymentech Solutions LLC, which claims to process two out of three e-commerce purchases made by U.S. consumers.

Chase Paymentech Solutions is a 12-year-old joint venture now owned by First Data Corp., the biggest U.S. payment card processor, and J.P. Morgan Chase & Company, one of the country’s biggest banks and card issuers.

After private equity firm KKR (which yesterday announced it is going public) bought First Data, Chase had the option of busting up the joint venture, and announced in May it would do just that.

What it means for the many online retailers that use Chase Paymentech as a processor—including Walmart.com, Zappos.com, Overstock.com and Buy.com—is that the company will split nearly in two, with Chase taking the Chase Paymentech name, 51% of the assets, the Dallas headquarters and most of the employees. Importantly for e-retailers, Chase will retain the Salem, N.H., processing facility that specializes in handling online and catalog transactions.

However, First Data will get a copy of the Salem technology and is expected to launch its own e-commerce processing operation.

Once First Data gets that operation up to speed, expect increased competition for the processing business of online retailers, says payments consultant Steve Mott of BetterBuyDesign. “Many of them will have multi-year contracts, so there will not be a mass exodus right away,” Mott says. “But in time there should be a very vigorous competition for these customers.”

More of the details of the division of contracts and assets will be forthcoming over the next few months, says Mia Shernoff, executive vice president of marketing at Chase Paymentech. Ultimately, she says, retailers will benefit, “because online merchants will get two companies very focused on investing in the business in their own way.”

A First Data e-commerce processor would join an already crowded field in which prices keep going down, especially for larger online retailers. The competition among large processors has driven processing costs for big e-retailers down to under a penny per transaction, says Allen Weinberg of the Glenbrook Partners payments consulting firm.

(Editor's Note: Regardless of lower processing fees due to competition, the Interchange Fees remain much higher than they would be if processed as a "PIN Based" Transaction)

There are certainly plenty of alternatives, but as of now...they're all the same. Providing online retailers with a PIN Debit/Credit option would place HomeATM into a unique position to change the way transactions are done online.

Meanwhile, consumers have several ways to pay other than the familiar pieces of plastic carrying the brands of Visa, MasterCard, American Express and Discover. Adoption of alternative payments is growing gradually and analysts expect it will pick up—especially if more merchants offer and promote these alternative payment types.

Many consumers continue to shy away from buying online because they fear their personal or payment card information will fall into the wrong hands. (What I call the "Hand It Over Buddy" effect) and why yesterday I posted my article entitled: "Reverse Matriculation: Bringing the POS Device Home" in which I talked about why we should put the swipe/PIN Entry device into the hands of online shoppers so they don't have to enter card information.)

In a survey late last year, 75% of respondents agreed that they did not like giving out their credit card number or personal information online, including 36% who strongly agreed with that statement.

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Posted by John B. Frank Tuesday, July 29, 2008 1 comments

The Top 25 Internet Retailers

According to Internet Retailer, in aggregate the Top 500 retailers accounted for a total of $101.7 billion, of the nation's $166 billion in online retail sales in 2007.

The Top 500 grew their online sales by 21.6 percent. The top three e-commerce application and service providers will be listed by Internet Retailer in its August issue. To apply for a free subscription (US subscribers only), click this link.

Published by Chicago-based Vertical Web Media LLC, Internet Retailer is a monthly national business magazine, Web site conference and directory that serve the retailing community. The Internet Retailer family of products focuses on the Internet's vital role in a wide array of retailing activities, including Web merchandising, supply chain management and multichannel integration.

Here's the Top 25 and their 2007 numbers:

(from Internet Retailer’s Top 500 Guide: America’s largest e-retailers (based on 2007 sales)

1. Amazon.com ($14,800,000,000)

2. Staples.com ($5,600,000,000)

3. OfficeDepot.com ($4,900,000,000)

4. Dell.com ($4,200,000,000)

5. HPShopping.com ($3,360,923,280)

6. OfficeMax.com ($3,162,800,700)

7. Apple.com ($2,700,000,000)

8. Sears.com ($2,589,840,000)

9. CDW.com ($2,407,520,463)

10. Newegg.com ($1,900,000,000)

11. QVC.com ($1,880,530,000)

12. Best Buy.com ($1,780,833,285)

13. SonyStyle.com ($1,774,347,120)

14. Walmart.com ($1,574,999,975)

15. JCP.com ($1,500,000,000)

16. CircuitCity.com ($1,400,000,000)

17. Netflix.com ($1,205,000,000)

18. Costco.com ($1,200,000,000)

19. Target.com ($1,153,916,993)

20. VictoriasSecret.com ($1,111,712,000)

21. Williams-Sonoma.com ($1,104,000,000)

22. TigerDirect.com ($974,610,000)

23. LLBean.com ($948,750,000)

24. Gap.com ($903,000,000)

25. HSN.com ($871,200,000)

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Canada Gets Ready for Chip and PIN Adoption

The rapidly evolving payment industry is undergoing a new chip and PIN revolution in Canada and merchants will need to stay on their toes to keep up. Industry observers, including a newly appointed Canadian INSIDE Contactless executive weigh in on the issue and Rafael Ruffolo writes about it for ComputerWorld Canada:

By: Rafael Ruffolo, ComputerWorld Canada (29 Jul 2008)

With chip and PIN contactless technology set to hit widespread adoption by 2010, industry watchers are advising merchants to look at how the new payment method can benefit them in fraud reduction and value-added services, rather than worrying about the initial implementation costs.

“This is a little like the early 1980s with PCs,” Catherine Johnston, president and CEO at Advanced Card Technologies (ACT) Canada, said. “We’re beginning to understand the capabilities and the things we will be able to do with chip cards and I think merchants will need to look at the positive gains.”

Whether the positives of chip and PIN – which refers to a movement which will equip all credit cards with a chip and PIN number–will outweigh the implementation costs for Canadian merchants remains to be seen. Members of the payment card industry, including Interac Association, MasterCard Canada Inc. and Visa Canada, are in the midst of a chip and PIN trial in Ontario’s Kitchener-Waterloo area.

France-based payment chip maker INSIDE Contactless creates chip sets that are used for access control, ID, transit and other applications. Kim Madore, the recently appointed vice-president of sales and business development for the company’s Canadian operations, said the results of the Southern Ontario rollout has been promising and mass migration to the contactless payment technology should get underway this fall.

“For merchants, it will be fraud reduction that gives them the business model to move forward with this,” Madore said. “Plus, Canada has had PIN since 1992 when Interac was introduced, so consumers will be very accustomed to the technology and recognize the security benefits.”

But while the hype around fraud reduction might be enough to get consumers onside, some merchants might have a difficult time making a business case on that fact alone. Lise Dellazizzo, senior vice-president of technology research at Harris/Decima said that even though widespread rollout will occur within the next two years, many merchants haven’t had a chance to work with the technology yet..

A significant problem for some merchants, Dellazizzo said, is the expensive hardware and software costs involved in the migration. She said while businesses in the food services industry – which often rent their payment machines – may get off relatively easy, it will be a far different story for merchants in other fields.

“For the folks in the oil and gas sector, retrofitting the pumps will be a costly job,” Dellazizzo told ComputerWorld Canada earlier this year. “It’s been very difficult for the card associations and the players to convince these merchants that there is an ROI in making the move. And when it costs you $15,000 to replace each pump and you’ve got thousands of them across the country, it can be a tough pill to swallow.”

But according to Madore, merchants in many industries – including the oil and gas sector – are already taking steps to plan for the technology. “With respect to Canada and the gas industry, many of the pumps are already retrofitted,” she said. “You take a Petro Canada and they’ve even gone to the extreme of retrofitting for contactless technology as well.”

Johnston agreed with Madore, saying that most service companies have experienced similar changes over the last few decades and should be able to handle the changes that come with contactless payment technology. She added that as early as ten years ago, credit and debit card readers were missing from gas pumps.

“We’re now looking at technology like mobile payment, near field communication (NFC), and dual-interface cards that have both contact and contactless technology embedded,” Johnston said.

Her advice to merchants was to accept the fact that the payment industry is constantly evolving and take advantage of the advancements the technology can offer.

“For instance, if you look at a smaller merchant, they really don’t have a strong business case for issuing their own loyalty program cards,” she said. “But because chips can have multiple applications on the same card, merchants can band together and each put their own applications on consumer credit cards.”

Besides cutting down on the amount of credit cards in your customers’ wallet, Madore said the technology can also make transactions more personal.

“What if you went to a checkout at Tim Horton’s and the terminal actually greeted you with personalized information?” she asked. That aside, the bottom line for merchants is that it won’t be a matter of “if” they upgrade, but rather “when” they upgrade.

Visa Canada has already said Canadian businesses will need to get onboard with the new technology by October 2010 or the liability for payment fraud claims falls to the merchant themselves.

The ongoing Kitchener-Waterloo payment industry trial is scheduled to be completed this fall.

Copyright © 2008

ITworldcanada.com

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Reverse Matriculation: Why Wedgies Are All Good!

Online Banking (the security of which) has been taking a beating over the past couple of weeks. But there's good news too...according to the BBC, Barclay's PIN Sentry Device has made online banking more secure. ( read more on Barclay's PIN Sentry Device and HomeATM's Wedgie) at: HomeATM Has Powerful Potential!

Last Wednesday, I posted a relatively sarcastic article pointing out how blatantly insecure paper checks were (are)...while questioning how it was, that they lasted so long. It got me to thinking... in the future, what will be the perception of the way we process today's online transactions?

So, please allow me a moment in order to set the table for the following blatantly tongue-in-cheek, (yet truly sincere) "insecure scenario:" I will use a brick and mortar example and tie it in with it's analogy to an "online purchase." Ready?

Okay, here we go...Let's imagine that you enter into a store, and you find something you'd like to purchase. Naturally, you pick the item up (hit select) and walk up to (proceed to) the checkout counter (checkout basket).

Much to your chagrin, when you arrive at the checkout counter...there isn't anyone "physically" there....nor is there a "physical" POS device which you can utilize for self-checkout. (e.g. Something along the lines of NCR's FastLane or Pay at the Pump device whereby you can "swipe" your own card and checkout.) Instead...what you find at this "unmanned" checkout counter, is a pen and a piece of paper. The piece of paper contains three rectangular boxes with instructions.

1. The first instruction tells you to: "write down (enter) your credit/debit card account number in box 1.

2. The second instruction informs you that you'll need to: "write down (enter) your secret 3-digit code on the back of your credit/debit card in the box labeled number 2" (for "enhanced security" (sic) this information is required to be entered, thus potentially hacked, by the card companies)

Furthermore, you are instructed that you CANNOT leave with your goods, as they are to remain with us here at the store. We will, however, ship them to you within 24-72 hours...if all goes well...therefore:

3. The third instruction informs you that you need to "write down (enter) your name, address, and zipcode" in box number three so we can ship your goods when the time comes. Please the sheet of paper with your name, address and card information, in the basket and leave the store or continue shopping....

Question: When put it in these terms, would you follow the instructions posed at the checkout counter? You wouldn't do it would you?

Yet, fundamentally this is how every online transaction is currently done. (except of course, ones that are abandoned*) *Note: Checkout abandonment is a costly problem for Internet Retailers, yet a problem which HATM's wedgie also helps to alleviate.)

This brings me to my point on why HomeATM's "Wedgie" is "all good." Under the aforementioned scenario, it is blatantly clear that, when it comes to online banking or online transactions, "the card swiping/PIN Entry Device" should be put into the hands of consumers!

Hand It Over Buddy

One's first reaction might be to think that asking the consumer to utilize a personal "card swiping PIN Entry Device is not how checkouts are currently done at brick and mortar locations. There, it is the retailer who is provides the card swiper/ PIN entry device. True, but therein may lie the problem(s). Let me explain...

It was these very same retailers in the "bricks and mortar" world who, "for security purposes" altered their checkout procedures by "shifting" the act of "swiping the card" over to "the consumer."

The reason behind them doing so is because it seems that there were instances whereby some customer's cards were being swiped (by insiders) not only into the retailers POS device, but also into a secondary magnetic card reader. Thus the information contained on the magnetic stripe, was being captured exposing that customers data to potential identity theft/fraud.

Word got out in the press, and in response (and to prevent this from happening), it was decided that the problem could be alleviated if the consumer never "handed it over." but, instead, "swiped the card" themselves. Thus the recent practice of consumers swiping their own cards was born.

So there's nothing behaviorally "new" when it comes to asking a consumer to swipe their card themselves. They've been doing it for a while. In fact, the practice of entering their PIN was existant well before the actual swiping of the card with the use of swivel devices that turned toward the customers in order for them to be able to enter their pin.

Swipe At Home or "Don't Leave Home With It"

With that said there really is no difference between asking a consumer to swipe their own card at home, or swipe it at a retail location. But to be sure, let's analyze:

1. Consumer Swipes their card at the physical "bricks and mortar" store location ...okay, got it...now let's do it the other way...

2. Consumer Swipes their card at "home" where the "virtual store" is located.

Seems the same to me.* *except of course, at home, whereby neither the card nor the Wedgie ever leaves the possession of the consumer, thus shielding said consumer from the potential harm caused by "a rigged" swipe device...

(See: Cost Plus Alerts Consumers in Southern California Area of Suspected Electronic Funds Transfer Unit (PIN Pad) Tampering at Eight Retail Locations)

It is appearing more and more evident that until someone figures out a way to secure transactions without them, a peripheral card swiping/PIN Entry Device that can be easily connected to a PC, PDA and mobile phone, is an online shoppers "best bet" to protect them against fraud.

Thus...HomeATM Wedgies are "all good"...

Full Story

Posted by John B. Frank Monday, July 28, 2008 0 comments

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Payments Industry News Blog

Search the PIN Debit Blog by Subject

Kapersky Calls for Mass Adoption of Card Readers

Learn More About Us

Translate This Blog

Blog Archive

Profile

PIN Debit Blog Live

All Top Banking

Visits Since July 2009