Michael Arrington - TechCrunch.com

When eBay paid $945 million for BillMeLater in October, we blinked. The business assigns credit at the point of sale to ecommerce customers who can't use credit cards because they don't have them, have maxed out credit limits, or choose not to. It charges fees much like a credit card - currently 19% interest.

The credit markets were already a wreck in October, with accelerating defaults on credit card accounts. And worse, the securitization markets were starting to shut down, meaning credit companies couldn't get the debt off their books.

Still, a BillMeLater investor said not to worry. Their model is different than the credit card companies, he said, because they only issue credit on a per-transaction basis.  Fast forward a month and a half, though, and things are much worse. Credit default rates are expected to hit 10% next year as personal bankruptcies soar, and the securitization markets are flat out closed.

And I don't really buy the argument that BillMeLater has a better model than the credit card companies. Card companies can (and do) lower credit limits in bad times, so they don't have much more exposure on credit limits compared to BillMeLater. Also, most of BillMeLater's customers don't qualify for credit cards in the first place, or are tapped out. That makes this debt super sketchy. And BillMeLater's credit models were created in a world of 5% default rates (the average over the last ten years), which are nowhere near as bad as what's coming.

On top of all of this, BillMeLater is pushing incentives that give people zero payments until April 1. What a teaser to buy stuff people can't afford for the holidays.  This is adverse selection at work. People who don't need to wait until April 1 to pay won't use it. Those that do will, and those people are likely to be big credit risks.

At the very least eBay seems to have overpaid for BillMeLater.  At worst they may have huge losses on the product next year. In 2008 they'll do $1 billion in payment volume. You can do the math on a 10%+ default rate.

Credit Card Hackers in New Attack?

"A wave of unauthorized microtransactions is currently sweeping the accounts of a number of US credit card holders, though the size andscope of the fraud scheme have not yet been determined. Beginning on oraround November 20, consumers apparently began to notice smallcharges—typically for 19-29¢—appearing on their bank statements oronline account information. These small withdrawals or deposits aretypically test fees, sent to verify account authenticity. Paypal, for example, makes two small deposits in a user's bank account in order to verify its authenticity.

While legitimate companies will reverse the fee (or occasionally let you keep the extra quarter), thieves use the transactions to verify that a credit card number is good. If the deposits complete successfully, the hacker knows he's got a live card (or a live card number). The next step, at least usually, is to burn through the account's balance as quickly as possible before anyone notices what's happening.


Beginning on or about November 20, various card holders began complaining online about unauthorized microtransactions that were suddenly showing up on their accounts. The charges fit the model described above, and were labeled as coming from Adele Services. Adele Services appears to be a dummy corporation; the 1-800 number listed as the customer contact point is disconnected and there's no official
website.

The company may not officially exist, but that hasn't stopped it from continuing to test accounts. It's impossible to state how many card holders have been pinged in this manner, but the number of online reports is growing steadily.

Theories on which company's security was breached abound, although the mob of sages has collectively ruled out PayPal, given the number of non-PayPal users affected. Amazon seems to be a current favorite, based on the fact that a number of the irate forum posters recently shopped there. The factual likelihood that any number of random people have recently shopped at Amazon given the size of that company, and the time of year is much higher than some of the more fervent posters would like to admit.

For the time being, it's a good idea to keep a close eye on the day-to-day activities of your credit/debit account. If you want to be on the safe side, take a moment and review your financial institution's rules on contesting charges. The rules of this procedure can vary significantly from bank to bank. If you've been hit by these types of unknown charges (whether from Adele or another company), please let us know about it. 

At this point, there's nothing much more than circumstantial evidence of a data breach. Such breaches can be disastrous when they occur, as TJ Maxx demonstrated back in 2007. It's possible that whoever is running Adele is working off randomly generated numbers, however; we won't know until more information becomes available."

Large-scale hacks have happened before; the worst was in 2005, when hackers obtained a file of 40 million card numbers from CardSystems, a credit-card processor. While most consumers worry about shopping with Internet retailers, online card databases are rarely the problem. In 2007 insecure cash registers at TJ Maxx and Marshalls stores exposed 45.7 million cards.

The "Holiday Pulse Index" found transaction volume at 25 major retailers rose by 14.5 percent Monday.   However the average value of each transaction fell 12 percent compared with last year's Cyber Monday.

Aaron Press, director of market analysis for Chase Paymentech, said in a statement that the lower order totals for individual purchases are consistent with payment activity during much of November.  "For the entire holiday season, the slower rise in sales volume compared to the steeper increase in transactions has resulted in the average ticket being lower on most days," he said. Ticket prices is defined as the average dollar spent per transaction.

Yet spending for the season to date has been a little more aggressive than the Cyber Monday snapshot. Since the beginning of November, transaction count has climbed 25 percent, and sales volume has increased 11 percent. The average ticket has come in 12 percent below last year's level, according to Chase Paymentech.

Separately, content infrastructure provider Akamai says traffic volume to retail sites in North America spiked yesterday. By 10 a.m. on December 1, online visits to Akamai retail customer sites had already surpassed 2007's peak visits per minute. The heightened traffic continued well into the evening.

There are some indications that higher traffic volume may not be a sign of higher spending, but rather an indication that people are investing more time in hunting for coupons, discounts, and other deals. According to Google keyword trends, consumers are conducting more searches for such promotions than in past years. Among the queries that climbed significantly this season are "coupons," "Black Friday ads," "discounts," and "free shipping."

ComScore and Nielsen plan to report their Cyber Monday spending and traffic estimates tomorrow. The HomeATM  Blog will highlight the data in a follow-up report.

US wireless network Alltel Wireless will launch a mobile wallet service called Alltel Wallet based on mFoundry’s mobile wallet platform in early 2009.

Alltel Wallet is to include various mobile banking services, offering customers access to a large variety of US financial institutions. Alltel Wireless recently launched a free mobile banking service called Alltel Mobile Banking, offering customers mobile access to accounts from many financial institutions. The Alltel Wallet will provide its customers access to the same financial institutions as well as access to a series of other payment services.

mFoundry will provide Alltel with the necessary platform to plug in enhanced financial services and other advanced functions from selected third party developers. mFoundry’s mobile wallet platform comes with pre-built modules for peer-to-peer remittances and other payment services to help developers deploy new features.

mFoundry’s mobile financial services platform is based on Mojax technology which allows Alltel to offer third party developers the ability to add modules to the wallet. Mojax is an Ajax application framework. Unlike traditional frameworks, Mojax applications (Moblets) do not run within a browser and are not subject to the availability and quality of a network connection. Mojax is a plug-in capable mobile development framework that offers developers additional access to core device capabilities like Camera API, Location Services, Contacts and more.

7 Things to Know About Buying Gift Cards

Just look at how the mighty have fallen. Sales of gift cards -- typically the most-requested holiday gift – have fallen dramatically this holiday shopping season as budget-crunched consumers hunt for ways to save.

“Consumers are putting all their focus into finding bargains,” says Daniel Horne, an associate professor of marketing at Providence College in Rhode Island. Instead of going straight to the cash register to buy a $25 gift card, a shopper is more prone to spend $20 on an item marked down from $25, he explains. Add to that concerns about the growing number of retailers that are going out of business and gift cards become even less of an attractive option for shoppers.

As a result, gift card sales are expected to fall 6% this holiday season to $24.9 billion, according to the National Retail Federation. (Over the four-day Black Friday weekend, gift card sales were down 10%, with just one in five shoppers buying one).

Yet, shoppers don’t have to abandon gift cards altogether -- especially when the alternative is taking a blind guess at what someone on your shopping list really wants. Just proceed with caution. Here's what you need to know to guarantee that buying a gift card will be worthwhile.

Steer clear of troubled retailers

Avoid buying a gift card from a retailer that has filed for bankruptcy protection, or may do so soon, warns Sally Greenberg, executive director of the National Consumer League, a consumer advocate. While stores in Chapter 11 may continue to sell and accept gift cards, they can also put restrictions on their use. Sharper Image, which filed for Chapter 11 bankruptcy protection in February, stopped accepting cards temporarily, then required shoppers to make purchases worth at least double the value of their gift cards. Linens ‘N Things, which filed for bankruptcy protection in May, will only accept cards in its store during its liquidation.

If a retailer files for Chapter 7 bankruptcy protection -- which liquidates the company rather than allowing it to reorganize -- the card balance is almost certainly a lost cause, says Greenberg. “You’re in a long line behind other unsecured creditors,” she says. Most claims return just pennies on the dollar, if anything at all.

Look for FDIC coverage

Your safest bet is to buy a gift card issued by a bank, says Gwenn Bézard, research director for Aite Group, an independent financial services market research company. In mid-November, the FDIC expanded its coverage of consumers’ assets at insured financial institutions to include prepaid gift cards. Should the bank go under, the card balance is covered up to $250,000.

Weigh the fees

Although they offer better protections than store gift cards, bank-issued gift cards do have one pitfall: purchase fees. Discover (DFS: 9.43*, -0.54, -5.41%) and American Express (AXP: 20.43*, -0.33, -1.58%) both charge $3.95 per card, for example, and Chase (JPM: 28.16*, -0.37, -1.29%) charges $3.50. U.S. Bank (USB: 25.80*, +0.03, +0.11%) charges $3.95 if you buy at a bank branch, or $6.95 plus shipping when you purchase one online. Skip these cards if the charges are more than 10% of the balance, says Greenberg. Fees that high aren’t a good deal for the giver or the receiver.

Swap out unused cards

Still hanging on to unwanted cards from last year? Sell or trade them before any dormancy fees kick in. Gadget and home goods retailer Brookstone is letting consumers exchange gift cards of any value (even a penny) from any other retailer for a 15% in-store discount. And on gift card swap sites such as CardAvenue.com and SwapAGift.com, users often receive bids just a few dollars below the face value of their cards.

Take advantage of promotions

To entice consumers to spend more, many retailers are offering discounts with a gift card purchase. Papa John’s offers a free medium one-topping pizza ($10 value) with every $25 card purchased. Through Dec. 8, chain B.R. Guest Restaurants is offering 20% off gift cards purchased online.

Wait until the last minute

Plenty of gift cards carry expiration dates and some even have maintenance fees that kick in after as little as six months of inactivity. To help give your recipients a little more time on the clock -- nearly half of consumers still haven't redeemed the gift cards they received over the holidays by the end of January, says Bézard -- save your gift card purchase until the last minute.

Spend in January

Fewer gift card purchases now mean fewer shoppers redeeming them in January, which could pose a problem for cash-strapped retailers looking to extend their holiday season profits into the new year. Postholiday, retailers may start extending discounts to shoppers who use gift cards, says Horne. (Last year, both Best Buy (BBY: 20.03*, +0.08, +0.40%) and clothing retailer New York & Company offered such incentives.) American Express also routinely extends special discounts for using its cards at participating retailers, such as 15% off a purchase of $75 or more at Virgin Megastore.