A month ago (June 10th) I submitted a post entitled: Use PIN Debit to Buy Gas and Save Big!!! in which I hypothesized a scenario whereby an individual bought $25.00 in gas and because they swiped at the pump, instead of paying by PIN Debit inside, were charged $105 in overdraft charges.
Well, apparently (and unfortunately) one Mr. Stanley Allen from Miramar, FL doesn't know about and therefore doesn't read the HomeATM PIN Debit blog...or he would've paid inside using his PIN and saved...$105!
Here's his real life story which closely (he only bought $20 in gas) mirrors my hypothetical one... The link to the video of the story is here and below (along with a YouTube Video on the same subject...bounced check fees from debit holds).
Using a debit or credit card to buy gas could diminish your bank account quickly...
MIRAMAR, Fla. -- Using a debit or credit card to buy gas could diminish your bank account more than you realize. Stanley Allen knew gas was expensive, but when he recently bought $20 worth of gas with his debit card, he found out that it cost even more.
"Later on that afternoon, I got home and I checked my account, and along with the $20 worth of gas that showed, there was a $100 hold put on my account," Allen said.
The $100 was not technnically gone -- it was just off limits. But what happened next was painful. "Everything that came in after I pumped the gas bounced, so I ended up with $105 in overdraft fees," Allen said.
Allen called the gas station owner. "He said he wasn't responsible for it. He said check with my bank," Allen said. "I checked with my bank. The bank said, 'Check back with the gas station.' So I basically got the runaround for about a week."
Because the system does not know how much a customer is pumping, a hold is placed on the account. In the past, $50 was common, but the hold has been increased to $100 as the price of gas has risen.
Even if you only pump $20, the hold is not removed when you drive away. It remains in effect for several hours to several days. In Allen's case, his account had a hold for four days.
The bank determines the length of the hold while the gas station determines the amount. Neither is required to tell the customer.
The American Bankers Association advises that consumers should use their debit card PINs to minimize the likelihood of holds. It said the banking industry is working to improve the system to eliminate all holds, and it suggested that if the hold causes an overdraft fee, customers should ask their banks to remove the fees.
The Center for Responsible Lending said consumer relief could be on the way. "The Federal Reserve is actually trying to address this issue right now, and they are proposing to put an end to any kind of hold resulting in an overdraft fee being charged," said Leslie Parrish of the Center for Responsible Lending.
Until that happens, Allen said he would use cash so he won't be held hostage by an account hold. "I don't know exactly how it works," he said. "I just know that right's right and wrong's wrong."
It's payment related, it's web related, it's fraud related and it's PIN related, so I'll bring you this from 66 Federal Credit Union...
Local credit union works to shut down fraudulent Web sites
By Special to the E-E
A local credit union has submitted nearly 50 fraudulent Web sites and 40 phone numbers for shutdown in the aftermath of a scam that targeted financial institutions.
66 Federal Credit Union and several other financial institutions across the country were recently the subject of a widespread attack from fraudulent entities enticing members to disclose personal financial information.
The attacks were in the form of mass e-mails, automated and live phone calls, as well as text messages to members and non-members alike. Officials say the similar characteristic in all of the fraudulent messages is that it directed the recipient to respond and give their personal financial information including account numbers, credit card or debit card numbers, expiration dates and PIN numbers. The fraudsters appear to have obtained home phone numbers, cellular phone numbers and e-mail addresses from publicly available lists and are using this public information to obtain more sensitive account information, say officials.
“We are diligently pursuing all of these criminals, and in the last two weeks alone we have submitted over 45 illegal Web sites to be shut down, and over 40 phone numbers to be discontinued,” said Marty O’Connell, chief information officer for 66 FCU.
In addition to reporting suspicious activity to the credit union, individuals who suffer losses are encouraged to file a complaint with the FBI at their Web site https://complaint.ic3.gov, and call (800) VISA-911 to review and block transactions on their credit card.
“All members should be reassured that the database that stores our members’ e-mail and phone records is the same database that contains their financial information,” O’Connell said “And if our database was in fact compromised, then there would be no need for these criminals to send out fraudulent messages, since they would already have all the information that they are requesting.”
Members are advised not to respond to any phone call, e-mail, text message, or other communication asking for personal information such as user names, passwords, PIN numbers, or account numbers including credit or debit card information. If making any call to the credit union, members should only use the phone numbers listed on the 66 FCU Web site at www.66fcu.org, or call (918)336-7662 and (800)897-6991.
Over the holiday weekend, I received a couple emails from Mr. Don Resnikoff, who must have stumbled, er googled, upon the HomeATM PIN Debit Blog as I have to sincerely doubt that a Senior Assistant Attorney General of the Department of Justice subscribes to this blog.
(Although I'm honored if you do Mr. Resnikoff as I've got a couple bones to pick with you about my take on both Visa and MasterCard's antitrustworthy business practices!)
The emails were simplistic and general so I'm sure he wouldn't mind my sharing them. If so, I may not be heard from in a couple years :-) I'll leave his salutations and contact information out to help my chances...
Fyi The D.C. press release and the Visa public letter on the OAG website. D.C.’s press person is Alan Heymann. http://newsroom.dc.gov/show.aspx/agency/occ/section/2/release/14210 Hi Don: Thanks for passing that on. Do I or may I have permission to attach a copy of the letter and your response to the blog post from yesterday? Have a wonderful holiday weekend and I'll do the same.
John B. Frank Executive Advisor HomeATM ePayment Solutions 612-432-6980
To which he replied on Saturday:
You should go to the DC OAG website and take the press release and Visa letter from there. Both are public documents. I intended to point them out to you. I do not wish to be a blogger myself.
Thanks Don Resnikoff
(doesn't wish to be a blogger himself? Ouch!!!)
Well, I followed his advice and found it to be more than interesting. Go ahead and take a look. I've included the first five pages as jpegs. As always the pictures enlarge when clicked upon.
Of course, Visa isn't stupid, and my belief is that this move is designed to get the DOJ off their back, and buy them more time, which to them is money. Anyone who believes that the Department of Justice and Visa won't be speaking again in the near future about some other monopolistic behavior is a shareholder.
Digital Transaction News has an interesting take on the subject. You may find the article at the conclusion of the DOJ Release/Visa Public Letter below whose link was provided by Mr. Resnikoff.
District Investigation Leads to Revised Rules for Visa Debit Cards
(Washington, DC)-- Interim Attorney General Peter J. Nickles announced today that Visa USA Inc. ("Visa") has revised its rules for payment cards branded both as Visa cards and non-Visa ATM debit cards, and clarified application of existing Visa rules. Visa’s action follows a District of Columbia-led investigation coordinated with the States of New York and Ohio, and a parallel investigation by the United States Department of Justice. The Attorney General explained that “Under Visa’s revised rules many merchants will have a new freedom to accept ATM debit payments through Visa's PIN-debit network competitors, including such ATM debit card competitors as Star, MAC, NYCE, and others, without requiring customers to provide PINs. Customers will have more payment options.” He added, “We hope that Visa’s revised practices will bring the benefits of enhanced competition to debit card transactions, including enhanced competition in the pricing of electronic payment processing fees.”
The Visa rule revisions are described in a public letter issued by Visa earlier today. The letter also clarifies how certain unchanged Visa rules, applicable to Visa-member banks, will continue to govern merchants' acceptance of Visa cards. The Visa letter explains, among other things, how under Visa's existing rules, a merchant offering any combination of Visa credit or debit payment options is permitted to steer customers to non-Visa payment options. The merchant may present the cardholder with a non-Visa payment choice as the default, so long as the cardholder is free to override that choice and pay through Visa. The merchant must clearly disclose both the default choice and the process for overriding that choice.
An illustrative application of the revised Visa rules is a customer with a card branded both as a Visa card and a Star ATM debit card who in the future may more easily buy a book offered on an internet web-site and pay for it through the Star ATM debit system. First, under existing rules the internet merchant may make Star the default debit payment option. Second, Visa no longer prohibits the merchant from processing the customer's debit payment through Star when the merchant has not obtained the customer's PIN.
Attorney General Nickles added: "We in the District of Columbia appreciate the collaborative work of attorneys in the offices of the Ohio and New York Attorneys General, and at the United States Department of Justice, as well as the cooperation of counsel for Visa USA." Following the issuance of Visa's letter, the District remains free to bring whatever action or proceeding it subsequently concludes is required by the public interest if Visa's future practices prove to be anticompetitive.
Select the link to view a copy of Visa’s public letter. Visa Public Letter*
Here's Digital Transaction News take on the subject:
Visa Inc.’s rule change regarding PIN-based debit card transactions, which antitrust authorities disclosed last week, raised hopes that PINless debit would soon be making headway in Internet payments, but on second glance that’s not likely to be the case, analysts say. That’s because the electronic funds transfer networks, not Visa, still largely control PIN debit’s fate on the Web. “The EFT networks need to get involved,” says Jennifer Roth, research director of global payments at Needham, Mass.-based TowerGroup Inc., an independent research unit of MasterCard Inc. “They’re not involved in it today.”
The U.S. Department of Justice announced July 1 that Visa had changed its rules to allow PINless debit card transactions when the signature requirement on signature-based debit card purchases is waived. The change came in the wake of a DoJ probe and parallel investigations by the attorneys general of New York, Ohio, and the District of Columbia (Digital Transactions News, July 2). Under its old rules, Visa had prohibited banks from allowing merchants to waive entry of a PIN for most non-Visa debit transactions initiated from Visa-branded debit cards, including small-ticket (under $25) transactions in certain merchant categories, and almost all Internet transactions, even if the signature requirement had been waived, according to the DoJ.
A Visa spokesperson says Visa implemented the rule to address questions about what was and was not a Visa transaction, but the DoJ and the attorneys general saw it as giving Visa an unfair leg up on rival debit networks.
The DoJ’s reference to the Web, where PIN-based debit cards are virtually absent as a payment option for one-time purchases, triggered speculation that an online door might be opening for PIN-based debit cards. But the Visa change will have its most immediate effect on point-of-sale debit transactions. Visa check cards, like their MasterCard equivalents, typically carry the logos of one or more EFT networks, often the Visa-owned Interlink network but also First Data Corp.’s Star, Discover Financial Services’ Pulse, Metavante Corp.’s NYCE, or Fiserv Inc.’s Accel/Exchange. Some merchants program their POS terminals for “PIN prompting” to initiate a PIN-based debit transaction, which costs merchants less than a signature-based one, when a dual-function debit card is swiped. In cases where the signature requirement would be waived, Visa debit card holders can now swipe their cards without having to take the extra step of entering a PIN. Issuers will need to inform their cardholders about how such options work, according to the Visa spokesperson, and merchants that make non-Visa networks their default debit card choice will need to give cardholders the option of using Visa if they want, according to a release from the D.C. attorney general’s office.
Roth sees few consumers caring about the issue. So while a legal impediment to PIN-debit has been removed—something of concern to competition authorities—the practical effect will be small, she predicts.
But PINless debit is evolving quickly, adds Roth’s colleague, Brian Riley, TowerGroup’s director of bank card research. “It’s a very new area,” he says, noting that Interac, Canada’s national PIN-debit network, is upping its threshold for PIN entry to $50. While Interac doesn’t operate directly in the U.S., its change shows how a network can make POS PIN-debit more attractive to consumers and merchants.
Regarding PIN debit on the Web, however, the EFT networks still have the same operational concerns they had before the Visa rule change, issues that have largely prevented PIN-based debit cards from gaining any measurable share of e-commerce transaction volume. They include complicated connection issues and risk controls that would be employed should PIN authentication be waived for one-time retail purchases. With PIN entry on computers presenting high operational and marketing hurdles, those kinds of concerns have largely confined online PINless debit to bill payments, a low-risk category because of the pre-established relationship between biller and customer. “The EFT networks have been very conservative,” says Roth. She adds that the Visa rule change “is a good thing, but as far as opening up all kinds of doors, I don’t think so.”
Javelin Strategy and Research announced the availability of their Payments Reports Bundle: Here's some information regarding obtaining it:
The card issuing industry is becoming increasingly competitive and commoditized, with current economic conditions driving issuers to implement more stringent controls. This report is a must read for Credit Card issuers and Credit Card networks as it provides a detailed analysis on credit card customer satisfaction, which includes consumer preferences for selecting a card issuer. Javelin's Payments Report Bundle consists of the following reports:
Last week I posted the results of APACS Debit card data. Here's some more information which, I think shows the how strong the debit card market is becoming. An interesting point is that which debit card spending has increased 390%, when adjusted for inflation, credit card spending has declined a startling 6.1% since 2004. The future of card payments looks debit oriented. From a fraud, risk and interchange standpoint, the cost of PIN Debit is less than the current "signature" debit product, which is offline debit. Gotta wear shades. Here's more on APACS recent release of debit card data...
Debit cards continue to grow in favor with UK consumers, while credit card spending declines, according to data from UK payment association APACS . Debit card spending has grown as ATM-only cards have given way to general-purpose Visa- and MasterCard-branded debit cards.
In 2007, debit accounted for 62 percent of all UK plastic card spending, according to APACS. Actual year-on-year growth in debit card spending was almost 15 percent in 2007, or 10.6 percent when adjusted for inflation.
Over the last decade, debit card spending has increased 390 percent from £45 billion (US$89 billion) in 1997 to £221 billion in 2007, says APACS. In the same period, spending on credit and charge cards grew 130 percent from £58 billion in 1997 to £133 billion in 2007. After adjusting for inflation, actual credit card spending has fallen by 6.1 percent since 2004.
In 2007, the number of credit cards in issue declined, as did the number of credit cardholders and regular users, says APACS. Also, the amount of credit card debt outstanding fell by £1.1 billion. Credit card balance transfers, which had for a number of years attracted new or transferred business, lost their appeal, APACS says. Also, there was little innovation in standard credit card products. The only new products that did encourage new business were charge and premium cards offering reward points and cashback at the top end of the market.
The pattern of decline in credit card usage continued into 2008. In the first five months of 2008, credit card spending increased by only 1.2 percent, a figure that was below the rate of inflation for the period.
Happy 4th of July to all of the HomeATM Blog subscribers and readers whom reside in the good ole US of A.
Here's hoping that you all enjoy your long weekend with both friends and family, tasty barbeques, a couple of frosty ones and some fireworks. Speaking of which, here's a high resolution shot (click to enlarge) of some fireworks behind Buckingham Palace overlooking Lake Michigan in my favorite and the USA's most beautiful city...Chicago.
This from the Sacromento Bee which discusses holds being applied to debit cards.
With thousands of Californians preparing to hit the road for the three-day Fourth of July holiday weekend, many could encounter a few surprises at the gas pump. And we're not talking about the fuel price.
Instead, some pay-at-the-pump transactions involving credit and debit cards are catching motorists unawares. The first is when the pump automatically shuts off at $75, even if you haven't finished fueling up. Hitting that $75 cutoff when using a credit card was once unlikely, but rising gas prices have made it increasingly common.
It's set at that amount because service stations and other retailers selling gas are liable for fraudulent credit card transactions above $75, under terms set by Visa and MasterCard.
What's the easiest solution when you abruptly hit that $75 cutoff? Start over. That's what Harry Lewis, a Citrus Heights construction worker, does to fill the 38-gallon tank on his heavy-duty Ford pickup. As soon as he hits the $75 limit and the pump shuts down, he starts over with a second fill-up. "My credit card bills are out of sight, but what am I going to do?" said Lewis said. "I have to have the truck to work."
Other solutions are to pay cash or go inside and use your credit card at the cash register. Another potential at-the-pump pitfall involves use of an offline debit card, also known as a "signature debit transaction." Offline debit cards typically bear the logos of major credit card companies, such as Visa or MasterCard, and carry some restrictions, including a daily limit or a limit equal to the current balance in the user's bank checking account.
Unlike a regular online debit card, they do not require a PIN number. Any transactions typically post to the holder's checking account within 48 to 72 hours. It's that lag time that presents a potential problem. Because individual gas purchases vary so much, service stations have long had the ability to set limits on "preauthorized" amounts. In past years, preauthorization limits were set around $35. But as gas prices have soared, preauthorization amounts have likewise gone up, to $75.
Today, a consumer swiping a Visa- or MasterCard-branded offline debit card at the pump will likely have a 48-to-72-hour hold on that $75 until it's posted to his or her checking account, even if the customer spent only $20 to top off the tank. (Note: This is not true for a regular online debit card using a PIN that automatically debits the amount, usually within minutes.)
The credit card industry does not have firm figures on the number of U.S. debit cards in circulation but estimates peg it at more than 75 million. A 2007 study conducted by Boston-based Dove Consulting Group reported that 85 percent of debit cards in circulation were capable of initiating both PIN (online) and signature-authorized (offline) transactions. Dove Consulting said signature debit transactions accounted for 62 percent of all debit transactions at the point of sale, with PIN debit used 38 percent of the time.
If a customer's checking account balance was $50 before the offline debit card swipe initiated the $75 preauthorization hold, the account might be shown as overdrawn. That, in turn, can create a situation where the consumer is denied access to checking account funds or hit with an overdraft charge. While credit card companies, retailers and bankers are in general agreement that preauthorization practices guard against fraudulent transactions, there is recognition that consumers using offline debit cards can get burned.
There aren't too many good options for the retailer, say industry sources. "Sure, the retailer can stop it. The retailer can force you to (use) PIN debit or force you to pay cash," said Jeff Lenard, spokesman for the Alexandria, Va.-based National Association of Convenience Stores. But those choices, he noted, will likely drive customers to competitors.
Lenard advised consumers using offline debit cards to keep close track of how long a checking account hold stays in place on their at-the-pump transactions. "If they're not seeing those (holds) drop off within three days, they need to call the bank," he said.
In a move to avoid additional anti-trust litigation, Visa, yesterday, announced the amendment of one of their long-standing PIN Debit Regulations. Here's the Press Release from the Department of Justice:
Department Was Investigating Whether Visas Rule Restricting Certain PIN Debit Transactions Adversely Affected Competition in the Debit Card Industry
WASHINGTON, /PRNewswire-USNewswire/ -- As the result of a Department of Justice antitrust investigation, Visa Inc. has rescinded a rule that required merchants to treat Visa-branded debit cards differently when used as a PIN-debit card (and processed via non-Visa networks) from the same cards when used as signature debit cards and processed on the Visa network.
The Department said that it had been investigating whether the rule adversely affected competition in the debit card industry by restricting certain PIN debit transactions, particularly small-value and Internet transactions, and by potentially interfering with the introduction of new types of PIN debit services.
The Departments Antitrust Division will close its investigation now that Visa has rescinded its operating regulation and adopted new regulations that should eliminate any potential for competitive harm.
The Department opened its investigation to examine whether Visas operating regulation had the potential to reduce competition between Visa and the PIN debit networks. The Department had not completed its investigation when Visa proposed eliminating the rules under investigation. The Department coordinated its investigation with the attorneys general of the District of Columbia, New York and Ohio, who conducted parallel investigations.
Visas amended operating regulations overcame the competitive concerns that prompted our investigation, said Thomas O. Barnett, Assistant Attorney General in charge of the Departments Antitrust Division. Visas amended rules allow banks issuing Visa-branded debit cards to enable their customers to use the PIN debit functionality of those cards without entering a PIN. In light of Visas changes, there was no need for the Department to continue its investigation.
However, the Department remains prepared to investigate allegations of anticompetitive conduct in this important industry.
A debit card enables a consumer to pay a merchant by debiting the consumers checking account. The payment is made directly to the merchants bank account over one of several competing payment telecommunications networks. There are two types of authenticated debit transactions: PIN and signature. In a PIN debit transaction, the cardholder enters a PIN to authorize the transaction. In a signature debit transaction, the cardholder instead signs a receipt.
Approximately 70 percent of all signature debit cards in the United States carry the Visa brand and virtually all Visa signature debit cards can be used to conduct PIN debit transactions.
Cardholders may choose to purchase goods and services using the cards PIN debit network(s) rather than Visas signature debit network. Cardholders typically indicate whether they want to pay with PIN or signature debit simply by either entering their PIN or signing the receipt. The merchant then routes the payment transaction to the cardholders bank using the network selected by the cardholder.
Visa has for some time allowed banks to permit some types of merchants to waive the signature requirement for certain signature debit transactions, including small ticket transactions of $25 or less and certain types of transactions initiated over the Internet. Both types of transactions have accounted for significant growth in debit card use in recent years. Waiving signature authentication for these transactions has benefited merchants and consumers by, for example, reducing transaction time at the point of sale, the Department said. Waiving signature authentication has also encouraged merchants to adopt contactless readers, a new technology that allows consumers to tap rather that swipe debit cards at the point of sale.
While permitting signature waiver, the Visa operating regulation prohibited banks from allowing merchants to waive entry of a PIN for most non-Visa debit transactions initiated from Visa-branded debit cards, including small ticket transactions and almost all Internet transactions.
Visas new regulations adopted in response to the Departments investigation allow banks to provide merchants the option of waiving the entry of a PIN. Visa has also amended its operating regulations to require that banks notify their cardholders that transactions not authenticated by a PIN or a signature might be processed via a PIN-debit network and not by Visa.
eMarketer has recently released their report forecasting their opinion on the future of e-Commerce in the wake of current market conditions. More information on how to obtain the eMarketer Report can be accessed by clicking this link. Here's a brief overview:
"Although consumers are reacting to the economic downturn by spending less, this will create more of a hardship for retail stores than for e-tailers. A drop in new online buyers—an inevitable sign of the maturation of the online retail channel—will contribute most to the decline of e-commerce sales growth.
The US Retail E-Commerce report charts and analyzes the factors that are contributing to the changing dynamics in online sales. Consumers are reacting to the economic slowdown by cutting back on discretionary spending.
However, store sales will be hit harder than Internet sales because affluent shoppers, who form the core of online buyers, tend to ride out economic downturns better than lower- and middle-income consumers. Some consumers even plan to increase online spending to save gas money or find bargains.
eMarketer estimates that US retail e-commerce sales (excluding travel) will reach $146 billion in 2008, up 14.3% over 2007."
Last Wednesday I blogged about how Debit Dominates China's Bank Card Market accounting for a whopping 93.4 percent of the market total! This week, APACS announced that in the U.K. debit cards continue to be consumers first choice in 2007 accounting for 72% of of plastic card transactions in the U.K. market.
Yesterday, I talked about Canada's shiftto Chip and PIN, and a couple of weeks ago, I mentioned that even Malta is jumping on the Chip and PIN bandwagon. Thus, it is becoming empirically evident that debit card growth will continue at breakneck spead, not only here in the U.S., but everywhere across the globe. That's good news for HomeATM and "every organization" involved in our quest to bring PIN Debit to the Internet.
APACS has announced that £354 billion was spent on plastic cards in the UK in 2007 - a 10 percent increase over 2006 - and that spending of debit cards accounted for 62 per cent of total plastic card spend and 72 percent of total plastic card transactions. Debit cards were used to make 4.9 billion purchases in the UK while credit and charge cards were used to make 1.9 billion purchases. Credit card credit outstanding in the UK fell by £1.1 billion during 2007.APACS has announced that £354 billion was spent on plastic cards in the UK in 2007 - a 10 percent increase over 2006 - and that spending of debit cards accounted for 62 per cent of total plastic card spend and 72 percent of total plastic card transactions. Debit cards were used to make 4.9 billion purchases in the UK while credit and charge cards were used to make 1.9 billion purchases. Credit card credit outstanding in the UK fell by £1.1 billion during 2007.
Here's APAC's Press Release:
In the U.K. Debit cards continued to be consumers’ first choice during 2007 2007 plastic card data show:· £354 billion spent on plastic cards in the UK in 2007. Debit card spend accounted for 62 per cent of total plastic card spend
APACS’ latest publication The Way We Pay 2008: UK Plastic Cards shows that in 2007, for the 7th year running, debit cards continued to dominate consumer card spending, accounting for 62 per cent of the total plastic card spending during the year. UK plastic card payments to UK merchants, retailers and service providers totalled £354 billion in 2007 – over three times the amount of ten years ago (£103 billion in 1997) and a 10 per cent increase on the 2006 figure (£321billion).
Sandra Quinn, director of communications at APACS, said: “Over the past 3 years we’ve seen a pattern emerge: debit cards have increasingly become consumers’ first choice over other options, such as cash, cheques and credit cards. And whilst these figures are for last year, surprisingly despite lots of speculation, all the early indications from our figures so far for this year show that there has been no sudden spike in credit card spending. In fact, credit card spending up until the end of May increased by only 1.2% – below the rate of inflation, and the average value of a credit card purchase in a supermarket has actually fallen by £1 to £34.33(4).
"Interestingly the report also shows that last year debit cards even gained ground in areas where credit cards have traditionally had a firm hold – particularly on the internet. We would, however, continue to remind customers that because of the additional consumer protection benefits credit cards provide, you may find a credit card to be a more sensible choice online.” The £354 billion spent on plastic cards during 2007 equated to 31% of total consumer spending in the UK, with the remaining £771 billion made up of cash, automated payments and cheques.
Debit cards were used to make 4.9 billion purchases in the UK, and by 2017 it is projected that there will be around nine billion debit card payments. Over the last decade debit card spending has increased five fold from £45 billion in 1997. This upward trend is expected to continue, by 2010 personal spending by debit card is expected to overtake personal spending by cash, and by 2017 it’s expected to reach £469 billion.
During 2007 credit and charge cards were used to make 1.9 billion purchases in the UK to a value of £133 billion – an increase of 6% per cent on 2006 figures. This rise in credit card spending did not lead to any increase in borrowing as the amount of credit card credit outstanding fell by £1.1 billion during 2007
For information on how to order a copy of The Way We Pay 2008: UK Plastic Cards and details of other APACS publications available to purchase, please visit www.apacs.org.uk/publications.html
To combat fraud and encourage more consumers to shop online with more confidence, Visa, MasterCard and Canadian banks are upgrading more than 60 million credit and debit cards by adding a 13-millimetre square chip. While the magnetic stripe on the back of the card will remain, the real power of the card rests with the chip, a self-contained processor programmed with account information and an "encrypted key" which, with a PIN, secures the transaction.
It's considered to be virtually unhackable, state-of-the-art security. Instead of signing for a transaction, card holders enter a four to six digit PIN, which the card and your issuing bank confirm electronically. These so-called smart cards account for 70 per cent of cards issued in Europe where they have slashed fraud rates by up to 80 per cent.
No plan is in place for the 300 million plus American Visa and MasterCard holders to get the upgrade yet, says Oliver Manahan vice president advanced payments MasterCard Canada, and that could be an issue for the U.S. "We know fraud is like a balloon, you squeeze in one place and it bulges in another," says Mr. Manahan, noting putting more security features on cards physically not only drives frauds to other jurisdictions but also to other mediums — such as online — so a concerted approach is usually preferred.
Since Canadians are the highest per-capita users of credit cards and the second highest per capita users of debit cards, the rollout was an easy decision, says Mike Bradley Visa Canada head of regional products.
The chip is the latest to have an impact on how Canadians shop and manage their accounts — and a step closer to a cashless society. The most recent was the introduction a tap-and-go technology that allows contactless payments for items up to $25 on a debit basis — such as coffee, magazines and snacks. Currently deployed on credit cards, the radio frequency identification (RFID) tag, which triggers the transaction, is also being embedded in cellphones.
The introduction of the chip into debit and credit cards aims to loosen Canadians' attitudes to credit cards and drive us to use them more online and perhaps get duplicates for family members. MasterCard, for example, is testing the smart card's ability to determine who and how a card is used by offering a combination of prevention and alert features. "If you kids are at college, for example, you could set a limit so your daughter couldn't buy pizza for the dorm at 3 a.m.," said Mike Manchisi, MasterCard group executive for strategic account management. "You'd also get an SMS text message on your mobile alerting you if she went over the limit." The parent, as the account "administrator," could decline or approve the transaction and the idea is still in the prototype stage, say Manchisi.
Card makers and banks are also targeting online commerce.
A study by eMarketing for Yahoo! and MSN found that while 77 per cent of Canadian spent an average of $454 online over a six-month period in 2007, those who do not shop online cited concerns about credit card fraud as one of their top three reasons.
Even those who do shop online want better security," says Bradley.
Mr. Manahan says to further cut fraud around what the industry calls "card not present" transactions, British consumers are also being introduced to a $7 reader that plugs into a computer and can be "swiped" during an online transaction. "It then generates a one-time-only PIN or password, which validates the transaction," he says. "The advantage is, if it's a fraudulent site, they may have got the card number but they don't have another seable PIN."
While it'll be some time before the reader makes its way across the Atlantic, the chip card technology is currently undergoing trials in Kitchener-Waterloo. The first of the credit and debit cards will likely be issued some time later this year as customers' existing cards expire, says Mr. Manahan. The transition will likely take up to three years since retailers also have to upgrade their point-of-sale terminals — an issue within itself. Retailers generally welcome the cards because of their better security features, says Peter Woolford, vice-president policy development & research of the Retail Council of Canada, but there are concerns since there are more than 620,000 locations, many with multiple check out counters. "The new readers are about twice as expensive as the current ones," says Woolford. "For small retailers who lease the equipment it's no big deal but for the big retailers who buy it's a sizeable investment. Also the larger retailers have to change over all their system software." Some retailers are grumbling, he says, because if they don't have chip readers in place by Oct. 2010 they'll be financially responsible for any fraud. Conversely, ATMs and retailers have until 2012 and 2015 to be complaint for chip debit cards.
BY THE NUMBERS 620,000: Locations in Canada where credit cards are accepted 600: Institutions issuing Visa and MasterCard products 1970: Year magnetic stripe was introduced on credit cards. $1.4 trillion: Value of transactions globally on 817 million MasterCard issued credit cards in 2006. 61.1 million: Number of Visa and MasterCards in Canada 2006. 258,581: Number of cards used fraudulently in 2006 resulting in a write off of $185.5 million $215 billion: Dollar value of transactions by Visa and MasterCard in Canada in 2006.
Back in 1984, (not the George Orwelian one)right out of college I took a job selling PC's, although back then they were pretty much just word processors. A single disk drive, capable of running 640k diskettes would set you back about $4000. IBM was the King and MS-DOS was the new operating system of choice. My "Office" had "Windows", but not a computers.
My father had taken a job a year earlier with a company that bought Heathkit. It was a division of Zenith Electronics, and they called it Zenith Data Systems (ZDS) . ZDS was one of the original manufacturers of what was then known as "PC Clones." It was a tough industry to crack because IBM simply stated that if corporate America didn't buy IBM PC's they wouldn't be responsible for anything that went wrong with IBM Main Frames, System 36's etc.
My father quickly rose through the ranks and became President of Zenith Data Systems. Rather than fall victim to IBM's edict (and stronghold on the market) under my father's leadership, Zenith went the route of pitching their PC clones to the Federal Government. (What better way to sidestep IBM's stronghold than to go to an organization IBM couldn't control?) (Pictured below, on the right, is a Z-161 Portable Computer. Only 22 pounds I think it was, for the guy on the go!) Anyway, ZDS won several significant and lucrative contracts with the Department of Defense (including the Army, Navy & Air Force,) the IRS, the Post Office, and landed both the CIA and the FBI with their high security "Tempest" program. Had they not been a "division" of Zenith Electronics, ZDS would have, (instead of Ron Canion's Compaq) become known as the fastest company to go from $0 to $1 Billion in annual sales.
Based on these large contracts (1 was for $242 million with the Air Force for their Z-100 line) Microsoft was brought in and became a strategic partner.
Throughout his tenure as President of ZDS, my father met with Bill Gates frequently. Microsoft and Zenith Data Systems worked very closely together for many years and my dad fondly recalls the experiences to this day. I remember several stories he shared regarding both Bill Gates and Bill's close friend, Steve Ballmer. My father tells me he formed great business relationships with both, but worked more closely, and therefore evenutally formed a closer bond with Steve Ballmer, Microsoft's current CEO.
Mr. Ballmer remains, while today is Bill Gates last day. Having said that, I thought I'd pay tribute to Bill Gates final day at Microsoft with the aforementioed story in this, the HomeATM Blog.
Here's the latest article I found with a "Bill Gates" Microsoft Google news search, the picture is from 1985, a period closer toward the time I first became familiar with the man, who today steps down...
Friday 27th June 2008 will go down in history as the day Bill Gates officially left behind his Microsoft day job.
As Bill wiped away the tears at the Redmond HQ, here's a look back at some magic Microsoft moments and mistakes...Can it really be 33 years ago that a 17 year old Bill Gates co-founded Microsoft with his friend Paul Allen? Can it really be true that, having literally changed the face of computing and becoming the world's richest man for many consecutive years, Gates has finally stepped down from the day to day business of running the company? The answer, of course, is yes on both counts.
Speaking before employees at the Microsoft headquarters within the magnificent campus in Redmond, Seattle, Gates is reported to have wiped away the tears as he spoke with great emotion about his feelings for the company."There won't be a day in my life when I won't be thinking about Microsoft, the great things that we're doing and wanting to help" Gates said.Naturally he got a standing ovation.
Equally naturally, the ever emotional and exuberant Steve Ballmer gave one of his famously animated speeches. The Microsoft CEO applauded 'Bill the leader' and admitted that "there's no way to say thanks to Bill."Of course, the truth is that Bill has billions of thanks in the bank. Indeed, he is standing down so as to be able to concentrate on his charitable work and in what could be a remake of Brewster's Millions he will do his very best to give away most of his fortune before he dies.What's more, Gates remains the majority individual shareholder at Microsoft as well as Chairman of the board. He has not exactly got on his horse and disappeared into the sunset here. In fact, he will be spending a day a week working with Craig Mundie and Ray Ozzie at Microsoft.
Oh...If you're interested, I recommend taking a look at this self-depracating and very humorous YouTube video highlighting Bill Gates last days at Microsoft.
Editor's Note: Online Retailers can alleviate what the NACS refers to as "That PAIN" by simply eliminating the "A" in PAIN... converting the PAIN to "PIN" as PIN-terchange costs 50% less and is up to 10 times more secure!
In a press release, the National Association of Convenience Stores (NACS) says that "the nation’s 115,000-plus convenience stores will communicate their outrage over devastating credit card fees via pumptoppers that will educate consumers and Congress about the problem." NACS will be making "pumptoppers" available free of charge to retailers "communicating the industry’s fight against sky-high interchange rates."
NACS is urging retailers to put these pumptoppers in their promotional signage plans from August 1 to September 6, when Congress is in recess and members will be in their home districts.
Convenience stores sell an estimated 80 percent of the country’s gasoline, and the majority of stores (56 percent) are owned by one-store operators, as opposed to the less than 2 percent that are owned and operated by major oil companies. These stores are increasingly squeezed by low margins and escalating credit card fees; most are losing money when customers pay by credit card.
In 2007, credit card fees cost convenience stores $7.6 billion, more than double the convenience store industry’s profits of $3.4 billion. It has been much worse in 2008 as credit card fees have topped 10 cents per gallon, while the markup on a gallon of gas has averaged only 11 cents for the year so far. After factoring in all operating expenses, retailers lose money on every gallon of gas they sell when a consumer uses a credit card. Both the House (H.R. 5546) and Senate (S. 3086) have introduced bipartisan legislation, the Credit Card Fair Fee Act, to examine credit card fees, specifically the interchange rate, which is the largest component of the credit card fees that retailers pay every time they accept plastic.
Credit card interchange fees are a fixed fee and a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used. These fees average 1.8 percent in the United States, which has the highest interchange rate of any industrialized country. The U.S. interchange rate is approximately three times the rate in Europe and four times the rate in Australia.
“The credit card fees that retailers pay are outrageous,” said NACS President and CEO Hank Armour. “Congress needs to see the pain that credit card fees are causing in their home districts,” said Armour. “In Washington, the credit card companies have used their outrageous profits at the pump to fund a massive lobbying effort to prevent fixing the broken system. It is impossible to match their virtually unlimited resources, so we need to take the message straight to where this pain is occurring – at the gas pump,” said Armour.
The pumptoppers that NACS has developed have two messages: “Tell Congress you want to know how much this fill-up cost you in credit card fees” and “That pain you are experiencing in part is caused by secret credit card fees.” Both ads encourage motorists to go to the Web site www.unfaircreditcardfees.com to send a message to their elected leaders. The artwork is available in a variety of sizes and can be downloaded at http://www.nacsonline.com/pumptoppers.
For retailers who are unable to print the pumptoppers themselves, NACS has arranged a significant discount for retailers who want to order them from signage company GSP at http://www.popmanager.com/ccfees.html.
“The Credit Card Fair Fee Act, a bipartisan effort, would provide an opportunity for merchants to negotiate reasonable terms with the credit card companies and their member banks,” said Armour. “Right now there is no market for interchange fees. The fees are fixed by the banks, hidden from the public and forced on merchants in a take-it-or-leave-it offer. The Credit Card Fair Fee Act would create a market for interchange fees by allowing merchants and the card associations to negotiate on equal footing.”
“It is essential that Congress takes action on this legislation. Without Congressional action, they will increasingly see second- and third-generation family businesses in their districts that will have to close their doors as their livelihood gets siphoned off by the credit card companies,” stressed Armour.
I've got a "New Campaign Idea" for MasterCard... Here goes:
Screw with Wal Mart:$1.0 Billion Screw with American Express: $1.8 Billion
Screw with Discover:$3.0 Billion?
IPO to cover damages: Priceless!
"Under the terms of the agreement, MasterCard will pay American Express up to $1.8 billion. This follows an earlier agreement with Visa to settle similar claims for up to $2.25 billion. Subject to certain performance criteria, American Express would receive more than $4 billion for agreeing to drop its claims against the two credit card networks. The combined antitrust settlement is the largest in U.S. history."
From the Wall Street Journal:
American Express Co. has reached a $1.8 billion settlement with MasterCard Inc. over the card issuer's lawsuit with the payment processor over allegations MasterCard, Visa Inc. and some member banks prohibited financial firms from issuing credit cards through American Express.
Meanwhile, American Express Chairman and Chief Executive Ken Chenault said credit indicators have weakened "beyond our expectations" amid continued weakening in U.S. business conditions. He added it is "too early to assess the impact," but that the antitrust settlement should "help to lessen the impact of this weakening economic cycle."
Beginning in the third quarter, MasterCard will make 12 quarterly payments of $150 million, contingent upon the performance of American Express' U.S. Global Network Services Business. MasterCard will take a $1 billion charge in the second quarter.
"We are pleased to have reached a settlement with terms that will enable us to keep our strong balance sheet intact," said MasterCard President and Chief Executive Robert W. Selander. He added that "eliminating the uncertainty" of a prolonged court case is in the best interest of shareholders.
In 2004, American Express sued Visa, MasterCard and eight of their member banks for imposing rules that had prohibited financial institutions from issuing credit cards through American Express. The lawsuit was filed shortly after the U.S. Supreme Court let stand a lower-court ruling that forced Visa and MasterCard to allow their member banks to issue credit cards on rival networks. Visa agreed to a $2.25 billion settlement in November. Coupled with the MasterCard payments, American Express will receive $880 million annually for the next three years.
# # #
If you’re reading with a sense of deja vu, that’s because Visa and MasterCard have spent lots of time in court defending themselves from antitrust allegations. Let’s review:
In 1996, merchants filed a class-action lawsuit against Visa and MasterCard alleging they were attempting to monopolize the debit card market. On the eve of trial in 2003, the parties agreed to a boffo $3.4 billion settlement, called the largest in an antitrust case. The lead counsel in that case was Lloyd Constantine of Constantine & Partners.
MasterCard's settlement with AmEx is only Part 1. As I posted in this blog a couple weeks back, Lloyd Constantine is heading up Discover's antitrust lawsuit and seeking $6 Billion in damages. (Visa said at the time the amount was ``dramatically overstated'' and MasterCard called the suit "baseless.'' Maybe MasterCard might want to look up the word "baseless" in a dictionary. They might also consider the savings derived from representing themselves in court since their attorneys aren't getting any better results. Here's a better idea... admit wrongdoing and just pay up. Then consider ceasing and desisting with these types of business practices. After all, Visa and MasterCard have demonstrated this behavior for many years now and their track record in court is dismal.
In 1998, the DOJ brought a successful antitrust lawsuit against Visa and MasterCard arguing that the companies colluded to fend off competiton. In 2004, the Supreme Court let stand a Second Circuit ruling that ruling that Visa and MasterCard violated antitrust laws when they barred banks that issued their cards from also issuing AmEx and Discover cards.
In 2004, on the heels of the Supreme Court’s ruling, AmEx filed this lawsuit against Visa, MasterCard and eight of their member banks for imposing rules that had prohibited financial institutions from issuing AmEx cards. Even though the DOJ’s lawsuit had forced Visa and MasterCard to drop their exclusionary rules, Boies explained to the WSJ yesterday that a private company that is hurt by an antitrust violation can sue for “historical damages plus future damages from the historical acts.”
As part of this settlement, AmEx dropped the member banks from the lawsuit but not Mastercard. “The size of this settlement, along with earlier court rulings, underscores the seriousness of the damage done by the illegal boycott,” said Ken Chenault, AmEx’s CEO. “We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years.” Yeah, to the tune of $1.8 Billion.
The question nobody's asked is "How much did Visa and MasterCard profit over and above the settlements by engaging in this type of corporate rogueness? They have been found guilty time after time against "major players" (Wal*Mart, AmEX, Discover, etc) in the industry. These major players are the ones laced with deep pockets, one's who can withstand the enormously expensive and time consuming process involved with taking these big boys on. Smaller players such as Pay By Touch, a company of which I was a founding member, aren't as fortunate.
Case in point...Visa and MasterCard "defined" a "more secure" biometric transaction as a "less secure" Card Not Present (CNP) transaction. In reality, a biometric transaction is inherently more secure than a "card present (CP) transaction, let alone a CNP transaction. There's not an analyst alive who would disagree. But Visa and MasterCard did. The end-result of Visa/MC defining biometrics as a CNP transaction was severe in terms of preventing retailer participation. After all, why would a retailer switch to biometrics in order to pay a higher fee than they were currently paying? That's why retailers like SuperValu only allowed biometrics to be ACH based. And it cost PBT (and me) big. There tactics were successful with Pay By Touch because of V/MC's stronghold in the payments industry.
A second case in point...Why did PIN Debit took so long to take hold in the bricks and mortar space when it's more secure and preferred by customers? The answer is simple. Visa and MasterCard (and the banks) make more money on signature debit. Who cares that it's less secure? Who cares that it's preferrred by consumers? That's why rewards programs are mostly attached to signature debit and why some banks charge consumers to use PIN Debit. It's nuts.
So don't expect this to end when Discover wins it's $6 Billion from these guys. Pay By Touch is gone, but companies like HomeATM aren't going to stand by idly IF Visa/MC try and starve them out, as they did Pay By Touch.
As the U.S. grapples with soaring gas prices, many pundits have put the blame for the rise on the shoulders of the frenetically expanding economies in China and India. There's just too much demand and the market can't keep up, they say.
Want proof of just how fast that Chinese economy is growing? Try this: The total number of credit cards in China nearly doubled in the past year, according to the People's Bank of China, which is the nation's central bank.
A recent report at ShanghaiDaily.com (article included below) laid out the details: "China had more than 104.73 million credit cards in circulation at the end of March, up 92.9 percent since a year ago."The report goes on to say that "China's total bank cards, including debit and credit cards, topped 1.58 billion by March 31, up 29.1 percent over the year." As those numbers indicate, debit cards are far and away the most popular choice of plastic. They make up 93 percent of the card market. Still, a near doubling of the number of credit cards in the world's most populous country is an event that is sure to draw attention, especially as companies from around the world race to do business in China.
This growth coincides with a spending boom in India, the world's second-most populous country. The WashingtonPost.com has a fascinating article about buying habits of the 20- and 30-somethings in India. The article says younger Indians are charging items like flat-screen TVs, iPods and sunglasses in ever-growing numbers. The big problem in India: huge interest rates. According to the Washington Post, "In India, even the lowest credit card interest rates hover around 20 percent, and the average lending rate is 34 percent, which includes a 12 percent service tax on the interest." Holy Cow! (as the late great Harry Caray would say!)
That's two to three times the average lending rate for cards in the U.S., according to CreditCards.com's latest rate report. Add on the Indian government's "service tax" on the interest, and those rates for consumers in India become downright outrageous. The prevailing thought seems to be that this Asian growth isn’t going to stop anytime soon. Can it continue at the breakneck pace that we’re seeing now? Noper...growth like this never lasts forever, especially when it may be creating a generation of folks buried in debt with 34 percent APRs. It certainly bears watching, though, as Americans deal with their own credit card burden.
Here's the article from the ShanghaiDaily.com...
Number of China's credit card holders doubles in quarter Created: 2008-6-25 - Author:Zhang Fengming
THE number of Chinese credit cards almost doubled in the first quarter, the central bank said yesterday. China had more than 104.73 million credit cards in circulation at the end of March, up 92.9 percent since a year ago, the People's Bank of China said yesterday on its Website.
China's total bank cards, including debit and credit cards, topped 1.58 billion by March 31, up 29.1 percent over the year, the central bank said. Debit cards still dominate China's bank card market, accounting for 93.4 percent of the market total.
Bank card-based transactions accounted for 25.6 percent of the country's total retail sales, up from last year's 21.9 percent. Transaction value on bank cards rose 58 percent year on year to 824.6 billion yuan (US$119.5 billion).By the end of March, 203 institutions, including 168 domestic banks, had joined UnionPay, the sole trans-bank transfer system in China. China is adding point-of-sale card terminals at shops and restaurants to ease payments by bank cards, especially in the run-up to the Olympics when a large number of foreign tourists is expected.
Banks are also installing more automatic teller machines to extend their networks.About 804,500 merchants accept bank cards while there are 137,600 ATMs on the mainland. Encouraging the use of bank cards help cut money laundering and make it easier to track merchants' business transactions and tax payments.
Global banking executives see China's credit-card business as promising, although no quick profits are expected within three years, an industry survey said earlier. Bank of East Asia issued its yuan-backed debit cards in May, the first overseas bank to issue yuan-denominated bank cards in China. Banks including HSBC and Standard Chartered are awaiting regulatory approval for their own cards.
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