Paradigm Shift: Retails 70%-22% Lead over Web Changes to 44%-49%

e-Marketer came out with their Holiday Sales Forecast and although I'm aware and have posted many times about the impending shift from retail stores to the net, I was still taken aback by the graph on the left.  Take a look at the DRAMATIC shift from last year to this year.  It's paradigm in nature.

Last year 70% (as a percent of spending) of Internet Users shopped at Retail Stores compared to 22% who shopped online.

This year, that 70% number has dropped to 44% and Internet Shopping has gone from 22% to 49%. 

So here's the shift:  Last year Internet loses 70% - 22% but in one year the Internet takes the lead 49% - 44%.  Wow...

HomeATM looks like it is well positioned to take advantage of this fortuitous "changing of the guard" if you will.  Retail consumers are running to the other side, credit card usage is declining, while debit card usage is growing and PIN debit is the last remaining vestibule for online payments. 

I love the coincidence that PIN debit is also known as "online" debit.  Looks like everybody is getting online this Holiday season and our "gift" to Internet Retailers is the ability to make consumers cards "present" 

I also love the irony of the fact that HomeATM plans on making "Card Not Present" Internet Transactions a "Thing of the Past"!  I love this game!

Online Holiday Sales Forecast - eMarketer

OCTOBER 22, 2008
Jeffrey Grau, Senior Analyst

This year online holiday sales (excluding travel) will total $32.1 billion, up 10.1% over 2007. This is a sharp decline from growth rates in the low-to-mid 20% range seen over the past few years.

The weak economy is placing downward pressure on e-commerce sales this season. That pressure accentuates the already declining sales growth, which is a sign of the inevitable maturation of the online shopping channel.

US Retail E-Commerce Holiday Season Sales, 2003-2008 (billions and % change)

Financially strapped consumers will use a variety of strategies to save money on holiday gifts. More than ever, they will turn to the Internet to get gift ideas, find bargains and locate retailers that stock desired products. Shoppers will shift a larger share of their purchases from stores to the Internet to save gas money and avail themselves of retailers’ free shipping offers.

The main engine of e-commerce growth is incumbent online buyers who are shifting a greater percentage of their total spending from stores to the Internet.

The spending shift from stores to Websites is expected to continue this holiday season, according to a recent survey sponsored by ATG and conducted by the e-tailing group. This year 49% of holiday gift spending among US Internet users will occur online, compared with 44% in stores—making this the first time the Web has surpassed the store as the preferred channel for Internet users to purchase holiday gifts.

Leading Channels Used for Holiday Shopping According to US Internet Users, 2007 & 2008 (% of spending)

When Credit Gets "Waxed", Debit will "Shine"

In the midst of this economic crises, I have shared my belief many times that "debit card" use which has been growing at an impressive rate these past 5 years, will continue to stay on course.  As credit limits get waxed, it is the debit market that will come out shining...

Here's an article from the Green Sheet which touches on that subject:

The Green Sheet 2.0 :: GS Online

Payment ship navigates economic storm

This is the month that was for ISOs, merchant level salespeople (MLS), and acquiring banks. Federal regulators seized the assets of Washington Mutual Inc., the nation's largest savings and loan, and sold them to JPMorgan Chase & Co. for $1.9 billion. Citigroup Inc. planned to acquire Wachovia Corp.'s retail franchise and banking operations for $2.16 billion, but Wells Fargo & Co. made a counter offer of $15.1 billion.

On Sept. 29, the Dow Jones Industrial Average finished the day down 777.68 points, or 7 percent, making it the largest percentage drop in the history of the stock market. Meanwhile, lawmakers haggled over the $700 billion financial institution recue package. It finally passed both houses of the legislature on Oct. 3 and was signed into law by President Bush.

The news has been ominous - but how will this affect the payments industry?

"The bailout plan was hoping to inject enough capital into the marketplace. The problem at the other end is that it's tightening up the credit because everyone is hoarding their cash. It's not a mortgage issue at all." The rescue package is designed in part to get financial institutions lending again by ridding the market of what is known as toxic mortgage-backed securities - mortgages that exceed 30 percent of a homeowner's gross annual income - that lenders fear could cause borrowers to default.

Acquiring side benefits

As a result, access to loans could be reduced, and this could ultimately prompt a significant interest rate cut by the Fed. However, this could possibly create a benefit to the payments industry.  "I think credit is going to be a lot tougher to get than it used to be, and I think as a result debit card will increase at the same time," said Dee Karawadra, founder, President and Chief executive Officer of Impact PaySystem.

"If and when credit is no longer available then [consumers] will start jumping into the debit card sector," he added. Karawadra believes that merchant cash advance services could benefit from the credit crunch. "Cash advance is readily available, it's a lot easier to access than a loan, plus it's an additional revenue stream for our side."

And the sense of panic seems to be lacking in the payments industry. Adam Elliot, President of ID Insight, Inc., said that U.S. Bancorp is taking a unique approach.  "Everybody's cutting back on credit, but USB is actually doing the opposite. They're out pushing it even harder on home equity and mortgage and credit cards, because they see this big vacuum and they're kind of swooping in to fill it up," he said.

Clicks, cliques, and confidence

Martaus doesn't believe things are going to get as bad as the picture mainstream media paints. "If you're involved in the volume side of things, part of the discount package, you might see a little downturn," he said. "Per location sales are down a little, but ISOs are in the "click" business [number of transactions], so acquirers who keep those click numbers up are going to be ok.

"I'm just getting ready to publish a research project on this, but the typical ISO that I talk to said 'Don't bother with this stuff, I'm too busy closing business.' The ISOs themselves aren't even looking up. When you see the wild fluctuations in the market, ISOs are having swings in their values, but they are less volatile than the market as a whole," Martaus added.

He believes that this is less about money and credit than it is about confidence. "All we are looking for is some decision maker to say 'here's your confidence back'. The problem is we are in an election cycle, and these guys are more worried about re-election than they are about doing the right thing for their constituents and the rest of the country," Martaus said. "The people [on Capitol Hill] just need to start doing their job."

Editor's Note: Yeah, maybe the cartoon on the left is not that far off as politicians can start taking debit card payments (under the guise of the IRS) for the increased taxes we're going to pay over the next century...

Fiserv's View on Next Gen Payments

Payments News: Next Generation Payments Viewed as a Competitive Opportunity - October 20, 2008

Next Generation Payments Viewed as a Competitive Opportunity

U.S. financial institutions see moving toward a next generation payments system, including a payments hub (framework of common, reusable services), as important to remaining competitive according to a recent analysis conducted by the Global Payments Solutions division of Fiserv. Larger banks seem to be moving faster than smaller banks on this, as smaller banks wait to see what vendor packages come to the marketplace, say Fiserv payments analysts.

"From our analysis, financial institutions are looking to converge middle office processes through the deployment of a payments hub to achieve operating efficiencies," said Mike Ringuette, general manager, Global Payments Solutions, Fiserv. "Most are expecting that they can compete better in existing commercial markets and expand into new ones with a next generation payments solution."

Fiserv's analysis of customer priorities revealed that larger financial institutions expect to have re-architected payments systems up and running within the next 18 months. This short timetable appears to be driven primarily by corporate bank customers who use multiple payment channels and are demanding faster, more seamless payment streams, as well as a single view of payment activity. While traditionally thought to be the purview of smaller financial institutions; nearly all tiers of banks are researching outsourcing and server-based application options.

The analysis also indicated that next generation payments systems will need to more effectively address both processing efficiency and risk mitigation across payments channels. "Banks continue to feel pressure to reduce costs in their payments operations," said Ringuette. "Yet, there's also a strong demand to better ascertain risk exposure across all payment channels - ideally through a single-monitoring function. At Fiserv, we are looking to extend and enhance our current processing capabilities to financial institutions of all sizes to meet those needs."

"With the payment environment substantially reshaping, the traditional payment silos in banks are slowly giving way to a more pragmatic approach to payment processing," said Susan Feinberg, senior research director of Wholesale Banking, TowerGroup. "To achieve these more holistic client-facing payment services, banks will prioritize service-oriented architecture (SOA) and workflow projects allowing them to offer unified payment services, even when the payments processing and settlement continue to be siloed."

Bad e-Conomy Good for e-Commerce?

E-commerce bargains to boost sales in US

A study reveals that because of the economical situation, US consumers are turning to e-commerce bargains and this could lead to a boost in online sales.

Nearly a third of the consumers involved in the study have revealed plans to do more research online to find the best bargains.

45 percent of respondents visit consumer review websites to research and purchase products both on the internet and in brick-and-mortar stores, while almost half have stated that regular promotions are the main reason why they visit again an online store they have used before.

The study also indicates that 56 percent of consumers plan to cut back on their offline spending, while only 44 percent plan to decrease their online spending.

The study was conducted by affiliate marketing firm Linkshare.

Related articles by Zemanta

• E-commerce to thrive in credit crunch

Security Hole in Payments Terminal Supply Chain

Javelin Strategy and Research » A security hole in the payments supply chain

written by Tom Wills

A security hole in the payments supply chain

Supply chain security is a term most often associated with the risk of terrorists planting dirty bombs in shipping containers. But last week it claimed its place in the payments industry lexicon when a big compromise of the supply chain feeding the EMV-based Chip & PIN payments ecosystem came to light in the UK.

It seems that criminals implanted invisible electronic components in a batch of newly-manufactured Chip & PIN point of sale terminals destined for the UK and other European countries, which siphoned off account information when cards were read during a purchase, then sent it over to Lahore, Pakistan where other evildoers captured it and proceeded to rack up “tens of millions” (of Pounds, which means even more tens of millions of Dollars) in bogus transactions. The tampering happened either at the factory in China where the terminals were manufactured, or shortly afterwords while in transit.

This is big, not only because of the major fraud losses involved, but because it represents a whole new threat category in the industry which will take considerable effort, coordination and expense to protect against. Think about it … how do you secure a factory that makes POS terminals (which is likely to be in a country where security is a big challenge to begin with), and the containers the products are put in for shipment, and the trucks or trains that take them from the factory to the seaport, and the ships that take them across the ocean to their destination markets, then another port and more trucks and trains, and the warehouse they end up in before being distributed via even more trucks to the merchants who finally put them on their countertops to take card payments.

It’s non-trivial, and judging from the magnitude of this incident, non-optional as well. And there’s the question of who will pay for all this security. The card companies may pressure the terminal vendors to take this on, but tackling it thoroughly is likely to be beyond their budget, or that of any individual player in the supply chain. I’ll be really interested to see how this story unfolds, especially if the bad guys feel inspired to repeat this kind of attack, which wouldn’t surprise me a bit.

Aite Releases Report on Money Transfer Compliance Issues

Aite Group, LLC Report #200810201

A New Report From Aite Group
Emerging Compliance Issues in the Money Transfer Market

In many cases, it is the unknowns facing the industry - rather than overly prescriptive regulations or overzealous regulators - that concern money transmitters the most.

Boston, MA, October 20, 2008 – A new report from Aite Group, LLC reviews key compliance challenges facing U.S. money transmitters, and examines the evolution of key issues such as AML, agent liability and enforcement actions. The report presents recommendations for money transmitters hoping to better prepare themselves for upcoming compliance challenges.

Money transmitter companies (MTCs) range dramatically in size, and therefore have very different technology and business process requirements. However, due to the risk of these services being used for illicit purposes, all MTCs face the same strict regulatory requirements. Among the greatest challenges to MTCs are that they face different regulations from various states, there is little organization within the industry to establish best practices, and there is uncertainty regarding future regulatory mandates. Money transmitters view their compliance efforts as competitive differentiators, particularly in terms of cost advantages they can derive from meeting compliance mandates effectively. As such, homegrown technology systems for compliance have permeated the industry. Vendor systems have begun to gain some traction with smaller money transmitters only recently, especially as they offer tools specifically to allay bank concerns over money laundering.

"Despite the fact that AML issues and related regulations pertaining to money services businesses, including MTCs, have been a priority for regulators since 2001, industry participants agree that regulatory responses are still a work in progress," says Eva Weber, analyst with Aite Group and author of this report. "Obligations around data security, privacy, anti-money laundering and payments require constant monitoring, and money transmitters of all sizes should plan for regulatory impact. Not surprisingly, it is often the unknowns facing the industry - rather than overly prescriptive regulations or overzealous regulators - that concern institutions the most."

This 16-page Impact Note contains three figures and three tables. Clients of Aite Group's Retail Banking service can download the report by clicking on the icon to the right.

Related Aite Group Research:

* Trends in Anti-Money Laundering Compliance: Evolving Practices and Strategies
* Resources for Anti-Money Laundering Compliance: Retail Banks on Technology and Staffing Trends
* Competing in Money Transfers: A Market Overview

Google Checkout and PayPal Partnership?

De-emphasis Of Google Checkout Could Signal Partnership With PayPal

If Google continues to de-emphasize Google Checkout, it could mean a partnership with eBay's PayPal, according to a UBS Investment research note published Friday.

Google is not marketing Google Checkout as aggressively as it has in the past, and the equity firm doesn't expect that the Mountain View, Calif. company will do any couponing this year. Google, rather, is waiting to see if Checkout can gain traction without being pushed too hard.

UBS suggests the change may imply a potential partnership with PayPal is possible. The online auction site reported a disappointing fourth-quarter outlook on Thursday, followed by J.P. Morgan Securities downgrading eBay's stock, while several other brokerages cut the target price

Western Union Teams with Orascom Telecom for Mobile Remittance

Western Union, Orascom to Pilot Mobile Money Transfer Service

Western Union has announced that it has created an alliance with Orascom Telecom Holding S.A.E. ("Orascom Telecom"), one of the largest mobile operators in the Middle East, Africa and Asia, to work together to introduce mobile remittance services in select markets. According to the companies, "the services aim to make low-principal, high-frequency remittances more convenient to the millions of consumers who send money every day."

Orascom Telecom, which was established in 1998, operates six mobile networks with a combined total of 77 million subscribers, including Djezzy in Algeria, Mobilink in Pakistan, Mobinil in Egypt, Tunisiana in Tunisia, Banglalink in Bangladesh, and Telecel Zimbabwe in Zimbabwe. In addition, in early 2008, Orascom Telecom acquired a license in North Korea to operate mobile services.

"Orascom Telecom mobile networks are in areas with high populations of people who have limited access to financial services," said Naguib Sawiris, Orascom Telecom Chairman and CEO. "We believe this alliance, supported by our current mobile subscribers throughout the Middle East, Africa and South Asia, presents an effortless method to bring financial services to many of the world's families for the first time."

Western Union, together with its affiliates Orlandi Valuta and Vigo, maintains the industry's largest global money transfer Agent network with more than 355,000 locations in over 200 countries and territories.

"As the need for remittances continues to grow, so does the desire for new channels to conduct quick, convenient and affordable money transfers," said Gail Galuppo, Western Union Executive Vice President and Chief Marketing Officer. "Western Union is already offering this convenience with mobile money transfers from select locations, and we look forward to working with Orascom Telecom to offer this option to their subscribers in the future."

Several of the countries where Orascom Telecom operates are among the top receivers of remittances in the world. For example, according to the World Bank, Bangladesh received US$6.6 billion in remittances in 2007; Pakistan received US$6.1 billion, and Egypt received US$5.9 billion.

The Western Union(R) mobile money transfer service is currently available from select Western Union Agent locations in the United States, the Middle East, Asia-Pacific and Europe to Globe Telecom and Smart Communications subscribers in the Philippines.

The mobile money transfer service connects mobile operators to Western Union's trusted global "hub" for processing cross-border remittances. Once connected to Western Union's service, mobile operators use their own "mobile wallet" software to enable person-to-person mobile money transfers over Western Union's global remittance network. The Mobile Money Transfer service enables consumers to transfer money to or from mobile wallets and is being introduced into the global network of Western Union Agent locations for cash-to-mobile and mobile-to-cash transactions.

The agreement with Orascom Telecom is part of the pilot program of Western Union and the GSM Association, a global trade association representing over 750 GSM mobile phone operators, to facilitate the development of cross-border mobile money transfer services.

Bad News for Bloggers?

I don't readily agree with this article. Sure, there are a couple blogs that are "mainstream," "for instance, the left-leaning Huffington Post and Daily Kos.   

My take is that most bloggers cover news and offer insights on  a specific or specialized subject they are personally familiar with, whereas with "mainstream media"  the exact opposite is true.

In my view the "Paparazzi" would be a much closer analogy to "mainstream media" than bloggers.   

However the point is well-taken.  I think what they're trying to say is that  blogging has gone from a "Deep Thoughts" philosophy, to a more information based professional format, and readers have subscribed to that change in droves.

Blogging Becomes Mainstream - eMarketer  Paul Verna, Senior Analyst

Blogging has become so pervasive and influential that the lines between blogging and the mainstream media have disappeared.  That is the main finding of a Technorati-sponsored survey of bloggers conducted in July and August 2008 by Decipher.

“Blogs are now mainstream media,” said Richard Jalichandra, CEO of Technorati, in an interview with eMarketer. “We’ve certainly seen that with the number of professional, semiprofessional and passion/enthusiast bloggers who are creating real media experiences. At the same time, you’re also seeing mainstream media come the other direction to add blog content.”

comScore Media Metrix found that blogs had 77 million unique visitors in the US in August 2008.

Among the Technorati survey’s own findings, one of the more eye-opening ones was a 2-to-1 male/female ratio among bloggers worldwide.  A closer look at the gender breakdown by geography shows that bloggers in Europe and Asia skewed even more heavily male (73% each), while US bloggers showed a less drastic gender split, with 57% males and 43% females.

Demographic and E-Business Profile of Bloggers in Asia, Europe and the US, July-August 2008 (% of respondents)

Mr. Jalichandra acknowledged that the gender skew could be at least partially attributed to “the type of people that come to Technorati and register.” In other words, if Technorati’s user base leans male, then its survey data would naturally reflect that bias.

Another important caveat to the gender data is that the “State of the Blogosphere” report was limited to adults. Other surveys of blog use among US teenagers indicate that younger bloggers are predominantly female.

One-third of respondents had been contacted by a brand or agency to be a brand advocate. That number correlates closely with the percentages of bloggers worldwide who frequently share personal experiences with companies or brands (34%) and frequently include product reviews (37%).

Related articles by Zemanta

• Technorati State of the Blogosphere 2008 Now Available Online
• Technorati numbers highlight the changing nature of blogging
• Technorati: Updating from Web 1.9 to Web 2.1

Visa's 1st Annual SH Meeting called Non-Event

Visa's First Annual Shareholder Meeting a Non-Event - Seeking Alpha

Matthew Rafat writes for Seeking Alpha on Visa's "First Ever" Annual Meeting and what a complete letdown it was.  My favorite part of the article talked about him being accosted by Visa's "Investor Relations." for taking a picture with Visa's CEO. (below, in bold) It's rather humorous!

Visa's (V) first annual shareholder meeting was held on October 14, 2008, at the San Francisco Museum of Modern Art. You would think that the very first shareholder meeting of an internationally known company would be exciting. Unfortunately, the meeting was anything but.

I spoke with a Visa employee prior to the meeting, who said that October 14, 2008, happened to be the first day that employees could sell their restricted shares. Given all the volatility in the stock market, it must have been an interesting day for Visa employees. (At least someone was experiencing interesting times.)

The food spread was small and consisted of the basics--bottled water, some drinks, and coffee. Security guards hovered around shareholders, which seemed strange--who is going to show up at 8:00AM at a shareholder to cause trouble? Perhaps the company was concerned shareholders who had bought at the 52 week high would arrive en masse, but the stock is still slightly above its pre-IPO price, so many shareholders haven't actually lost anything. It appeared that around 15 non-employee shareholders appeared for the meeting. One woman insisted she owned 4000 to 5000 shares, but didn't have a proxy statement or other proof of ownership. She was not let in. To give you an idea of the meeting's entertainment value, this incident was the highlight.

Shareholders were let into the museum's theater and saw Mr. Joseph W. Saunders, Visa's CEO, and Visa's general counsel sitting at a table in front of a blank theater screen. Eagerly awaiting some kind of presentation, many shareholders were let down when the informal portion of the meeting consisted of only ten minutes of Q&A. With 6 billion dollars in the bank, surely Visa could offer some branded trinkets (a notepad, at least) or a preview of its upcoming commercials. Alas, most of the meeting was just the CEO and CFO answering questions. I suppose for its first meeting, Visa wanted to take no risks at all, which, ironically, made it look like a small, unprofessional company instead of the international brand it is.

I asked about Visa's exposure to consumer debt. The CFO said Visa had "no debt issued to consumers."

"Visa is only a financial intermediary. It facilitates transactions between banks, shoppers, and retailers and receives a fee for its limited participation, called an "interchange" fee. If a customer defaults, the bank that issued the credit card is on the hook, not Visa or Mastercard (MA). For this reason, Visa has an almost fail-proof business model."

Collecting a fee for safely transferring money is boring, but profitable--again, Visa has 6 billion dollars in the bank. A shareholder asked how safe this cash was, given recent financial turmoil (e.g., some money market funds had "broken the buck"). The CFO answered that of the 6 billion dollars, less than 30 million dollars were held in illiquid auction rate securities, and Visa was in the process of unwinding those positions.

I knew Visa had some debt, so I asked about Visa's debt obligations. This is where the meeting became somewhat interesting. Apparently, the day before the meeting, Visa settled litigation involving Discover Card (DFS). Some of you might remember that Discover, American Express (AXP), and a collection of retailers had sued Visa, Mastercard and several issuing banks alleging anti-trust violations.

In a nutshell, retailers, especially small businesses, are concerned that Visa and Mastercard have virtual monopoly power because banks may have colluded with the two companies to exclude competitors. The plaintiffs alleged that the exclusion of Discover, American Express, and other potential competitors placed many retailers at the mercy of Visa and Mastercard, who could increase interchange fees at will. More below on the litigation:

* Anti-Trust Lawsuit
* Settlement

There may have been some truth to the allegations--we've all heard of retailers rejecting Discover and American Express cards. One of my favorite lines from Futurama has Fry trying to use an old Discover card in the future and being told, "Ooh, sorry, we don't take Discover." Also, Discover and American Express, unlike Mastercard and Visa, do have some exposure to consumer debt, perhaps to facilitate being more involved in the interchange market.

The CFO said the terms of the settlement required Visa to pay $800 million to Discover (DFS) at $200 million per year for four years. This is good news for Discover, which may see a slight but significant impact on its bottom line. (Read more on the impact of the settlement on Discover after the jump.)

I asked whether the DOJ or FTC was involved in the settlement. The CEO answered that neither agency was involved, which means government intervention may still occur. I asked whether any "non-financial concessions" were made as part of the settlement agreements. The CEO answered with a resounding, "No."

After the meeting, the CEO Saunders was gracious enough to grant me a picture with him. Mr. Saunders seems like a genuinely decent person and lacks any trace of arrogance. Another shareholder said he reminded her of "bread and butter America and the Midwest," and it's an indication of the kind of respect Mr. Saunders inspires. I have no idea whether Mr. Saunders is from the Midwest, but these days, companies could use more CEOs who exude honesty and throwback values.  Unfortunately, the same cannot be said of Visa's Investor Relations.

After I took the picture with the CEO, a woman from Investor Relations immediately approached me, telling me repeatedly not to publish the picture. Then, she took out out a piece of paper and demanded to know my name. After telling her she was behaving rudely, I gave her my first name and this blog's website address. The next day, someone did a search on my blog for "Visa." Why is Investor Relations so paranoid about a picture? One expects more confidence from a company that is supposed to have solid international standing.

To characterize my experience with Investor Relations, I was going to borrow Chuck Thompson’s line about being “blocked at every turn by an army of protective minions reminiscent of David Spade as Dick Clark’s personal assistant on Saturday Night Live”; however, the analogy wouldn't be exactly applicable, because the Investor Relations employee tried to block me after the picture was taken, as if my camera somehow had a way of morphing the CEO into Satan himself.

So, one last bit of advice to Visa: leave the Wehrmacht, er, overly nervous employees, at home next time. Shareholders, being owners, should be treated like friends, absent erratic or strange behavior. Attempts to block them from gaining access to company officers make a company look insecure, weak, and unprofessional. Let’s hope a company that relies on its good public image will teach its employees the delicate art of handling admirers.

There was some upside to being accosted. Investor Relations' misplaced energy produced an epiphany:

Visa's greatest strength--its ease of making money without taking on risk--is also its greatest weakness. Its business model is so simple, Visa employees and officers might feel compelled to overreach out of sheer boredom. Privately, another shareholder complained that Visa was holding too much cash and should return some of it to shareholders in the form of an increased or special dividend. Historically, companies tend to make bad decisions and acquisitions when they have too much cash. Symantec (SYMC) is one example of this phenomenon--just review its acquisitions of Axent and Veritas. Let's hope that Visa's CEO and top brass really are "bread and butter" American types. If not, Visa could be in for a wild ride.

To sum up, the first Visa shareholder meeting was a non-event. The CEO, CFO, and general counsel shined, even if no one else did. Next time, if Visa has a video or pays more attention to the informal part of its presentation, shareholders might feel more vindicated for getting up at 6AM to catch the train to San Francisco. Another shareholder gently admonished Visa for not introducing its Board of Directors, as is customary at shareholder meetings. The CEO indicated he appreciated the advice and would remember to do it next year. Because it's Visa's first year being public, Visa gets a pass for having a dull, ordinary meeting. In the future, however, shareholders should hope that Visa settles into its new public skin and acts more confident.

Related articles by HomeATM Blog

• Discover To Make a Killing and I'm Lovin' It!
• Forbes on Visa and Payments
• Canada Keeps Fighting to Change Interchange
• Keeping up with the Jones' (& the Discover vs. MasterCard/Visa Lawsuit)
• There ARE Some Things Money CAN Buy.

ProPay to be Offered on eBay Along with PayPal

ProPay Reveals Details of New PayPal Alternative on eBay

In a policy change that takes effect this week, eBay is requiring sellers to accept only electronic forms of payment and disallowing the overt use of checks and money orders its site. Sellers will be allowed to advertise only PayPal, ProPay and direct credit or debit card payment via a merchant credit card account in their listings. (Some categories are excluded, such as Mature Audiences and Real Estate, and "Payment on pick-up" is also an option but does not cover sellers under the eBay's Seller Protection Plan.)

eBay is allowing PayPal competitor ProPay to integrate with its website, and this week, ProPay revealed the details of its new pricing plans for sellers.  ProPay, which has offered online payment processing to merchants since 1997, has developed a custom pricing plan specifically for integration on eBay, with lower processing rates than it previously offered. However, the plan is currently available only to eBay PowerSellers who are in the Silver, Gold, Platinum and Titanium tiers, and is only available to U.S. eBay sellers. ProPay will open its services to Bronze PowerSellers early next year. The integration of ProPay into eBay's seller tools is scheduled for this week.

Related articles by Zemanta

• eBay Cuts Paper Payments, Leaves PayPal to Rule Roost
• eBay to ban check and money orders, except for vibrators [Ecommerce]
• PayPal meltdown wreaks havoc on some ecommerce websites
• Google Outed As Anonymous Ebay Critic

Businesses Told to Treat Card Data Like Cash

Treat card data like cash, businesses warned | 20 Oct 2008 | ComputerWeekly.com

Businesses put themselves at risk of fraud by failing to put the same level of security around credit and debit card data as they use for cash.

"Many businesses still do not view card payment data as cash in hand, which it is," Connie Penn who chairs the Forum for Chip and Pin for the hospitality industry and manages the Payment Card Industry Data Security Standard (PCI DSS) program for the Post Office.

No company would move cash without physical security, but many still question the need to encrypt card data, she said.  "It fascinates me that they do not see card data as cash, and yet it is. Every merchant employs tight business practices around their cash, but they don't do the same with card data."

This needs to change, particularly as the number of card-based transactions continue to increase, she said, making it more important than ever for merchants to follow best practices in the PCI DSS.

According to Penn, the latest version of the PCI DSS, released on 8 October, is much easier to use than previous versions. "Version 1.2 provides greater consistency and removes a lot of the ambiguity that was causing difficulty," she said.

Penn is to run through the details of each of the standard's redrafted 12 requirements with members of business IT user group the Corporate IT Forum, in London on 30 October.  "My message will be that there is nothing to fear because the good news about version 1.2 is that it gives a lot more clarity on what businesses must do to conform to the standard," she said.

Version 1.2 clarifies, for example, that all operating systems used for card payment processing must run anti-virus software, and not just Microsoft Windows as many users had thought.

The new version also gives a clear cut off date for switching from the Wired Equivalent Privacy (WEP) security algorithm for wireless networks to the stronger Wi-Fi Protected Access (WPA) standard.

No new WEP implementations will be allowed from 31 March 2009, and the use of WEP wireless networks must be discontinued by 30 June 2010.

These are two of the two most important of the 100-plus clarifications and explanations that Penn is to discuss at the Corporate IT Forum workshop later this month.  It will be another two years before another version of the standard is released, but the PCI Security Standards Council will publish best practice guidelines as threats emerge.

In the coming year, for example, the council is to set up special interest groups to discuss what should be done to protect virtual machines used in processing card payments.  "These discussions will result in best practices based on consultation with all the stakeholders before they are mandated in future versions of the standard," said Penn.

Related articles by Zemanta

• WarDriving 101
• Ecommerce standard tightens up wireless security
• Credit Card Processors to Ban WEP in 2010
• New PCI DSS details released
• How Pci Protects Credit Card Transactions

NY Times Says FBI too Shorthanded to Properly Investigate Financial Fraud

Image via CrunchBase

F.B.I. Struggles to Handle Financial Fraud Cases - NYTimes.com

The NY Times reports Sunday about the FBI's shortage of agents and how it is affecting their investigation into the possibility of financial fraud in cases.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

The pressure on the F.B.I. has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The F.B.I. is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the F.B.I.’s white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible frauds of millions of dollars. (continue reading)

Related articles by Zemanta

• F.B.I. Looks Into 4 Firms at Center of the Economic Turmoil
• FBI 'Probe' Bailed Finance Giants
• Is The FBI A "Shadow Of Its Former Self"?
• FBI is reviewing troubled banks for accounting issues
• FBI probing bailout firms
• Freddie Mac Receives a Subpoena
• Who are world's most wanted white-collar fugitives?
• Over 400 indicted in U.S. mortgage fraud sweep

Sydney Morning Herald on War Against Online Fraud

Your weapons in the war against online fraud

Photo: Frances Mocnik
Bina Brown
October 19, 2008

Taking pre-emptive action will ensure your personal details don't fall into the wrong hands, writes Bina Brown.

With many people posting or sending everything from their shoe size to their dog's name on the internet, it's not hard for someone to get enough details to assume an identity and commit fraud. Criminals require only your name, date of birth and address to create havoc.

Armed with the right information, fraudsters - operating online and in the real world - can travel under your name, use your credit card for a spending spree and siphon money out of your bank account. In a worst-case scenario, they could use your name and identity to commit crime.

According to a 2007 Australian Bureau of Statistics survey, 800,000 Australians experienced a form of personal fraud in the past year, with total losses of almost $1 billion.

More than 500,000 were victims of identity fraud, the majority of which was credit or bank card fraud followed by identity theft.

Then there were the 329,000 people who fell victim to at least one type of scam by responding to or engaging with an unsolicited offer including lotteries, pyramid schemes, phishing and related scams.The average loss was $2160 and that doesn't include the inconvenience and stress of proving one's innocence.

- CREDIT CARDS

Losing your credit card is the most obvious way to expose yourself to credit card fraud.

Another way is for scammers operating over the internet to use spyware or some other scam to obtain your credit card details. It is possible for them to steal your credit card numbers and the security code, which are all they need to buy things over the internet or the telephone.

According to SCAMwatch, a scammer who knows your PIN could get cash advances from an ATM using a "cloned" credit card, where your details have been copied onto the magnetic strip of another card.

Prevention The best way to stop anyone getting access to your credit card or bank account details is to never send money or account details to anyone you do not trust.

If you are paying over the internet by credit card, make sure the site you are using is secure. Look for the locked padlock icon on a website or "https" in the address.
Checking bank account and credit card statements will help identify any unexpected transactions.
Choose passwords that would be difficult for anyone else to guess.
Try to avoid using public computers (at libraries or internet cafes) to do internet banking.
Never send your personal, credit card or online account details through an email.

- SPYWARE AND KEYLOGGERS

Spyware (also called "malware") is a type of malicious software scammers try to install on your computer. As the name suggests, spyware programs allow people to spy on what you are doing on your computer - the websites you visit, the files you use and the details you store. Keyloggers are a particular type of spyware.

Keyloggers record secretly what keys you press on your keyboard and send this data back to the scammer over the internet.

Scammers use these programs to steal passwords such as online banking passwords. They may also use spyware to steal other personal information from you such as documents stored on your computer.

They use a wide range of tricks to get their spyware and keyloggers loaded on to your computer, such as tricking you into clicking on a link in a spam email they have sent, or visiting a website they have set up solely to infect people's computers. Other sources of spyware and keyloggers are free games or music you can download. When they are delivered in this way, they are sometimes called "Trojans" - a file that claims to be for some harmless purpose so it can get under your guard, but in fact contains a nasty surprise.

Prevention Installing software that protects your computer from viruses and unwanted programs - and making sure it is up to date - is one way to protect against spyware.

Another is not opening suspicious or unsolicited emails (spam) or clicking on a link contained in a spam email.

Clicking on pop-up boxes can allow spyware to be downloaded.

Detecting spyware can be tricky but giveaways are new icons appearing on your computer screen or if your computer is not as fast as normal.

- PHISHING

Phishing e-mails are those sent by criminals who want to steal your personal information.

The messages appear authentic and mostly purport to come from banks and legitimate businesses. They are designed to lure you into divulging personal data such as bank account numbers and passwords by your attempt to log on. Links within these fraudulent emails may also take you to fake or "ghost" websites that are designed to fool consumers. It may look like an authentic website, with logos and a homepage but it is in fact another way criminals steal your personal information.

According to the Australian Bankers' Association (ABA), most phishing emails do not address you by your proper name because they are sent out to thousands of recipients. They sometimes contain typing errors and grammatical mistakes, even if they include the banks' registered logos.

Prevention: No one should ever provide personal details, including customer ID or passwords, in response to any email.

The banks have spent years assuring customers they will never ask for private passwords.

The best way to deal with a link or attachment in an email that purportedly sends you to a bank's website is to delete it. Never click on it.

A really obvious red flag is if you get a message claiming to be from a bank you don't even have an account with.

Bank statements should be checked regularly for any transactions that look suspicious. You should immediately report to the bank any transactions not made by you.

Software that filters spam email will generally filter phishing emails.

Related articles by Zemanta

• Southeast London is card fraud cesspool
• How Pci Protects Credit Card Transactions
• Cybercrime Supersite 'DarkMarket' Was FBI Sting, Documents Confirm

11 Arrested in London DarkMarket Bust

Finextra: Police bust cyber fraud ring

Police bust cyber fraud ring

An online criminal forum that was used by thousands of fraudsters to buy and sell stolen credit card and bank details has been shut down following a two year FBI-led undercover operation.

The Dark Market site was used by cyber criminals around the world to buy and sell credit card data, user names and passwords, as well as equipment for carrying out financial crimes. The FBI - which shut the site down earlier this month - says at its peak Dark Market had over 2500 registered members.

The FBI infiltrated the forum, gathering intelligence on leading criminals before teaming with other agencies to identify the fraudsters.  Around 56 people have been arrested following co-ordinated raids carried out in the US, Germany, Turkey and the UK.

Britain's Serious Organised Crime Agency (Soca) arrested 11 people in London, Manchester and Leicester as part of the investigation into the Dark Market Web site.

Soca says sites like Dark Market are closely guarded and inaccessible to most Web users as they operate on an exclusive membership basis and by invitation only. The sites use breaking-news style updates on the latest compromised personal information.

Sharon Lemon, deputy director, e-crime, Soca says the people involved in this kind of activity are not technical experts but "thieves with keyboards".  "They have a certain arrogance - they think they are untouchable," she says.

"The message today is that no-one should feel confident that these forums are a secure place to operate," adds Lemon. "While some suspects remain at large in the UK and overseas, Soca and its partners will continue to identify these individuals and bring them to justice."  Soca says further arrests are expected both in the UK and abroad as the investigation continues.

The operation against the Dark Market forum also prevented $70 million in losses through the seizure of compromised victim accounts, says the FBI.

Says Shawn Henry, assistant director, cyber division, FBI: "In today's world of rapidly expanding technology, where cyber crimes are perpetrated instantly from anywhere in the world, law enforcement needs to be flexible and creative in our efforts to target these criminals.

"Leads in many of these investigations take us to the online world of Internet forums, where criminals go to engage in the business of selling and trading innocent person's credit card numbers and other personal information."

Henry says the arrests "are a good demonstration of the coordination taking place today between the FBI, the Serious Organised Crime Agency, and other law enforcement agencies around the globe".

Related articles by Zemanta

• FBI's fraud site spawns UK arrests
• Identity fraud website shut down in global police sting
• Fraudsters' website shut in swoop
• Timing is key to netting phishing victims

Forbes on Visa and Payments

Forbes.com - Magazine Article

On The Cover/Top Stories
Hard Charger
Stephane Fitch 10.27.08

Visa is bulletproof to bad credit but not to new rivals and new ways to pay. That leaves boss Joe Saunders to revamp a business built on plastic or go the way of the rabbit ears antenna

The Dharavi slum in Mumbai is one of India’s most overcrowded and desperately poor places. On the northern edge of this sea of humanity and corrugated tin shacks stands a sign of hope: A row of leather shops is thriving by custommaking virtually any bag a customer desires. Inside Star Bags, Ehsan Ansari is doing such a brisk business that three months ago he began accepting Visa cards.

“Everywhere you want to be,” is how the world’s top purveyor of plastic has long touted itself. The notion rings true, even in India, where 71 million citizens can now swipe their Visa cards at a half-million outlets. Yet they tend to do so as a last resort rather than as a first choice. That’s because most shops accept plastic only grudgingly.

Star Bags’ Ansari does so only after tacking onto his price Visa’s 2% fee, plus 12.5% in sales tax he’d dodge on a cash sale. The story is much the same throughout the Third World. People who want to pay electronically are much less likely to whip out plastic than a mobile phone, which allows them to swap money or prepaid talk minutes, free of taxes and bank fees.

Finding a way to persuade 4 billion developing-world consumers to make their cards the centerpiece of their payment habits is only one of the items on the to-do list of Joseph Saunders, Visa’s new chief executive. Saunders, 62, is an industry warhorse who stumbled into his job ten months ahead of Visa’s March public offering. Rather than easing in, Saunders has been confronted with the need to answer a more pressing question than any his predecessors faced: What is the future of money, and does the world’s reigning king of consumer credit have a place in it?

Although most of the action is still going on behind the scenes, the rules are changing radically for how consumers will pay for things even a few years down the road—at home at least as fast as abroad. No player is as at risk as much as Visa. The U.S. accounted for 58% of its $4.6 billion in sales in the nine months through June and perhaps 75% of its $1.2 billion in profits. Yet the firm now faces a horde of rivals jumping the moats that once gave it a virtually unassailable position on its home turf.

Until Visa’s public offering, big banks were both its owners and closest allies. Now they’re in cahoots with Visa’s fiercest competitors, issuing cards for the likes of American Express and Discover, for big retailers launching a new generation of plastic and for insurgents like RevolutionMoney.

The attacks are supported by game-changing technologies, too. In the days of yore, competition was restrained partly by the limit on how many pieces of plastic Americans could stuff into their billfolds. Now microchips no bigger than a postage stamp are starting to serve the same function and can be stuck to wallets and cell phones by the dozen. E-payment innovators like PayPal and Bill Me Later, meanwhile, are expanding from Internet beachheads into traditional merchandising. And then there are the lawyers, attacking Visa for everything from allegedly usurious fees to anticompetitive practices.

Through it all Saunders talks a good game. “More and more people think they can fit in this business,” he concedes. “But in the U.S. we’ll be involved in mobile phone technology and make it more secure and simple to use a Visa account on the Internet. Elsewhere, if we close on 10% or 15% of the opportunity, we’ll double or triple in size.”

Visa is a formidable incumbent. The San Francisco-based firm started out as Bank of America’s in-house BankAmericard in 1958 and grew in California by offering consumers revolving credit. Bank of America expanded the brand nationally by franchising it to other banks. It was renamed Visa in 1976. Visa competed neck and neck with MasterCard until it pulled away after the marketing coup that came with being the exclusive plastic of the 1988 Seoul Olympics.

After Visa built a lead, the then chief executive Carl Pascarella boasted to FORBES in 2002 that his brand would double annual volume to 42 billion transactions by 2007. As he set to the task, the banks that collectively owned Visa put aside their parochial squabbles long enough to upgrade its capacity threefold in 2006 to handle 12,000 transactions a second. No sooner was that fire out than a decade-old legal battle with Wal-Mart and other big retailers climaxed. Visa and MasterCard agreed to slice fees they and their bank issuers charge on debit cards by 30% and shelled out billions in payments.

In the end, Visa exceeded Pascarella’s projections by 20%, handling 50 billion transactions worth $3.8 trillion last year. Yet it was something of a pyrrhic victory. Visa’s legal settlement virtually wiped its balance sheet of equity, and MasterCard positioned itself to recapitalize quicker by going public.

Visa’s regional boards decided to follow MasterCard’s lead by going public, too. Saunders, a lanky Chicago native who hangs Cubs memorabilia over his desk in San Francisco, has spent 30 years pushing plastic. He built Household International’s operation almost from scratch into a $30 billion (receivables outstanding) business. He moved in 2001 to moneylosing Providian Financial, a credit card issuer that he steered back to profitability and through a 2005 sale for $6.5 billion to Washington Mutual. While running the business for WaMu, Saunders took on a Visa committee search for a new chief executive and was eventually asked if he would be willing to skip his planned retirement and take the job himself.

“You couldn’t in a million years say ‘no’ if you have a competitive bone in your body,” he says.

Although it’s often compared with banks, Visa operates more like a switchboard, connecting millions of disparate players through its network. For each $100 a consumer spends with a Visa card, merchants cough up $2.10 in fees. The card-issuing bank pockets $1.75 and Visa about 17 cents for marketing and transaction processing. The rest goes to the merchant’s bank.

Wall Street loves the model and Visa’s dominance of it. With 1.6 billion cards in circulation, Visa towers over MasterCard, with 900 million cards out, and American Express, with 90 million. At a recent $57, Visa’s stock is up 30% from its March debut. That puts it at 42 times earnings in the year through June, which dwarfs Google’s multiple of 25. Its lofty valuation makes Visa, with a $48 billion market value, worth more than AmEx, which boasts multiple business lines and several times the revenue, income and head count.
Visa’s strategy is “growth, growth and more growth,” according to UBS analyst Adam Frisch, one in the army of analysts bullish on the firm. Frisch and others on Wall Street are counting on Saunders to keep Visa’s fee revenues growing 12% and earnings 20% annually well into the future.

Coming through would be no small feat. True, Visa is a rare island of calm amid the raging financial storm. No matter how many consumers default on Visa cards, the banks that issued them will eat the losses while Visa pockets processing fees. Safe from poor-quality credit, Visa is nevertheless highly dependent on the quantity of spending. That’s especially true in its biggest market, the U.S., where consumers are, by choice or necessity, ceasing to be the spendthrifts they once were.

Even as Saunders grapples with a receding economic tide, the competitive landscape around him is becoming more hostile. Until recently, rolling out a competing card was a daunting task. When Sears, Roebuck & Co. tried to do it with the Discover Card in 1986, banks’ agreements with Visa and MasterCard banned them from helping out. That forced Sears, Roebuck to itself send out Discover Cards to 22 million Sears cardholders, field thousands of salesmen to sign up retailers and install new data lines and payment gear at each point of sale. “You’d never have to do it the same way now,” says Tom E. Dailey, who ran Discover for Morgan Stanley.

Since 2001 the U.S. card payment processing business has come under the control of four companies, the largest of which is not a bank and has no interest in protecting Saunders’ franchise. First Data is run by Michael Capellas, the quirky former chief executive of computer maker Compaq and telecom outfit MCI in its post-WorldCom incarnation. Capellas’ Denver outfit handled 30 billion card transactions, with a value of $1.5 trillion last year, giving it a 50% share of the processing market. Three-quarters of the nation’s top 100 retailers rely on First Data to process payments.

What’s more, a quarter of the terminals in the 1.1 million stores First Data serves are remotely programmable—meaning they can be tweaked to accept new cards with a few keystrokes. When First Data snatches away the processing work on a $100 charge swiped on a Visa card, Visa still gets a 17-cent royalty for connecting First Data to the card-issuing bank; First Data gets 17 to 20 cents.

“Old-line payment networks like Visa still have a wealth of advantages, but they’ll have to innovate or die,” says James Van Dyke, founder of credit card analysis firm Javelin Strategy & Research.

First Data’s Capellas has been pushing merchants like Starbucks and Best Buy to expand prepaid and store-card operations. Capellas has been showing off a sticker embedded with a so-called near-field communication chip—a stamp-size gizmo that replaces a plastic card. More than 35,000 retail outlets can already accept the chips. Industry analysts expect Capellas eventually to go one step further and launch a new brand and payment network that competes head-to-head with Visa and MasterCard.

“We’ve traditionally been in the business of cooperating with [Visa], but you know, it’s a strategic question that comes up now and then,” says a coy Capellas.

“First Data tried to go around us before, and it didn’t work,” snarls Saunders. “They’re perfectly capable of issuing and processing private-label cards, doing it within their system and never coming near Visa.”

Among new rivals is RevolutionMoney. Since February it Chase Paymentech, Fifth Third Bank and WorldPay. What makes RevolutionMoney such a threat: It charges merchants only 0.5% of transaction value—75% less than they fork over to Visa and MasterCard.

RevolutionMoney expects that by year’s end its cards will be accepted in a million stores, including Wal-Mart and Macy’s, that account for more than 70% of chain store sales. Jason Hogg, its 37-year-old chief executive, hopes to strike a deal with First Data by December to further consolidate the card’s reach.

“I don’t need to bang on doors like Discover did for 20 years and lay fiber to stores to accept my cards,” says Hogg, whose father, Russell, ran MasterCard in the 1980s.

The real challenge for Hogg, and other upstarts, will be persuading banks—the primary beneficiaries of those lush Visa and MasterCard fees—to issue its cards. So far, First Bank & Trust of Brookings, S.D. is the only taker. Hogg says he’s nearing a pact with a big credit-card-issuing bank, however, that he boasts will render RevolutionCard the biggest thing since Discover (which currently has 50 million cards in circulation). One possible partner: Citigroup, which invested in RevolutionMoney. A Citi spokesman declined comment.

Meanwhile, Hogg has persuaded merchants to do some of the card-issuing work for him. Murphy Oil, which runs gas stations at 1,000 Wal-Marts, is offering a 3-cent-a-gallon discount to customers who pay with the RevolutionCard. Hogg hopes such incentives will get consumers to ask for his card.

One convert is Steve Case. The former AOL boss invested $10 million in RevolutionMoney last year, figuring high card fees represent a $60 billion annual “tax” on consumers.

“There’s an opportunity to use new technology and a fresh approach,” Case says. “The credit card industry is an oligopoly, and there hasn’t been much innovation in decades. RevolutionMoney is being driven by a groundswell of merchant dissatisfaction.”

Visa’s greatest threat may be changes in its bank ties. Institutions that once jealously protected it are now backing rivals. Citibank and Bank of America now offer American Express cards, the result of an antitrust lawsuit AmEx won against Visa and MasterCard in 2005. The bank-issued AmEx cards pay higher rewards than does the Visa Signature card, which is aimed at clients with household incomes above $125,000.

Some industry analysts believe Bank of America, Chase and Citigroup are considering buying Discover or starting rival payment networks. “I think it’s probably a matter of time before Bank of America revives the BankAmericard to compete directly with Visa,” says former Discover chief Dailey. Bank of America declined comment.

Even if Visa’s would-be rivals fail to gain traction, they’re adding to grousing by merchants and bankers that Visa overcharges for running ads and data centers—a claim that has been stoked by fee hikes of up to 30% in its fees since last year.

“If they [Visa] don’t keep delivering the products, I’ll go after them on pricing,” says Richard Davis, chief executive of U.S. Bancorp.

With Americans already packing an average of five charge cards, Saunders has been appealing to bankers like Davis by making his plastic smarter and thus more valuable in attracting customers. With security a growing concern, especially amid the rise of debit cards,which thieves can use to drain customer accounts, Visa has begun offering a cell phone message service to notify users when their (or their teenager’s) card is used. Cardholders can quickly call their bank and reject crooked transactions.

On the promotional front Visa has linked up 100 million Signature and Rewards accounts to receive merchant mailers. It will begin signing up the lower number of actual customers in the program (it won’t say how many there are) to receive coupons via mobile phones by year’s end.

Saunders is also going after the corporate market, long an AmEx stronghold. It throws in only 12% of Visa’s transaction volume but is growing 20% a year. U.S. Bancorp’s Davis is pushing Visa cards to corporate clients to keep tabs on spending. The cards can apprise, say, a car parts distributor when a salesman uses its card for smokes or girlie magazines rather than gas and meals. U.S. Bancorp can find out if a trucking client’s drivers are heavy users of, say, Texaco stations and work out discounts when the gasoline retailer’s diesel is charged to the bank’s Visa cards.

“The payments business is about moving money more transparently,” says Davis. “Nobody’s got the depth and technology that Visa has for that.”

When and how Visa unshackles customers from their wad of plastic is a tricky question—politically at least as much as technologically. Zapping money to a cabbie or babysitter via cell phone is technologically within reach, but Visa’s bank partners fear such transactions could cut them out of the fee flow. Other prickly issues include how to brand the service—Visa or Citibank—and what fee the cell networks will receive. Saunders just cut a deal that will enable users of Google’s much-anticipated Android cell phone to download Visa software this winter and begin replacing their credit cards early next year.

Visa’s e-commerce glass, meantime, is at best half-full. It directly captured nearly half the $164 billion in U.S. online spending last year. Another $31 billion went through PayPal, with card issuers earning fees on half that amount. Now PayPal is expanding beyond Internet strongholds. Airlines, including Southwest and Continental, already accept its payments.

With competition heating up in the U.S., Saunders is determined to expand abroad, where his main rival is still cash. In the U.S. one-third of the $9.7 trillion in consumer spending goes through credit and debit cards (Visa handles 48% of the card action and 18% of the total). In Asia, the Middle East, Central and South America and eastern Europe, less than 10% of the $9 trillion in annual consumer spending involves plastic.

During the decades Visa was bank-owned, its six regional associations squabbled over international expansion and failed to make much headway. Now that it’s public, Saunders faces a huge opportunity, as well as huge obstacles.

Merchants in many markets resent the fees American credit card giants exact. Australian retailers persuaded regulators in 2005 to force card issuers to cut fees nearly in half to around 1%. European Union regulators are considering similar cuts.

In China Visa faces protectionist party cadres. Despite its high-profile sponsorship of the Beijing Olympics, Visa has been virtually shut out in favor of government-backed China UnionPay. A Visa knockoff, it connects 14 Chinese banks. Visa gets second billing on most China UnionPay cards and gets fees when cardholders travel abroad. “There are severe limitations on what we can do,” Saunders says delicately.

In other developing markets Saunders’ challenge is to adapt his product to societies where both bank accounts and the concept of living on credit are foreign. In Brazil the number of cards in circulation has been growing 15% a year to 266 million, and Visa claims two-thirds of the market. Unfortunately the cards are used mostly to withdraw cash from ATMs; monthly retailer volume averages a piddling $40 per card.

Visa did persuade Brazil to replace $2.6 billion in food vouchers with prepaid cards in 2007. It has also embedded cards with chips for use at toll plazas. Its PassFirst lets Brazilians swipe cards, rather than use paper tickets, at stadiums and theaters.

The Dominican Republic is using Visa cards to distribute aid. The 800,000 Solidaridad prepaid cards entitle the poor to $10 to $20 in monthly assistance. The government expects to expand the operation to 1 million recipients and $300 million in aid next year.

Given its openness and size, India is perhaps Visa’s most fertile foreign test bed. Saunders believes the real opportunity lies with the 350 million middle-class Indians earning between $2 and $12 a day. Since few have computers or bank accounts, he hopes to capitalize on the Indian obsession with mobile phones; there are 305 million in use, and the figure is growing by 5 million a month.

Visa India has launched a version of electronic bill payment for mobile phones. It will roll out a service this fall, so any Indian with a mobile phone and a Visa card can transfer funds domestically to any other Visa cardholder for a 2% fee (to be split by the card-issuing bank, mobile phone vendor and Visa).

Saunders thinks it’s such a good idea, he plans to launch a similar service in the U.S. by the end of the year. Getting big banks to come on board and consumers to turn the service into a mainstay sums up the broader challenge faced by Saunders and Visa: find ways to make the best payment options work around the world and dominate the future of electronic payments, or leave the dominating to rivals.

Related articles by Zemanta

• There ARE Some Things Money CAN Buy.
• HomeATM's "PIN my Card" Solves Chip and PIN Problems

Canada Keeps Fighting to Change Interchange

Editor's Note:  This is the third time I've posted about Retail Council of Canada's "Stop Sticking it To Us" campaign.  They certainly are an incessant group getting a lot of publicity for their cause.  Here's the latest attack on V/MC as reported by the Business Edge in Ontario:


Coalition seeks lower price for credit-card services

Merchants say big card companies are stacking deck with 'hidden' fees

By Laura Severs - Business Edge
Published: 10/17/2008 - Vol. 4, No. 21

The cost of using credit cards is getting more pricey than priceless, according to Canadian merchants, who claim Visa Canada and MasterCard Canada are engaging in a cash grab.

Business associations across Canada have banded together in a coalition to fight what they call "hidden fees" that are coming out of their pockets.

Interchange fees - the percentage of each transaction that Visa and MasterCard collect from merchants every time a credit or debit card is used to pay for a purchase - cost Canadians $4.5 billion last year, says Derek Nighbor, senior vice-president of national affairs for the Toronto-based Retail Council of Canada (RCC).

"This is one issue where retailers and consumers are on the same page," says Nighbor, whose group is leading the charge behind the new "Stop Sticking It To Us" campaign.

The coalition includes 16 groups, including the Canadian Convenience Stores Association, the Canadian Jewellers Association, the Hotel Association of Canada and the British Columbia Restaurant and Foodservices Association.

Nighbor says retailers, restaurants and charities believe they should be paying a price for credit-card services, "but it has to be a fair price."

The coalition says its members are paying to prop up other services offered by Visa and MasterCard to consumers, such as loyalty points and rewards programs.

In just a three-week period last month, the coalition says, the credit-card companies collected more than $264 million in "hidden" fees from Canadians, with those funds coming primarily out of merchants' pockets.

Nighbor says studies have shown only 13 per cent of interchange fees go to the cost of processing credit-card purchases, with as much as 44 per cent being directed to the costs of rewards and marketing.

It's not just merchants that should be concerned, adds Nighbor. "Why should the average Canadian care? This is going to affect the cost of goods and services and it already has," he says.

The Canadian Federation of Independent Business (CFIB), which represents about 105,000 small businesses across the nation, has launched a similar campaign.

CFIB president Catherine Swift says the credit company cash grab involves new premium cards for consumers who spend above certain thresholds, with these cards carrying higher interchange fees for merchants.

Swift adds merchants may also be unaware that some credit cards that don't carry high interchange fees can be deemed as high-spend cards when the issuing bank detects a certain dollar amount has been reached, in turn triggering a higher interchange rate.

"The other interesting thing is when we first heard of these new cards, we heard that they would be a small proportion, one to two per cent, of the total number of cards," she says. "Initially that was the expectation, that it would be a pretty small slice for a premium card. But now we've heard that it's up to 30 per cent. They're (premium cards) being pumped out there so they can make more money."

The CFIB is also concerned about debit card fees merchants could be paying in the future if credit-card companies enter the debit-card sector in Canada, currently handled by Interac, whose members include banks, trust companies, credit unions and technology and payment-related companies.

She fears credit-card companies could favour a fee based on a percentage of the debit transaction size, increasing costs for merchants.

"These changes are designed for one reason, to reap larger profits for banks and credit-card firms and complicate the merchant's ability to know what they are paying to process transactions," says Swift who notes that consumers haven't asked for premium credit cards.

Both Visa and MasterCard declined to be interviewed for this story.

Instead, the two issued prepared statements.

Visa says that more retailers are choosing to accept their cards because of the value they deliver.

"Visa remains committed to the development of products and services that deliver value to all participants in the payment system," the statement says, adding that premium cards have been introduced to offer benefits comparable to competitive products such as American Express.

MasterCard says merchants are not required to accept credit cards, but are choosing to do so in increasing numbers. It also adds that contrary to the statements made by the CFIB and the RCC, there have always been different types of cards in Canada with different pricing structures.

"Just as retailers and independent businesses adjust prices from time to time in response to various market circumstances, card fees require adjustment as well. In fact, not all of the recent adjustments resulted in increased cost to the merchant," MasterCard says in its statement.

But at least one retailer says he's at the mercy of the credit-card companies after checking his most recent statements for interchange fee charges.

Brad Seamans, president of Calgary-based Rogers Rent-All Ltd., says instead of just one commission (interchange) rate, three different commission rates have appeared.

"One line item uses the old commission rate and the two (new) lines have commission rates about 18 and 30 per cent more than the other line. The first line is what it's always been," says Seamans, a CFIB member.

"It's early to say how much of a cost we are talking about, but it will probably be thousands of dollars a month in additional interchange fees."

Seamans adds merchants don't realistically have the option of not accepting credit cards.

"They are virtually currency these days and you have to use them if you want to do business," says Seamans, who is considering offering discounts if customers pay by cash or cheque instead of using plastic.

The Canadian Jewellers Association (CJA) is also apprehensive.

"We're concerned," says CJA president and CEO Ken Mulhall. "Our retailers are sensitive to the challenges in the economy these days and want to remain competitive, but if the fees keep increasing and impact their operating costs continuously it would be very challenging for the retailer."

Canada is one of the few countries where the government doesn't regulate credit-card fees, he adds.

"We've also noticed that Canada has one of the highest interchange rates and that's why we'd like to them step to the plate and show some leadership in this area."

Both the CFIB and RCC say that American Express is not a target of their campaigns, as the company has a smaller share of the credit-card market and already has higher fees for merchants who accept its cards.

Related articles by HomeATM Blog

• Use a PIN to "Stop Sticking It To Us"...
• Canadien Retailers Getting Riled by Interchange
• Credit Card Useless Overseas? PIN it with HomeATM
• Interact Prophecizes on the Making of a Profit