CHIP & PIN & FRAUD

Counterfeit and lost/stolen fraud on payment cards dropped by nearly a third in the first half of this year due to the new “Chip and PIN” system. Card fraud involving counterfeit and lost/stolen cards was GBP 89.9 million this year, compared to GBP 126.6 million for the first six months of 2004. The “Chip and PIN Program” announced yesterday that effective February 14th “Chip and PIN” cardholders must use their PIN to be sure of being able to pay at the point-of-sale. APACS says the vast majority of people are already using PIN at the POS. For debit cards, 97% of transactions, and for credit cards, 89% of transactions, are already successfully verified by PIN. To encourage the PIN stragglers, the “Chip and PIN Program” launched the “I LOVE PIN” campaign this week. It will run for four months and will include a PR campaign, online information, a customer leaflet and POS material for shop staff to use.

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Merchants Have a Love-Hate Card Relationship

While many merchants are fighting the card associations over the fees they pay to accept credit cards, a new study shows that refusing to accept such cards would result in a significant decline in sales for most merchants. The Association for Financial Professionals’ “Interchange Survey” found that virtually all organizations that accept credit or debit cards from consumers indicate that they do so to satisfy customer demand. However, merchants say the blended rate for accepting credit cards has risen by 4%, almost one-quarter report increases of 10% or more, including 18% that report a 10-24% increase and 6% that report an increase of more than 25%. More than 82% of survey respondents agree to some extent with the lawsuits filed against the associations alleging price fixing and anti-competitive behavior. Two-thirds favor to some degree caps on interchange fees. More than half of merchants have attempted to negotiate lower fees, while 30% restrict consumer choice to certain cards and 29% requested unbundled pricing. A third of organizations that sell to consumers have programs to encourage customers to use the payment method preferred by the seller.

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Sig Debit Fraud 15X Above PIN Debit Fraud

A new study has determined that the use of a PIN to authorize debit card purchases is about 15 times more secure than signature debit transactions. The research also found that only 57% of debit cards are active even though 73% of eligible checking and similar accounts now can be accessed by debit cards. The study commissioned by the PULSE EFT Association calculated that the costs associated with PIN debit fraud at the point of sale currently amount to $.001 per transaction, or .29 basis points. By comparison, losses related to signature debit are $.016 per transaction, or 4.21 basis points. However, on a per-transaction basis, a typical incidence of PIN debit fraud costs $160, while signature debit losses average $86 per incidence. Annually, PIN-related fraud costs financial institutions approximately $.04 per card per year, while signature debit losses amount to $1.15 per card. Last year, financial institutions lost $193 million to signature debit losses and $8 million to PIN debit fraud. The PULSE study was conducted by Dove Consulting, a division of Hitachi Consulting.

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$800B Credit Milestone Remains Uncrossed

Revised figures released Friday show that revolving consumer credit did not pass the $800 billion mark in June and July. However, Americans are fast approaching the historic milestone as revolving credit for August hit $798 billion. According to data released by the Federal Reserve, June’s measurement is now $796.5 billion instead of $806.0 billion and July’s figure is now $795.7 billion instead of $805.0 billion. The annual rate of growth for August was 3.5%, compared to -1.3% for July, and 1.0% for August 2004. One-year ago revolving credit stood at $776.7 billion. Bank credit card debt (excluding store and gas credit cards) at the mid-year was $664.5 billion, or roughly 83% of total revolving credit, according to CardData (www.carddata.com). At the end of August, Americans were $2152.3 billion in debt, excluding home mortgages.

REVOLVING CREDIT HISTORICAL ($billions)
Aug 05 Jul 05 Jun 05 May 05 Apr 05 Mar 05
GRWTH: 3.5% -1.3 10.9 2.1 -0.9 -0.1
$OWED: $798.0 795.7 796.5 789.3 786.6 787.3
Source: Federal Reserve; revised figures as of 10/10/05;
For complete historical data, visit CardData (www.carddata.com)

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CASH-BACK CARD

Citibank has launched the “Cash Back Card” offering instant cash rebates between 0.5% to as high as 4.0% in a month. Citi has been offering cash back as an option within its free rewards program for
two years in Australia, with up to one in five points now being redeemed for cash. Cardholders who take advantage of the special balance transfer rate of 5.90%, which applies for the life of the balance, will earn their first cash back on the transferred balance. Generally, the cash back rate is determined by taking the opening balance (less
payments and credits) for the statement period. This rate is then
applied to all new purchases and bill payments (PAY or otherwise) made
on the card during that statement period. The amount is credited
directly to your account the following month. Cit notes that about 40% of all credit cards in the U.S. are now offering cash rebates to customers and this is also a growing trend within Asia and the United Kingdom.

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PayPal Acquires VeriSign’s Payment Gateway

PayPal has inked a deal to acquire VeriSign’s payment gateway business for $370 million in cash and/or eBay stock. The deal will boost PayPal’s annual payment processing volume from $26 billion to $66 billion. With the acquisition, PayPal plans to accelerate its merchant services business by expanding its customer base to tens of thousands of new small and medium-sized business customers online. VeriSign’s payment gateway processed more than $40 billion in total payment volume in 2004. PayPal currently has about 79 million accounts and expects to hit $26 billion in annual payment volume this year. eBay and VeriSign also signed a multi-year security technology agreement that calls for eBay to invest in the deployment of VeriSign technologies that enable and protect online transactions, including the purchase of up to one million two-factor authentication tokens. eBay and PayPal plan to begin the rollout of two-factor authentication to customers in 2006. The deal is expected to close in the fourth quarter.

$VOLUME #ACCOUNTS
2Q/04 $4.3 billion 50.4 million
3Q/04 $4.6 billion 56.7 million
4Q/04 $5.6 billion 63.8 million
1Q/05 $6.2 billion 71.6 million
2Q/05 $6.5 billion 78.9 million
SOURCE: CardData (www.carddata.com)

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Gulf Oil Extends/Expands Wright Express Deal

Gulf Oil signed a five-year contract extension with Wright Express for payment processing and information management services as well as extending Gulf Oil’s acceptance of the Wright Express universal fleet card. Gulf Oil Limited Partnership is a wholesaler of refined petroleum products and distributes motor fuels through a network of 1,800 Gulf branded gas stations. Wright Express is a provider of payment processing and information management services for more than 290,000 commercial and government fleets containing more than 4 million vehicles.

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Smart Data Offers Real-Time Account Manager

MasterCard has introduced “Smart Data Real-Time Account Manager, offering businesses the ability to manage their accounts in real-time. The new product complements MasterCard’s proprietary Web-based reporting and expense management solutions, “Smart Data Online” and “Smart Data Express.” “Smart Data Real-Time Account Manager” enables administrators and supervisors to view current cardholder account information; modify account credit, velocity and per-transaction limits; look-up and update credit, velocity and dollar limits related to a specific “Merchant Category Code Group”; review and update cardholder demographic information; and check account status and cancel, suspend or reactivate.

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Axalto Introduces Protiva Authentication Product

Axalto has launched a two-factor authentication product suite
for protecting network identities and information. The “Protiva” suite
consists of a range of security devices offering multiple authentication
methods with various form factors. Organizations deploying Protiva can
choose between full-sized smart cards or small cardlets, which are
advanced small microprocessor cards about the size of a postage stamp.
“Protiva”‘s card enablers can be used in either stand-alone or connected
modes. When used in stand-alone mode, the user simply presses a button
on the thumb-sized “Protiva” authentication SCE. The built-in display then shows an eight digit one-time password, which the user enters directly into the remote network application via keyboard, or via a PDA or telephone keypad. When the “Protiva” device is directly connected,
typically via USB, the user network identification credential is sent to
the authenticating server automatically without manual input. In the
connected mode, the “Protiva” solution provides protection against
phishing by detecting fraudulent sites. Axalto is a provider of
microprocessor cards and point-of-sale terminals, with worldwide sales
reaching over 3 billion smart cards to date.

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Americans Use Credit for Extra Fuel Costs

The “Cambridge Consumer Credit Index” has found that 31% of Americans say they are using more credit to pay the higher prices for energy and other consumer goods resulting from Hurricane Katrina. The overall Cambridge Consumer Credit Index fell by three points in October to 62. Use of credit rose slightly in the past month but consumers expect to use less credit in the coming month and six months. The “Reality Gap,” which is the difference between the amount of debt consumers say they will pay off in the next month versus the amount of debt they actually paid off a month later, fell by two points from September to 21 percentage points. A month ago, 80% of Americans planned to pay off debt, while a month later only 59% actually did so. The Cambridge Consumer Credit Index is a forward looking economic indicator gauging consumer spending and debt. It is released on the fifth business day of every month to coincide with the Federal Reserve Board’s G19 release of consumer credit outstanding data.

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BANQUE MISR & JCB

Banque Misr is expanding JCB card acceptance to all its affiliated merchants in stages over the next few years. Banque Misr will be expanding JCB acceptance to Luxor and to Aswan. Banque Misr has 11,000 merchants covering 60% of international brand card accepting merchants in Egypt, including hotels, restaurants and other locations frequently visited by tourists. In 1994, JCB signed a merchant acquiring contract with Arab African International Bank in Cairo. JCB’s merchant network spans 190 countries and territories.

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Cash Bail by Credit Card Works in Illinois

The Cook County (Illinois) Board of Commissioners reports that its “Cash Bail by Credit Card” program has generated 582 credit card transactions and more than $1.1 million in the first 101 days of the program. The program will help alleviate the problem of jail overcrowding; leading to significant cost savings for the county. Detainees or their friends or family will be able to use credit cards to pay bail by calling Government Payment Service toll-free, twenty-four hours a day, seven days a week. All major credit cards: Visa, MasterCard, Discover and American Express are accepted. Multiple cards may be used to make a payment if an entire fee cannot be placed on one card. Government Payment Service has more than 900 accounts across the country.

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