Paynetsecure Blog

These days everyone is using plastic to pay.  And that “everybody” includes corporations.  More and more corporations are making purchases on corporate or purchasing cards.  It’s a wise decision for the company since record keeping and account reconciliation is a breeze.

Corporate cards provide an additional level of data to the purchasing business, allowing them avoid the costly administrative process of creating purchase orders, while still providing the data they need to reconcile, control and track expenses for smaller ticket items.   

Any merchant with corporate clients will find that accepting corporate credit cards is essential to satisfying the payment needs of corporate clients.  Merchants accepting cards save the cost of invoicing and get better control DSO (Days Sales Outstanding).   Contingent liabilities are minimized, collections are easy and invoicing procedures are shortened or eliminated all together.

Corporate cards require a payment processor accept as Level II and Level III cards.  The extra levels refer to the additional amount of data captured from the cards known as Level II and Level III data.

Phishing.  Users are fooled into entering information on a fake website.  Most commonly, an email is sent that looks like it is from the consumer’s own bank or from a website where the consumer has shopped.  The email contains a link that goes to a website that looks exactly like the bank’s or merchant’s website.  The naïve consumer enters login and password information which is confiscated for use by the phisher.

Pharming.  The pharmer corrupts the DNS server and redirects the consumer to a fake web site.  Consumers do not suspect anything because the redirect happens even if the consumer types in the URL on the browser bar or selects the site from a saved favorites list.

Man-in-the-Middle.  The cyberthief grabs the consumer’s information when the information is in transit over the internet.  A server is used which appears to be real but is not.

Trojans and Keyloggers.  Software which has been secretly embedded into the consumer’s computer captures each keystroke and mouse click. The information is sent to the cyberthief who uses the information to access the consumer’s accounts.

According to Javelin Research alternative payment methods accounted for $33 billion in internet purchases in 2009.  This was a increase of 50% from 2008.  Alternative payments now account for about 16% of online payments.

Javelin predicts that alternative payments will account for $40 billion in online sales in 2010.  By 2014, alterative payments will account for $79 billion, which will account for 19% of online purchases..

Total internet sales volume was $205 billion in 2009.  This was an increase over the $185 billion of 2008 online sales.   Internet sales will rise to $237 billion in 2010 and almost double to $400 billion in 2014.

As the economy makes a recover, credit cards will rebound as a payment option for online purchases, but they will never again be the sole payment option offered by many merchants, as was the case a few years ago.  By 2014, credit cards will account for 39% of purchases made online

Debit card payments will continue to rise and will account for 26% of online purchases by 2014.  Prepaid cards will continue to gain market share with predicted volumes to reach 9% of internet purchases by 2014.

Merchants like alternative payment options because they are often less expensive to accept than credit or debit cards.  Some merchants encourage buyers to use alternative payments by offering discounts on purchases or extra loyalty points.  Merchants can also offer consumers an alternative payment option if a credit card is declined.

Ecommerce is a bright spot among the recent dreary US economic news.  The number of online transactions increased by 11% in 2009.   Ecommerce now accounts for 5.5% of total US  retail sales. 

According to Javelin  

• Ecommerce sales in the US were $205 billion in 209, compared to $185 billion in 2008.
• Although ecommerce increased in 2009, total retail purchases declined.
• Credit cards are still driving purchase volumes and per transaction values
• Credit cards use for online purchases declined in 2009, with many people using debit cards instead.
• Debit card usage continues to grow as people keep tighter reins on spending.
• Prepaid cards, gift cards and alternative payments will have the largest increase in compound growth in the next few years.
• Security is still of paramount importance to consumers when making online purchases.

Despite all the negative news about the US economy, average credit scores for US consumers are still pretty good.  According to Credit Karma, the average credit score for U.S. consumers has stayed fairly steady, dropping only 8 points within the last few months.

The average credit score of US consumers now stands at 669.  Miami consumers have the lowest credit scores, with an average of 654, or 15 points below the national average.

Consumers lowered their credit card debt in January, 2010, decreasing debt 2% over December 2009.  The average credit card debt in January was $7,925, a decrease for from $8,079 in December 2009.  Consumers in four states – Kentucky, Minnesota, Oregon and West Virginia reduced credit card debit even more, decreasing amounts owed by 5%.

Ken Lin, Credit Karma’s CEO, predicted that credit scores will hold steady in 2010.   Lin believes people are getting a handle on their finances and have a greater sense of how credit scores affect their lives.

Hotels and resorts are the biggest targets of criminals intent on stealing card data. Trustwave released a 2010 Global Security Report which contains information drawn form the company’s investigations of over 200 security breaches in the past year. For a period of time, restaurants were the most frequently targeted industry segment for criminals on the prowl for card data. Restaurants were particularly easy targets because card information was being stored on old point of sale systems. Restaurants are still targets of attacks, and account for 13% of breach investigations. Financial-services companies account for 19% of breaches, followed by retailers with 14.2%, business services at 5%,and technology companies at 4%. But, hotels and resorts led the pack with 38% of card hacking investigations. Hackers commonly use what is know as remote-access application attacks. These attacks are targeted at vulnerability in internet channels. IT software for hotels and resorts which combines business and card data frequently are not strongly defended from external attacks. For example, many of the software programs being used by the hotels and resorts had weak password or no password protection at all, making it easy for a sophisticated cybercriminal to exploit holes in the system. Hackers also use other methods of accessing the applications. Third-party connectivity can exploit data networks which are linked by physical telecommunications lines. And SQL injection is used to insert malicious code into the databases of software applications. Third-party vendors were involved in 81% of the security breaches. This demonstrates the need for companies to keep a close eye on all vendors and have internal security systems to protect against unscrupulous behavior.

Charge-offs on credit card rose about half of a percentage point in November, according to Moody’s Investors Service This ended the slight improvement in chargebacks trending which happened for the two months prior.  The credit card delinquency rate in November rose to 6.2%.  The charge back rate was 10.56%.

With the current economic climate, credit card issuers expect chargebacks to stay high for the the foreseeable future.  The rise will be particularly steep for the first quarter of 2010 and then level off, although still remaining high.

Card issuers began tightening underwriting standards for credit issuing about 18 months ago.  This will help lower delinquencies because there is substantially less credit available than before the meltdown.  Today’s credit card holders are a better risk and more likely to replay their debts.

However, even though sub-prime lending may be thing of the past, the increased unemployment rates are bound to impact even the best credit risks.  Unitl the economy makes a strong turn-around, including stabilizing employment, credit card defaults will continue to be a major problem for issuing banks.   And, there are many fewer debt-buying companies today than there were a few years again, limiting the market for bad debt portfolio sales.  .

PR: wait… Cached: wait…

Software as a Service (SaaS) is simply good economic sense.  There’s little reason to build, maintain, and back up applications when it’s getting cheaper and easier than ever simply to host the applications online.

Peter Coffee, director at cloud computing firm Salesforce says that the SaaS “shifts scarce, in-house IT talent away from the time-consuming but low-value tasks of acquiring, maintaining and administering commodity technology to let those resources be applied to high-value tasks creating competitive advantages for the business,”

The old business model of selling licenses for software is going to go the way of the horse and buggy.  Rather than buying software, companies simply subscribe to the application as a service.  There are no worries about keeping the programs up to date because that is all taken care of by the SaaS provider.

Billing models for SaaS vary.  Right now, most are still based on time interval usage.  For example, month-to-month recurring billing is most common.  But, as time goes on, expect SaaS billing to offer even more flexible billing models with pay per use and metered usage becoming more popular.

According to consulting firm, the TowerGroup, nearly $5 billion of money on gift cards will go unspent.  This is known as breakage.

An example of breakage is the $10 left unspent on a card if you spend $40 out of the $50 on on the card.  Breakage also occurs if a card is lost or misplaced, frequently resulting the entire amount funded on the card being abandoned.

Retailers love breakage because unspent money is pure profit.  For instance, electronic retailer BestBuy reported that $38 million of its gift cards were not redeemed last year.

Gift cards continue to be the gift of choice for many.  Over $97 billion was spent on cards.  The average gift card is funded for $140.  Over 70% of shoppers using gift cards spend more than the amount of the card.  And almost 7% of cards went unspent last year.

The Federal Reserve has proposed new guidelines that would prohibit fees for cards that have been inactive for less than a year and outlaw expiration card value within 5 years.  But, that doesn’t do much to impact the breakage issue.

If you get an unwanted gift card for a store you don’t patronize this year, there are several websites that allow you to swap out the card for a small fee.  You may also want to donate the unwanted card to a charity.

Consulting firm AlixPartners,reported that its recent survey of shopped revealed their top concern was eliminating personal debt.  In order to decrease debit, credit card spending is on the decline as shoppers opt to pay for gift purchases with cash or debit cards.

Of course, the cutbacks on availbe credit availale on cards also severely curtailed the amount of credit consumers have to spend.  The Federal Reserve recently reported that consumer borrowing fell for a record ninth straight month in October. Demand for revolving credit, the category that includes credit cards, fell 9.3%, following drops of 10.5% in September, and 10.6% in August. In all, credit card borrowing has fallen for a record 13 straight months.

Alternative payments are taking up some of the slack in the drop in credit card payments.  For example, PayPal, saw a 20% surge this quarter over last in customers that opted to pay by echecks instead of credit cards.  Echecks are a form of direct debit that deducts payments directly from the consumer’s checking or savings accounts

Forrester Research estimates that alternative payment services, now represent 11% of total online payments.