Ecommerce Bright Spot in US Economy

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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 2009, 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.

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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.

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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.

Merchants should use a high risk payment processing gateway to add to protection against hackers.

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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.  Until 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.

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