January 16, 2014
The information breach at Target during the holiday shopping season pushed the topic of payments and data security into the spotlight once again. Since the revelation that not only was Target a victim, but that it took weeks to discover the breach, it became known that other retailers, including Neiman Marcus, were also breached, leaving millions of customers potentially compromised. Though these incidents involve consumer data, they should be a wake-up call for B2B merchants and their credit and collection professionals.
Rudet Fountain of United TranzActions, an integrated payment systems and remittance processing solutions provider, said that the more credit cards are used in business-to-business transactions, the more likely businesses become candidates for attack. Fountain called it a constant game with potential fraudsters where they continually try to defeat security measures designed to protect payment and financial information. He said it’s not all that different from the physical world where, despite deterrents, there are still incidents where people try to break into diamond cases at jewelry stores or into houses armed with security systems. “The bad guys never stop playing,” Fountain said. “They will always be trying to beat our systems. We have to be continuously diligent to overcome their technical or daring ways.”
The sentiment that perpetrators of fraud are always trying has long been noted by Gary Bares, founder and CEO of Verifraud, which runs NACM’s Asset Protection Group (APG). Bares said in a 2013 interview that fraud schemes against consumers or businesses, whether simple or complex, continue to evolve and, as such, “people need to have their eyes open and perform due diligence.” He noted it is by no means a one-time thing to achieve “compliance” when dealing with criminals that subscribe to the “numbers game” theory of trying various scams on as many people or businesses as possible. But therein lies part of the problem: many businesses do not treat security as an evolving effort.
“We hear companies say all the time ‘we’ve got to get PCI [Payment Card Industry Data Security Standard] compliant’ and then think they’re forever safe,” Fountain said. “Obviously, Target was PCI compliant. Yet they still were breached in a significant way. It should heighten the awareness that attaining PCI compliance is not a one-time event. It has to be an ongoing process. The truth is: I’m not sure you’re ever totally compliant. The bad guys are working just as hard behind the scenes to beat the systems you put in place. The big takeaway is not to be complacent. We have to be diligent in setting forth, following and implementing standards to outrun the bad guys.”
- Brian Shappell, CBA, CICP, NACM staff writer
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The retail and banking industries traded barbs over the Visa-MasterCard settlement recently, as banks responded to the National Retail Federation's (NRF's) appeal of the settlement's approval earlier this month. Specifically, the American Bankers Association (ABA) defended interchange, or "swipe," fees, describing them as invaluable defenses against fraud and sharply criticizing NRF for appealing the decision in the wake of Target's potentially record-breaking data breach.
"It doesn't surprise us, on the heels of a big-box retailer breach that put 40 million consumer accounts at risk, that the retail lobby once again puts its pocketbook above the interests of consumers," said Ken Clayton, ABA executive vice president. "Interchange, among other things, supports anti-breach efforts. Reduce interchange and you may also reduce resources available to fight data breaches."
NRF certainly didn't take Clayton's comments lying down, and responded with criticism of their own. "The American Bankers Association has made the tactical choice to avoid talking about the merits of the court’s swipe fee settlement decision, primarily because the settlement is flawed and without merit, and instead decided to attack a retailer that was a recent victim of data theft," said NRF Senior Vice President for Communications and Public Affairs Bill Thorne, who tried to pin at least partial responsibility for Target's data breach on the banking industry itself. "Ironically, in many cases these types of theft are aided and abetted by the banking industry, which forces companies that accept credit and debit cards to use the fee-laden and fraud prone mag-stripes and signature cards when other technologies, such as chip and PIN, are being used successfully around the world."
Part of the settlement that has angered retailers is that it would give Visa and MasterCard greater control over how these innovative new payment technologies figure into the market. They want cards to remain the dominant payment method because of how lucrative interchange fees are for the industry, generating some $30 billion annually. If new payment technologies have lower processing costs, and retailers are allowed to push customers toward using those technologies, Visa and MasterCard's interchange profit would certainly be negatively affected.
It should be noted, however, that many retailers are hoping to introduce these new payment products themselves. The heated battle between banks and retailers is, in all likelihood, less about protecting consumers and more about controlling profits.
To learn more about what the Visa-MasterCard settlement means for business-to-business sellers, specifically the settlement's surcharging provisions, read the article "Just Too Early" on page 42 of the January 2014 edition of Business Credit.
- Jacob Barron, CICP, NACM staff writer
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Success, growth and optimism are three words that fit General Motors, and fellow American auto manufacturer Ford for that matter, well in recent quarters. The rebound of US automotive has been an impressive one since GM’s bankruptcy reorganization in 2009, so much so that the company, once assisted by the US federal government during the height of its struggles, announced this week it would again begin paying dividends to investors. The move comes after 15 consecutive quarters of profits and is a reminder that US auto companies and those who supply them are among the least risky where solvency issues are concerned.
Decidedly less stable is the gaming industry, at least along the Northeast coast. The Atlantic Club Casino, a New Jersey gaming and hotel property formerly owned by the Hilton family, shuttered its operations permanently on January 13 after selling off pieces of its assets post-bankruptcy to former competitors that have no plans to resurrect gambling on the site. Atlantic City casinos and hotels have continued to lose market share, especially in the winter months, as several East Coast states within driving distance, including Pennsylvania and Maryland, have legalized gambling. For example, there are now six fully-operational casinos within a 5-10-minute drive off the stretch of Interstate 95 between Washington, DC and Philadelphia, with at least two more set to open within the year. It comes less than a year after Revel in Atlantic City declared bankruptcy within its first year of operation. Patrick Spargur, ICCE, credit and collections manager with Bally Technologies, Inc., noted last year that there are simply “too many players” in the East Coast gaming industry and that multiple additional closures could be in order, particularly in the crowded Atlantic City market.
In neighboring Pennsylvania, the issue of municipal bankruptcy is brewing yet again, but this time in a different city. Amid a deficit exceeding $20 million, the City of Scranton is being bandied about as a potential candidate to file Chapter 9 in 2014 despite the state working diligently in the past to prevent cities like Harrisburg, its capital, from doing so. Reports from sources like the Los Angeles Times illustrate a growing interest on the part of Scranton citizens to file, as the steadily increasing tax rate being used to offset debt has been hurting personal budgets and causing many to move away. However, city lawmakers appear averse to pursing an expensive, complicated Chapter 9 filing for now. The city recently hired financial consultant Henry Amoroso, who publicly noted that he believes negotiations with stakeholders, if done properly, could yield similar or better results than a bankruptcy filing, and at a lower cost.
- Brian Shappell, CBA, CICP, NACM staff writer
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2013 marked the third consecutive year of a global decline in productivity, according to a new report by the Conference Board.
However, the decline moderated significantly last year, as global labor productivity, measured as output per person employed, grew by 1.7% in 2013, down only 0.1% from the 1.8% growth in 2012. By comparison, 2012's figure marked a 0.8% decline from 2011's 2.6% growth rate, which itself was a 1.3% decline from the 3.9% rate of 2010. Since the emergence of large developing markets like India and China in the early 1990s, productivity growth has rarely fallen below 2%, with notable exceptions during the early and late 2000s recessions.
Conference Board Chief Economist Bart van Ark noted that the slowdown could be "largely due to the stabilization of productivity growth rates in mature economies," as growth in output per person employed in the US held steady at 0.9% in 2013 and output per hour grew only to 0.8% from 0.7% in 2012. In Europe, output per person employed jumped from 0.1% in 2012 to 0.5% in 2013, but fell on a per hour basis from 0.7% to 0.6%. Overall, productivity growth rates for most countries remained very low in 2013.
"Emerging markets, and especially China, account for the bulk of world's productivity growth," said Abdul Erumban, senior economist at the Conference Board and co-author of the report. "But the years of rapid, easy improvement appear to be over. Since these countries remain significantly less productive than mature economies in US dollar terms, the ongoing shift of economic activity away from the latter adds to the global productivity slowdown."
The report also includes a measure called total factor productivity, which accounts for productivity of labor and capital inputs in one measure. In 2013, this figure dropped below zero for the global economy. "This indicates stalling efficiency in the optimal allocation and use of resources," said Erumban. "While in part the result of slowing global demand in recent years, the drop in productive use of resources is also related to a combination of market rigidities and stagnating innovation in those economies."
- Jacob Barron, CICP, NACM staff writer
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The European Union got a shot of positive news on January 14 as its monthly industrial growth metric showed its largest surge since spring 2010. Industrial production between October and November increased by 1.8% in the EU-17 and 1.5% in the EU-28 category, which covers all member states according to Eurostat. All told, 19 of the 28 member states saw a rise or at least remained stable in industrial production. The pace in November was also 3% better than that of November 2012. The gains are being viewed as a sign of long-needed momentum after a couple of years of financial crisis for the bloc.
Bailout recipient Ireland led the way, from a percentage perspective, with the highest increases in the monthly change (+11.7%) and annual (+13.2%) categories. No other EU nation ranked in the top five in both measures. The biggest retraction in production between October and November was Lithuania (-3.5%), which had boasted increases in each of the previous five periods, while the worst annual drop was Malta (-8.6%). The latter did show the third highest monthly gain in November (3.8%), a few percentage points behind Sweden (+6.4%).
Importantly, the EU’s largest economy, Germany, reported a 2.4% increase following three declines in the previous four months. The only member states that showed an increase in industrial production in each of the last six months were Bulgaria and Slovakia.
- Brian Shappell, CBA, CICP, NACM staff writer
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