SECURITY CONCERNS WILL DRIVE A SURGE IN PAYMENT HARDWARE SALES. The Target data breach that may have affected up to 110 million people has the potential to turn into a massive windfall for payments companies, in particular two large hardware providers, Verifone and Ingenico. The widespread and high-profile breach puts a phenomenal amount of pressure on merchants to make sure they are using updated hardware with strong data security protections.
Here is the bullish case for payments hardware companies following the data breach:
- Payment card fraud in the United States is out of control and the market is ready for a solution. The U.S. accounts for half of global payment card fraud, but only 27% of global transaction volume. That means that there is a huge gap in the market for new security solutions. This will ultimately lead to point-of-sale upgrades.
- Merchants are going to have to upgrade their point-of-sale hardware soon anyway. The major card networks are pushing payments companies to upgrade to EMV or “chip card” compatible points of sales by 2015 and the Target data breach increases the pressure for merchants to make these upgrades sooner rather than later. In the past, merchants have resisted making major hardware upgrades, but companies that do not upgrade will likely see increased costs and liabilities associated with fraudulent transactions.
- The market is already rewarding some companies. Over the last 10 days, Verifone shares have seen a 25% price increase, following upgrades from analysts at Jefferies and Co. and J.P. Morgan. Ingenico shares rose about 12.5% since the Target data breach was first announced.
The EMV standard is not perfect because it doesn’t stop card-not-present fraud and may actually help to facilitate it, but it’s better than what we have in the U.S. now. The card networks, which hold much of the power in the payments industry, want merchants to adopt it. In addition, there isn’t a rival solution that’s going to be ready for large-scale rollout by the 2015 deadline when merchants are going to be forced to adopt EMV-compatible points of sale. So while the EMV standard may only lead to a modest improvement in security, merchant adoption is inevitable, which means increased sales for hardware providers. (Business Insider via Reuters)
EBAY UK IS CREATING A NEW PRODUCT CATEGORY FOR VIRTUAL CURRENCIES. Peer-to-peer sales of virtual currencies like Bitcoin will now be listed under the “Virtual Currency” category in the classified ads section on eBay UK. The new category will be available to eBay UK users who want to buy and sell virtual currency beginning in early February. Users will not be able to buy bitcoins using eBay-owned PayPal, however. The news provides an indication of eBay’s outlook on virtual currencies, which seems positive, if tentative. (Payments Source)
GOOGLE WALLET LOSES GLOBAL HEAD OF BUSINESS DEVELOPMENT. Jonathan Weiner is leaving the Google Wallet team to get back to his “entrepreneurial roots,” according to an interview with Re/code. Weiner was a founding member of the payments processing company TxVia, which now provides the foundation for much of the Google Wallet product. Weiner joined Google when the company acquired TxVia in 2012. (Re/code)
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THE NSA HAS AN EXTENSIVE SPYING PROGRAM FOCUSED ON THE PAYMENTS SPACE. New documents released by whistleblower Edward Snowden reveal that the NSA has a branch called “Follow The Money,” which focuses on tracking the flow of international payments, according to German newspaper Der Spiegel. Documents from 2011 show that the NSA had collected 180 million payment records, about 84% of which were credit card transactions. Data targets of the American foreign intelligence agency include large credit card networks like Visa and The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which enables worldwide financial institutions to send and receive information about financial transactions. (Der Spiegel)
SILK ROAD FORFEITS $US30 MILLION WORTH OF BITCOIN. Last week, United States Attorney for the Southern District of New York Preet Bharara announced the forfeiture of 29,655 bitcoins, valued at around $US30 million, which were seized from Silk Road’s server. Before the FBI shut down the website in October 2013, Silk Road functioned as an e-commerce platform for illegal goods like drugs and weapons. Silk Road users made purchases with Bitcoin, which kept the transactions relatively anonymous. In addition to the forfeited bitcoins, the government has seized an additional 144,336 bitcoins (~130 million) from computers belonging to Silk Road founder Ross Ulbricht. Ulbricht is suing for the return of these bitcoins. We’ll keep watching the story to see how the government decides to handle its newly acquired bounty of Bitcoin. (United States Attorney for the Southern District of New York)
PAYMENTS STARTUP BALANCED IS A POTENTIAL ACQUISITION TARGET IN 2014. The San Francisco-based merchant services provider started out working with companies that offer online marketplaces like The Fancy. The company reports processing over $US370 million in transactions a year for 440 online marketplaces and crowdfunding platforms. These sorts of payments startups are prime acquisition targets because they create solutions for niche markets that larger payment companies, like PayPal, would like to offer, but would rather not develop in-house. (TechCrunch)
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