Costs of Security Breach - New Study

We've discussed here the loss of 46 million customer data records at TJ Maxx. The company is currently facing liability suits related to this event that seems to have been executed by hacking into an individual store's wireless network, and accessing customer credit card data that was not being properly stored. Information Week ran a story in August pointing to a whopping $135 million in charges the company had to take as a result.

Combined with Gordon Brown's recent mea culpa on behalf of the British government, security is certainly at the top of mind of anyone who is paying attention.

Annual Survey of Data Breach Costs

The third in a series of annual surveys on the costs of security breaches was just published by Vontu, Inc. (registration required) , in conjunction with PGP Corporation and the Ponemon institute.

The study's findings were very interesting, especially for the payment processing wonks here at Mpayy, where customer data security will be our highest priority.

The study looked at 35 organizations who lost between 4,000 and 125,000 records. So the TJ Maxx scenario is clearly far and beyond the impacts studied here.

• Total Costs per Record Lost - The eye-popping number is $197/record on average including direct and indirect costs, an increase of 8% year over year and 43% vs. 2005.


• Most Costs are thru Lost Business - The TJ Maxx numbers come from the company's SEC filings, but the Vontu study shows this doesn't come close to grabbing the full impact. The annual study found that abnormally high churn rates of customers plus lowering growth rates of new customers compound the impact of the data breach. $128 of the $197 in losses comes from this.





• Sources of Data Losses - Even more interesting is the fact that only 5% of customer data losses come from hacked data systems. On the contrary, almost half is related to unencrypted data left around on employees' machines in the taxicabs, coffee shops and bars of the country.

Mpayy Secures the Day

Mpayy will not only use 128-bit TDES, but all customer data will be stored server-side ensuring that customer banking information is secure. Mpayy assumes 100% of the fraud liability of its merchant partners. This will limit these potential costs for merchant, including the direct operating costs of up to 150 basis points of anti-fraud fees charged by credit card companies to merchants in the Card Not Present market.

Financial Times Cites Online Sales Growth #'s

As we work to deliver our online and mobile payment processing system we take heart in numbers like those cited by the Financial Times in a recent article.

According to the article:

"Raul Vazquez, chief executive of Walmart.com, said the retailer had seen sales on the Friday after Thanksgiving holiday “exceed our expectations” of 40-60 per cent annual growth.

Ron LaPierre, president of PriceGrabber, a comparison shopping site, said sales through its site had been running “at or above expectations” so far."

The article goes on to state that WalMart is expecting 30 million visitors this week, and the top ecommerce sites are running similar promotions to the "door busters" run in brick and mortar stores. They are adding, this season, free delivery offers to drive more online sales.

More to come...

Black Monday Review

It's been more than a week since the lost blog post. I hope you all had a Happy Thanksgiving and please excuse the tardiness of this post. We at Mpayy are speeding forward to completion of our site and moving to User Acceptance Testing and our late January 2008 launch.

The Importance of Scalability

One of the beauties of the platform being launched at Mpayy is the application's scalability. Leveraging onto the bank's infrastructure, we are prepared to handle millions of consumers' online transactions simultaneously. Once consumers get a test, they'll be itching for it, and after yesterday's experience shopping on "Cyber Monday", merchants will likely be ready as well.

Our good friends at Internet Retailer reported two stories that caught our eye.

First, Comscore reported ecommerce transaction times that spiked due to volume. "While none of the sites suffered shutdowns, many experienced extended checkout times of up to two minutes." These sites, and the connections to their payment processors slowed signifcantly, and underlines the importance of multiple payment options and the investment in the Checkout processes.

Internet Retailer also reported that 40,000 Yahoo store merchants were unable to process payments yesterday. Here again, one would expect Yahoo to have capacity models out the wazoo so that such an important day of selling was not lost, but this does not seem to have happened.

Internet Retailer quoted Kevin Hickey,

"Kevin Hickey, vice president of marketing at New Stanton, PA-based OnlineStores.com, which operates several sites on the Yahoo Store platform including EnglishTeaStore.com and United-States-Flag.com, says his company lost about $35,000 in expected sales yesterday as it was able to take in only 20% of its usual volume on the phone and in sporadic online orders.

“We’re disappointed that Yahoo wasn’t up to its normal level of reliability yesterday,” Hickey says. “It might spur us into looking into alternate platforms and to have a redundant back-up system for taking orders.” "

Holiday Shopping Paves the Way for Mpayy

Mpayy headquarters remains very focused on putting the finishing touches on the application and web and mobile sites for launch in late January. So, we will sit through the period in which traditional retailers generate up to 80% of their annual sales - the timeframe between Thanksgiving and New Year's. Today we review holiday spending predictions and a new retailer effort that is ahead of the curve.

Predictions for Holiday Spending

Internet Retailer just reviewed a recent Forrester Research article entitled “Outlook for U.S. Online Retail: Holiday 2007.”

In it, Forrester's predicts that ONLINE spending will grow $6 billion to $33 billion this holiday season. IR goes on to cite Burst Media arguing that more than half (50.7%) of consumers will do some holiday shopping online, up from the mid-30%'s last year.

The Internet Retailer closes with some interesting customer sentiments that pave the way for Mpayy.

— 70.7% of online shoppers cite credit card security as the biggest impediment to buying online. Other concerns are the privacy of personal information online, cited by 60.8%; shipping costs

Mpayy will be PCI Compliant and utilize 128-bit TDES encryption technology to protect customer data vs. the retailers doing it themselves.

Mobile Touchpoints

Both the Internet Retailer and the Wall Street Journal point to concerns about the economy, housing market and gas prices as influences that will constrain consumer spending this holiday season. In order to combat those factors, the Wall Street Journal (subscription required) notes several high-flying retailers are taking specific steps:

"Shoppers who sign up with Nordstrom or Wal-Mart, for example, will receive text messages with information on discounted merchandise and special sales. Best Buy is offering gift suggestions on its mobile Web site. J.C. Penney is going further, offering to make wake-up calls to early-bird shoppers eager to get a head start on Black Friday, the traditional kickoff to the frenzied holiday retail season. (This year, many J.C. Penney stores will open at 4 a.m. on the day after Thanksgiving.)"

These retailers are looking to open up the mobile marketing channel. Currently, most efforts are just informative, or include a coupon system that can be redeemed for discounts in the store. However, little to no mobile action is, well... actionable. Mpayy will drive mobile commerce through actionable text messaging. We look forward to rolling out pilots with close friends of the company at Interactive Mediums.

I'm getting charged for whaaaaa!?!?!

MSNBC's Red Tape Chronicles has an entry today that is burning up the blogosphere to the tune of 77 pages of comments when printed as a text document. The discussion is related to fees incurred through Debit Card purchases made with PIN numbers. In other words, these fees result from your keystroking your PIN at checkout in a bricks and mortar store rather than using it as "credit", which simply means you authorize the transaction by signing a piece of paper.

The distinction is related to the interchange fees I wrote about yesterday. Bob Sullivan quotes Gartner's Avivah Litan analyst that:

"a bank will take in perhaps 20 cents from a merchant for a $100 PIN-debit purchase, but $1.48 for a signature debit purchase in the same amount. In general, banks can make up to 50 cents on PIN transactions, with the fee capped. But banks can rake in up to 2 percent of signature-based transactions, a potentially huge haul."

In other words the interchange fees related to the pseudo-credit transaction allow the credit card issuing bank to charge fees to the merchant, who will raise the prices of the goods you're buying. As a result, the bank is making up for lost payments from the merchant by charging you anywhere from $0.25 to $1.00. Either you'll pay the fees in lieu of the merchant, or else you'll shift back to using credit.

Given the frequency with which Debit card users actually use their cards, this is definitely something to be on the lookout for. Mpayy will solve these problems with NO FEES EVER for consumers, and offering CASH BACK and a HIGH-YIELD REWARDS program that can be used as cash anywhere Mpayy is accepted. The ability to will only come when you PAY THIS WAY, and merchants will only let you do if you INSIST ON MPAYY.

About those Frequent Flier Miles...

One of the primary benefits Mpayy's payment system will offer to merchants is savings vis-a-vis credit card processing - both in the base rate, and the consistency of rates. This will stand in stark contrast with the variable interchange fees that are charged by the major credit card networks on an industry-by-industry basis, according to Zhu Wang in the Payments System Research Department at the Kansas City Fed. (See paper here)

According to a Diamond Technology Consultants, 44% of interchange costs go to pay for Rewards programs, while none of it is passed onto the merchants. Further, merchants are likely to pay 3% for association branding costs, while the interchange costs comprise only 14% of the fee.

Those rewards programs, also do not go on to necessarily benefit the consumer. A recent comment from Conde Nast Portfolio.com (@ MSNBC) report notes:

The basic American AAdvantage MasterCard issued by Citibank carries an annual fee of $50, the interest rate on purchases is more than 17 percent, and the cash advance rate is north of 22 percent.

In other words, the consumer and the merchant split the bill on purchasing airline miles through credit card fees. Merchants are paying through the aforementioned interchange fees, of which there are an estimated more than 100 different rates. Similarly, consumers are paying annual fees and virtually usurious interest rates to make purchases that may not even be worth the bytes they are stored in. The story continues:

"For example: Continental Airlines last month announced a wide-ranging increase in the price of its best awards. The number of miles required to get a free first-class domestic ticket rose about 11 percent; the cost in miles for some international business-class seats rose by 25 percent."

Mpayy to the Rescue

Mpayy will offer users a 100% free service to make purchases. In fact, it will be even better than that providing a network through which consumers can make purchases for $0.99 on the $1.00, and we are working on a universal rewards program that will be available to be used as cash anywhere Mpayy is accepted. Members can transfer moneys among themselves as much as they like... there is simply no reason to pay 15% interest on that online t-shirt purchase.

For merchants, Mpayy will offer rates that start well below credit card rates and go only lower depending on the volume offered. There will be no hardware required. Mpayy will never withhold merchant funds should merchants find themselves in violation of some unpublished Kafka-esque rules. All of this, plus, Mpayy will assume 100% of transaction fraud risk removing the burden of maintaining secure credit card information allowing companies to focus exclusively in their wheelhouse.

A Winner's Curse???

Whose Driving Helio?

The joint ownership of Helio Wireless by South Korea Telecom and Earthlink has been a tale of continuing growth in equity commitments to the high-end Mobile Virtual Network Operator (MVNO) that come in multiples of tens of millions of dollars.

South Korea Telecom followed through with its July commitment of $100 million by allocating $70 million and has taken management control of Helio Wireless as of November 9th. SK Telecom committed another $200 million to Helio in September, but an executive told Reuters "the timing and size of that commitment have not yet been decided."

Earthlink and SK Telecom have been in talks to amend to joint venture agreement to transfer control to SK Telecom and Earthlink is unwilling to commit further funds.

Helio is lagging with significant debt, struggling profitability, and less than a million subscribers. In a quarter when AT&T Wireless added 2.1 million subscribers (including 1.1 million driven by the iPhone), and Verizon Wireless added 1.9 million new subscribers, this places significant doubt in Helio.

SK Telecom CEO expects the company to turn a profit by the end of 2009 on rising data service usage according to Reuters, but it is expected to lose at least $330 million in 2007.

Wither MVNO's?

Helio got a bit of attention in July when Amp'd mobile filed for bankruptcy. More than 80,000 of Amp'd's sbscribers were not paying their bills. The company folded when Verizon Wireless demanded $4.5 million from Amp'd within ten days, which was the straw that broke the camel's back - the camel owing $100 million - according to Business Week.

Amp'd had been incredibly successful in getting its subscriber base to seal long term 18-month contracts, but it was underwriting bad credit risk with a premium product. In other words, the company was providing premium service with payment in arrears. Confused? Think of the mortgage industry.

Helio also has a premium offering, but the problem does not seem to be collections, but subscriptions. If the company can grow subscribers and data usage, perhaps it can be profitable.


Perhaps Helio will need to take a page from Virgin Mobile's playbook, which is to keep customer acquisition costs way down. As desribed in their Prospectus:

As an
illustration, Virgin Mobile's average advertising expenditure per gross addition
is less than $10, compared to $100 for Verizon Wireless (based on Verizon's
reported gross additions and media spending reported by TNS Media Intelligence
for year ending September 2006). Our overall cost per gross addition, which
includes all handset promotion, retail compensation, advertising and other
marketing expenses is also significantly less than that of the larger postpaid
industry participants (approximately $120 for Virgin Mobile compared to
approximately $300 to $350 for the four largest carriers based on their 2006
financial reports).

Power of Social Media???

In a small company, everyone wears lots of hats, and it is my Marketing Hat that drove me to register for a number of publications at Marketing Sherpa including DM News' White Paper of the day.

This morning, that free service delivered me "Secrets of Social Marketing Success" from OneUpWeb. The paper reviews the social marketing strategies of a number of top holiday items, and dovetails both with the writing of this blog, and our launch promotion.

Appeal of Blogs

According to Synovate/Marketing Daily, 4 out of 10 Americans read blogs, so I'm looking forward to hearing from many of you. =) We are in good company, according to the University of Massachusetts Dartmouth Center for Marketing Research, 19% of the Fortune 500 use blogs. Given that, as Business Week Reports in its November 12, 2007 edition, click-through rates on sites like Yahoo, Microsoft and AOL declined from 0.75% to 0.27% in 2006, it's no surprise that folks would look to more organic sources of traffic.

Member's Only

One of the hot holiday items reviewed is the Robotic Dinosaur Pleo that is being blogged about here and elsewhere. Once consumers own a Pleo, they will be able to participate in Ugobe's "owner's only" online social network with special offerings like new sounds and behaviors for their dinosaurs. (Did I miss the robotic amoeba? Skipping evolutionary steps is Ugobe, but I look forward to the wooly mammoth.)

Mpayy will be a social networking tool insofar as it will provide a quick and free way to transfer money to your friends to split a bill at dinner, or pay money owed for some other purpose. Beyond that, Mpayy is planning a $50,000 contest giveaway at launch once users open up an Mpayy account with a linked checking account. The contest will be hosted by a yet to be decided vendor, but it is unlikely that there will be deeper social networking tools from the get go. Hopefully a series of giveaways around events that go on throughout the year will create a strong desire to participate in the member's only contests for cash giveaways, and in the meantime, members will start to Mpayy and see the value of our products.

The Joy of Small Groups

Having come from companies of >100 and >1,000 people respectfully, it is quite enjoyable to find myself within a group of four primarily steering this venture.

"Never doubt that a small group of people can change the world. Indeed it's the only thing that ever has," said Margaret Mead. While Mpayy is certainly not trying to stoke a new sexual revolution, within the micro-world of completing a website, planning launch promotions and securing further financing, the quote holds true as decisions are made quickly, and consensus is fairly easily achieved.

Further, one could easily argue that the "payments revolution" will be stoked from http://www.mpayy.com.

Ever Wonder How to Get your Site Visible?

Curiously, as Mpayy has begun to prepare for its launch and begun to contact companies for everything from financing to promotional partnerships, and potential clients, the search engines began displaying an unknown virus as the natural search results for the term Mpayy. Perhaps we should have been flattered, and we were.

However, there was much excitement in the Mpayy offices as we finally got the top spot from Google search results "Under Construction"/"Coming Soon" page that are companies only option for really getting any public face before they launch without throwing advertising dollars completely down the toilet.

The page now has a spinning globe as part of the Mpayy logo. The homepage can be found at http://www.mpayy.com.

In order to get our site crawled by Google's bots, we took two steps.

First, we used Google Analytics which is a free tool from 0-1,000,000 monthly impressions. The reporting interface is phenomenal, and it integrates very well with any online advertising you do as well as tracking links from all over the Net.

Second, Google's Webmaster tools provide the ability to generate a Verification Meta tag that will tell the bots to come look for you. Within two days we went from not showing up at all to #1.

God bless Google and its user friendly technologies.

Introduction to Mpayy - The Mobile Payments Company

Welcome to the Mpayy blog.

Mpayy, Inc. is a new electronic payment company that dramatically improves the convenience, safety and price of sending and receiving a payment. Mpayy can be used anywhere - on the Internet, at a store or between friends and works on any desktop, laptop or mobile/cell phone.

Mpayy's patent-pending launch product is a commercial grade solution built with the investment by one of the world's premier banks and largest payment processors to ensure security, stability and peace of mind for Mpayy members.