By Quentin Fottrell
Credit card users who were not among the 1.5 million accounts hit by the Global Payments data breach last week may still end up paying a hefty price, experts say.
Third-party credit-card processor Global Payments said hackers stole account numbers and other key account information, prompting Visa to remove them from a list of “compliant service providers.” Though individual customers are unlikely to be on the hook for fraudulent charges, the cost of beefing up security measures to prevent future breaches may ultimately get passed on to customers, says Curtis Arnold, founder of CardRatings.com. “Cases like this are easy to ignore if it doesn’t personally affect you — the reality is that we all pay the price.”
To deal with the higher security costs, banks may slowly increase the charges for other services like card payment protection plans, analysts say. Dennis Moroney, senior analyst at TowerGroup consulting firm, says banks already account for the costs of replacing actual lost wallets, and he says it’s likely that they’ll have to do the same to account for the theft of digital information, too. Some 4.5 million records were compromised so far in 2012, including the Global Payments breach, versus 3.4 million in 2011, according to the Privacy Rights Clearinghouse. However, Ryan Zagone, a spokesman for the American Bankers Association, says any losses realized from fraud are covered through reserves held by banks for such events, “and not by consumers.”
To be sure, the credit-card processor will likely be responsible for compensating the banks for this breach, experts say. And Ben Woolsey, spokesman for CreditCards.com, says companies have been very successful at containing fraud losses even as transaction volume on cards and data breaches continues to surge. But Arnold says data breaches have another hidden cost to consumers: time spent dealing with credit report agencies and tracking down rogue payments: “This is price that’s often overlooked.”
Credit card companies are also paying a “huge expense” to bring their card technology in line with the European “chip and pin” system, experts say. Visa and MasterCard agreed to replace the usual magnetic strips currently used by 185 million American cardholders, with more expensive – but more secure – chips. “It’s been a fraud-prone system for years,” says Mallory Duncan, senior vice-president and general counsel for the National Retail Federation. Experts say that in recent years companies have already been raising fees for everything from payment protection and paper statements to under-use of cards and foreign transactions. “Credit cards are still the wild west of fees,” Arnold says.