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Visa Gives CardSystems a Reprieve, Pending Sale to CyberSource

By Martin H. Bosworth
ConsumerAffairs.com

October 3, 2005
Visa has extended its contract with merchant transaction processor CardSystems, even as rival electronic-payment processor CyberSource announced it was buying CardSystems' assets.

CardSystems • CardSystems Solutions Settles Federal Charges • CardSystems Sells Out After Massive Data Breach • Visa Gives CardSystems a Reprieve, Pending Sale to CyberSource • Setback for Consumers in CardSystems Class Action • CardSystems May Shut Down • CardSystems Losing Big Customers • Cardsystems Named in Class Action Suit • States Want CardSystems to Provide Details of Data Breach • Washington State Wants CardSystems to Provide Details of Data Breach • Latest Security Breach Exposes 40 Million Credit Card Accounts to Potential Fraud --- • More about Identity Theft ...

Visa agreed to extend its contract with CardSystems to January 21st, 2006. The contract was originally scheduled to be terminated in October 2005, after CardSystems allowed 40 million credit cardholders' records to be hacked in June of 2005.

MasterCard and American Express had also planned to terminate their contracts with CardSystems.

Visa said the news of CyberSource's pending takeover of the company directly contributed to its decision to extend the contract.

"Visa is granting an extension... for the sole purpose of helping facilitate CyberSource's planned acquisition of (CardSystems) assets," the company said in a press statement.

CyberSource, of Mountain View, Calif., bills itself as "a leading provider of electronic payment and risk management solutions." The e-commerce and payment processing company had a relatively low public profile until the announcement, despite claiming clients including "half of the companies listed in Dow Jones."

The CyberSource "partner list" for secure banking and bill payment includes Bank of America, Chase Securities, and TeleCheck. TeleCheck is the major check processing and verification competitor to ChexSystems.

Visa itself had partnered with CyberSource in 2001 on an improved "fraud detection system" for online merchants, using a "risk scoring system" that estimated the likelihood of a fraudulent transaction.

The deal remains contingent on the major credit card companies' willingness to work with CyberSource, and how much of the CardSystems company structure they retain in the buyout. CardSystems was blamed not only for lax security procedures that allowed the data to be hacked, but for willfully keeping consumer transaction data for "research purposes."

The CardSystems breach is widely regarded as the single largest instance of data loss in history, and in a year of constant news of data thefts and losses, pointed up the need for greater regulation and oversight of information selling and storage.

Consumers seeking damages from CardSystems in a class action lawsuit recently suffered a setback when a San Francisco judge ruled that Visa and MasterCard did not have to directly notify customers that their data was stolen, and that the bank issuing the card should be held responsible for notifying potentially endangered customers.

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