CyberSource Buying In $565 Million Deal

Written by Evan Schuman
June 18th, 2007

Electronic payment vendor CyberSource has agreed to purchase fellow e-payment player for $565 million in cash and stock, the companies announced Monday.

Steve Rowen, a research analyst at Retail System Research in Miami, Fla., said the merger of these two players is not in and of itself earth-shattering or surprising, but the size of the deal does reveal a lot about retail interests.

?CyberSource acquiring Authorize.Net is a highly logical move. Is it an industry-changing deal? Not at all,? he said, but a deeper look at the metrics behind data-theft suggests an importance lying elsewhere surrounding this $565 million deal.

?To a data criminal, a personal account number has a street value of $3. By way of comparison, the full track data from a credit card swipe at a card-present merchant yields anywhere from $35-$50. As a result, e-commerce retailers are not as attractive to thieves as those who operate physical stores,” Rowan said. “So what this deal?assuming it wants to be profitable at this price tag?really shows us is how seriously the online retail community has taken the responsibility and the prioritization of secure payment and authorization. If only card-present merchants were so demanding.”

The companies positioned the pair as not competing as much as focusing on non-overlapping market segments.

“CyberSource, with approximately 20,000 customers, has traditionally focused on managing payments for mid-sized and enterprise customers” while “Authorize.Net, with more than 175,000 customers, has specialized in small businesses,” the two companies said in a joint statement.

The pair reportedly processed approximately 1.1 billion transactions in 2006, in what the companies said repsented “$65 billion of e-commerce.”

Under the agreement, Authorize.Net shareholders will receive 1.1611 shares of CyberSource common stock for every share of Authorize.Net common stock. Additionally, shareholders will receive a pro-rata share of approximately $125 million in the form of a cash payment.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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