Bankruptcy

Visa's Identity Theft (I Mean Superbowl) for Life Promotion

By Adam Levitin

In the midst of the Bears' ignominious defeat at the hands of the Packers, I saw a commercial advertising Visa's Superbowl for Life promotion.  It's a sweepstakes.  Users of Visa's signature debit and credit products are automatically entered with every purchase, but you can also enter by writing in.  If you use a Visa PIN debit product (Interlink), however, you do not get a shot at the tickets. 

The estimated odds of winning:   1 in 9,685,871,298.  Compare that with the odds of having your identity stolen by using a signature debit product.  

The loss rate (frequency * loss) is 3.75 times higher for signature debit than for PIN debit.  (Other studies put it 7 times higher.)   So for a one in 9.6 billion chance of getting Superbowl tickets for life, with an estimated retail value of $493,678, a consumer is quadrupling his or her chances of identity theft loss. That strikes me as a dubious bargain. 

I've tried to back out the "cost" of a Visa lottery ticket.  Assuming 15 signature debit transactions per month for 4 months (the duration of the sweepstakes) and an average transaction amount of $36.60 and a loss rate of 13bps, the average fraud cost per signature debit cardholder is $2.85.  (The equivalent identity theft cost on PIN debit would be just 83 cents, based on $41.10 average transaction amount, 14.5 transactions/month, and 3.5bp fraud rate--I'm using the conservative numbers here).  

So the real cost of entering the Visa lottery is about $2.00.  Let's assume that the Visa odds are for a single entry, not for the typical cardholder's 60 entries.  So we actually have 1 in 160 million odds. That's $2.00 to get a 1 in 160 million chance of winning half a million dollars.

Those are really crappy odds.  You'd do better to play the state lottery (not that I recommend it).  

California's MegaMillions costs $1 to enter, and the odds of winning the jackpot pari-mutuel are 1 in 175 million.  The jackpot is currently at $63 million, and that has a present value (at a 5% discount rate) of about $18 million. So Visa is offering about 1/72d of the value of the California MegaMillions.  And that's before figuring in the higher cost consumers pay for goods and services because of overpriced signature debit swipe fees.  Priceless.  

I mention all this because Visa has been arguing that network rewards are an important reason for letting consumers choose the network over which their debit card transactions are routed in opposition to the Fed's proposed Durbin Interchange Amendment rule-making.  

This Visa argument is pretty silly from the get-go, as consumers don't choose what networks are on their debit cards (the bank does--the debit card comes with the deposit account), much less how the routing will go (more complicated, but a combination of the order of routing flags on the card and the networks handled by the merchant's processor).   

But it's not just that the Visa argument is silly.  It's actually dangerous.  Visa's Superbowl for Life promotes the use of an inferior technology (signature debit) that poses real risks to consumers. Why? Because signature debit is more profitable for banks and by offering banks higher swipe fees, Visa is able to increase its transaction volume and hence its own revenue. Visa's PIN debit product, Interlink, has the highest PIN debit swipe fees around, but they're still less than Visa's signature debit swipe fees. 

Yes, Visa has a "zero liability" policy, but let's get real about that.  It's a vague network policy that is applied with the network's sole discretion.  The consumer has no contractual privity with the network.  The enforceability of the policy by consumers is dubious.  In contract law terms, it appears that the "zero liability" policy is "mere puff".   But like all Carbolic Smoke Ball puffs, it does make for great advertising.   

Oh, the weirdest thing about this commercial:  Visa's Superbowl for Life sweepstakes ended on December 31, 2010, and the winners were notified on or about January 10, 2011.  So Visa's advertising on national prime time television for a non-existent sweepstakes.  I don't know California sweepstakes law, but I've got to think this could raise some of unfair and deceptive trade practices or false advertising issues....  (And note that there's no class action waiver or binding mandatory arbitration by entering the sweepstakes.)

Full post as published by Credit Slips on January 23, 2011 (boomark / email).