Growing Liability Kills CU Bid on Merchant Acquiring

DUBUQUE, Iowa – Increasing risk in electronic commerce, especially online fraud, forced DuTrac Community CU to abandon its profitable merchant processing operation. DuTrac had been the only credit union in the nation to break into the market. "We just couldn’t afford the risk," Allan Schuester, vice president of the $300 million credit union, told The Credit Union Journal last week. The merchant acquiring business, dominated by banks, amounts to an institution with access to the payments systems clearing transactions for merchants. Schuester, who was working to control potential damage from the latest credit card breach, said the CU became convinced the legal liability of merchant acquirers was not worth the reward–about $1 million a year in profit. DuTrac Community operated the merchant acquiring business through an Independent Service Organization known as iMax Bancard for three years before deciding to exit. As many as two dozen area credit unions and banks last week were working to contain the damage of the growing credit card fraud problem, apparently caused by a breach at a local merchant. But MasterCard, which has notified institutions of the breach, has refused to disclose the source. An official with Premier bank in Dubuque said it also has recorded fraudulent activity on its member accounts and has begun cancelling cards. Robert Hoefer, president of Dupaco Community CU, said last week his credit union found fraudulent activity on at least 75 accounts and is working to contain the fraud by reissuing cards. As many as 100,000 cards in the Dubuque area may have been compromised, according to authorities.