Walgreen Co. says it will reimburse up to 4 million customers who were overcharged on credit and signature debit card transactions during the holidays.
Michael Polzin, a spokesman for Deerfield, Ill., drugstore chain, said unexpected transaction volume caused a software overload on Dec. 23 and Dec. 24 that resulted in some charges being sent to a payment processor more than once.
Payment technology experts have doubts about that explanation, however.
Mr. Polzin said he did not know if the issue came up in testing, but the vendor whose software was at fault had been processing Walgreen's payments for several years. He would not name the vendor.
"We have a testing lab here in our corporate office where all systems are put through the paces before it's rolled out to stores," Mr. Polzin said.
Gwenn Bezard, a senior analyst for the Boston market research firm Celent Communications LLC, called Walgreen "a very savvy retailer" and said he would be surprised if it was volume that caused the problem.
"The software out there is able to scale," Mr. Bezard said. "It's tough to say, just on the information released, exactly what went wrong. I would believe it's more of a computer glitch, a software glitch, not necessarily a matter of scale."
Theodore Iacobuzio, a research vice president at TowerGroup, a unit of MasterCard International, says human error caused a similar problem four years ago at Walgreen, but said that, from a technological standpoint, he had "never heard of it happening on this kind of scale. This is not just a terrific embarrassment to Walgreens, it's going to be very expensive to charge these back."
Walgreen has promised to reimburse those who incurred penalty fees because of the accidental charges, but says it has not been able to tell them because it does not have contact information for most of them.
Mr. Iacobuzio said that though Walgreen appears to know which vendor's software caused the problem, it can be difficult to pinpoint where such errors occur.
"A big retailer like Walgreen is going to use different vendors for different sections of the transaction pipe," he said.
Walgreen, which was founded in 1901, says on its Web site that it has doubled its number of stores, to 4,681, in the past five years. Mr. Bezard said it is possible the software vendor did not anticipate that much growth.
A volume overload recently caused software problems with PayPal Inc., the online payments unit of eBay Inc.
In early October, a software upgrade proved incapable of handling PayPal's transaction volume, resulting in a shutdown so extensive that even PayPal's debit card holders could not use the card to pay for non-Internet purchases.
PayPal offered to waive transaction fees for many customers during a 24-hour period that followed its blackout.
Mr. Iacobuzio said Walgreen may need to make a similar gesture. "Nobody likes when something like this happens," he said.
Visa U.S.A. and MasterCard said their card spending rose substantially this past holiday season. Visa said spending with its cards rose 31.8% year over year, to around $25.4 billion, for the week of Dec. 20 to Dec. 26. The number of transactions for the week rose nearly 30%, to 430 million.
Visa said its twin card processing systems, housed separately, are each designed to handle a transaction volume of 6,200 messages a second.
Visa says its holiday-season volume peaked at 5,546 messages per second in the United States on Dec. 24. Globally there were 147 million Visa transactions on Dec. 23 and 143 million on Christmas Eve.
MasterCard says that on Dec. 23, its busiest day of the season, its members made 36.9 million transactions. Linda Locke, a MasterCard spokeswoman, said double-charging happens occasionally, and not just during the holiday season.
