Saw this at the GN New Links and Forums page today. It looks like yet another possible trigger for bank runs.

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Category: Banking Date: 1999-06-23 08:35:21 Subject: Credit Cards from an Insider's Perspective Comment:

I received this today.

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Yesterday I was talking with a credit card service provider to set up the merchant account for selling my book over the Internet. I was talking with the Corporate Sales Manager for this company.

When he found out that my book is about y2k he was very interested and started asking questions. He seemed very interested in the topic, and said that the employees at his company were growing more concerned about it because of the facts they were uncovering about their industry (the financial services industry).

Specifically, being a credit card service provider they had some inside knowledge on how credit card processing would be affected by y2k. He said that they estimate 45% of the machines that take credit card numbers will be inoperable as of 1/1/2000. He said that there are basically two machine models in widespread use, and that these machines were made in the late 1980s and are not y2k-compliant. His company has run tests on multiple machines of both models, and in every case the machine failed. Even though the credit card companies may be able to accept an *expiration date* of 2000 or later, keep in mind that every credit card transaction is time-stamped with the *current date* at the moment of the transaction. But there's no way the machines can be fixed; they must be replaced. And of course he said there's not enough time to replace all of these credit card machines in the world over the next six months. Their estimates are that these non-compliant machines will account for 45% of the credit card machines in use at the end of 1999.

Most companies that use these machines are not even aware of the defect.

We didn't even get into the domino effect, though he said that there's a consensus at his company that as soon as it becomes common knowledge that almost half of the credit card machines in the world will stop working that people will withdraw a lot of cash just to handle expenses that would normally be done with credit cards. His company expects bank failures as a sole result of this demand for cash, without even taking into account any other y2k concerns.

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URL:

http://www.garynorth.com/y2k/detail_.cfm/5130

Is there anyone in the credit card industry at the level mentioned in the article that can confirm or deny the situation?

TIA

-- LP (soldog@nohotmail.com), June 24, 1999

Answers

This shouldn't trigger bank runs until after 01/01/00...if it is properly managed. And then it might not matter...

-- Mad Monk (madmonk@hawaiian.net), June 24, 1999.

Bingo. I saw that one -- hit the Print button before I got to the end -- and the pages went into my "Triggers" file -- the one I'll need to pull out when meltdown has me frozen along with everyone else, not believing what our eyes are seeing....

-- you (got th@right.mon), June 24, 1999.

I'm not too familiar with that particular POS problem, but if the following situation, which was not debunked by Hoff or any of the other banking folks, is true, the POS issue may pale in comparison:

Milne: Chaos in 90 days

-- a (a@a.a), June 24, 1999.

I'm going to lean towards disbelieving this one. I mean, all these POS companies sent out updates over the last year or so to handle expiriation dates past 2000 but they forgot to fix the transaction date? I don't but it.

If anything like this were to pose a problem it would be because some active inventory system (hooked up as a back-end to the POS) wasn't remediated yet, not because the POS itself was failing.

-TECH32-

-- TECH32 (TECH32@NOMAIL.COM), June 24, 1999.

2K and Your Money

Later this year, the BANKING system is going to go BELLY UP.

Why? Simply because there is not enough CASH in existence to cover the additional demand for actual cash by people wanting to build up a cash stash in preparation for Y2K problems.

How? Because years ago big government in cahoots with big banking created a fraudulent money/credit/banking system. Banks create money out of thin air (but, naturally, it's illegal for YOU to do it) far in excess of actual cash in existence. Most of the "money" is just bits in computer files. This is the "magic" of fractional reserve banking.

Basically, there is only enough cash in the "system" to cover 1% to 2% of the amounts in -- basically -- all the checking and savings accounts. This means that if you and everyone else at the same time wants cash instead of electronic numbers, there's only enough cash to give you 1% to 2% of YOUR MONEY in cash. Or, only enough cash to give just 1% to 2% of everyone all their money in cash. If you are number 3+ in a line of 100 people, you will be S.O.L.

Bottom line -- get some extra cash out of the bank NOW. By Labor Day it may be too late.

Y2K (Year 2000):
http://www.garynorth.com
http://www.greenspun.com/bboard/q-and-a.tcl?topic=TimeBomb%202000%20(Y 2000)
Money/banking:
http://www.gold-eagle.com/editorials_99/teetmyer041399.html
http://www.gold-eagle.com/editorials_99/dfisher032699.html
S.O.L.: Sh*t out of luck

-- A (A@AisA.com), June 24, 1999.

LP,

Because Gary North has a vested interest in provoking bank runs, I feel a responsibility to counter that bias with information from my professional experience.

My credentials: I, too, have been an insider in the financial services industry -- 11 years programming for Deluxe Data Systems (since renamed Deluxe Electronic Payment Systems), a leading provider of electronic payment systems software and processing with customers all over the world. My specialty was "terminal handlers", the software modules that translated a particular ATM or POS device's language to and from a standard internal language, monitored the status of such devices, and sent commands to those devices when necessary.

I wish GN or the author of the note had provided more information about what sort of credit card service provider and what "machines that take credit card numbers" were the subject of the note. My guess is that one or both of the "two machine models in widespread use" was from IVI Corp. (aka VeriFone), because they pretty well sewed up that market while I was working at Deluxe and that's the brand I see at nearly all the supermarkets and department stores around here. I have personally run hundreds of test transactions through IVI devices in Deluxe's test facilities (AKA "the ATM room" because the most noticeable occupants were 12-15 ATMs with their guts hanging out for easy access by testers, and combinations posted on the vault doors for ease in replenishing the NCR/IBM/Fujitsu/Diebold/... play money).

My supposition that the machines to which the note's author refers were probably those with which I worked at Deluxe is strengthened by the author's statement that "these machines were made in the late 1980s". I worked for Deluxe in the late 1980s and early-to-mid 1990s.

Okay, now to the matter of Y2k compliance of "machines that take credit card numbers" and whether non-compliant models will lead to bank runs.

The Short Answer: NO BANK RUNS on account of these machines. A Longer Answer: As far as I know, non-compliance of the machines that take credit card numbers will NOT cause them to stop working or otherwise impede the processing of credit card transactions.

Some Details: How do I know what I claim? (A) We crazy testers sometimes set the year numbers to "00" out of sheer orneriness when the devices required date initialization prior to testing. And so we got dates of "mm/dd/00", but these did not shut anything down. (B) Most importantly, when one of those machines transmits a two-digit year number in the message it sends in to process a credit card transaction, that message is interpreted by software modules such as the very ones that I personally coded and tested at Deluxe. My co-workers and I made that software smart enough to figure out how to correctly expand the two-digit years to four-digit years before passing on the transaction for further processing. That we did this correctly was verified in our formal Y2k testing starting in 1992-93. Maybe someone else's software won't handle two-digit years properly, but ours will.

Now let me respond to some of the statements in the note:

>He said that they estimate 45% of the machines that take credit card numbers will be inoperable as of 1/1/2000.

"Inoperable" in what way? Specifically what functions will not operate? Wish the author had specified.

>His company has run tests on multiple machines of both models, and in every case the machine failed.

"The machine failed" is a mighty general and uninformative statement. The IVI models I used had thick user manuals, much of which were devoted to discussing potential failures. "Failure" covers a wide range -- just how severe a failure was it? Many failures result in a simple error code being transmitted, and have no effect on subsequent transactions.

Or did the author mean that the machine's failure was that it transmitted a two-digit year number instead of a four-digit year number in ISO format? That, by itself, would not be much of a problem, especially when the software that receives and interprets the machine's messages is set up to handle the conversion of two-digit year numbers to four digits smoothly and correctly.

See, folks -- the vagueness of the descriptions of the troubles to which the author refers allows us to imagine widely differing consequences. If I hadn't personally worked with such devices for several years, I'd be tempted to imagine the worst.

>keep in mind that every credit card transaction is time-stamped with the *current date* at the moment of the transaction.

... and, as I've pointed out, the software which receives and interprets the transaction messages is quite capable of correctly handling two-digit year numbers, whether they be in the expiration date or in the current date.

>But there's no way the machines can be fixed; they must be replaced.

That conclusion is not justified, as far as I can see, by the data presented in this note.

>there's a consensus at his company that as soon as it becomes common knowledge that almost half of the credit card machines in the world will stop working that people will withdraw a lot of cash just to handle expenses that would normally be done with credit cards.

This note fails to present evidence to justify the conclusion that half the credit card machines in the world will stop working.

Always keep in mind that some people, such as Gary North, will gladly overlook a missing link in a logical chain of evidence in order to argue that the banking system will fail. They WANT it to fail, and will not go out of their way to fill in the missing pieces of the puzzle to discourage the idea that such failure is inevitable.

>His company expects bank failures as a sole result of this demand for cash,

... but such demand would depend on the public's ignorance of facts about credit card machine and processing vulnerabilities to Y2k-caused failures. I am attempting to supply such additional facts here in this posting.

-- No Spam Please (nos_pam_please@hotmail.com), June 24, 1999.

No Spam,

Thanks for filling in those details!

Jerry

-- Jerry B (skeptic76@erols.com), June 24, 1999.

Verifone is one of the world's largest POS terminal companies. Here's their Y2k URL: http://www.y2k.verifone.com

They have search engines on their page for their customers to check to see if their terminals and software are Y2k compliant. The page is current and has been updated as of June 1999. Here's a short "blurb" from their site regarding Y2k:

"Prepare for the Year 2000 190 days to go

The Year 2000 holds serious date-related issues for computer systems from the most sophisticated mainframes to countertop payment terminals. VeriFone is working with its customers to help them overcome the issues and move their businesses into the new millennium as smoothly as possible.

As the Year 2000 approaches, merchants, banks and retailers the world over are rushing to prepare their computers and software systems for the turn of the centuryand the start of a new millennium."

Hope this helps.

-- Cary Mc from Tx (Caretha@compuserve.com), June 24, 1999.

Credit card machines were down in Angels Camp, CA yesterday morning. The lady said they had already exchanged the old machine for the new but it still wouldn't work. No ATM transactions, but they simply fell back to the old method, non electric, and credit cards were accepted.

Could that be true in the rollover?

-- freeman (freeman@cali.com), June 24, 1999.

nospam: Can you or someone that understands the credit cards debt market comment on the above referenced thread (Chaos in 90 days)?

excerpt: Credit cards are a *very* big part of our modern economy, if no one buys their debt they just cant operate. Merchants wont get paid so most will likely stop accepting plastic, almost over night.

-- a (a@a.a), June 24, 1999.

... and what is a seemingly all-too-often-required disclaimer nowadays:

My comments above do not presume to address the entire chain of credit card transaction processing. It was and is possible for there to be Y2k problems in parts of that chain that I didn't address, and for such problems to disrupt credit card transations. It is theoretically possible, though I consider it extremely unlikely, that changes in the models of machines I used, or introduction of other models could introduce Y2k flaws where there were none when I was testing such machines. That's why Y2k testing is required, and why testing is such a large portion of the overall Y2k budgets of comapnies that have diligently persued Y2k remediation.

My point earlier was that the information provided in the note posted by GN was _not_ sufficient to justify a conclusion that there were Y2k flaws in the credit card machines that would interfere with credit transaction processing, and thus lead to consequences including bank runs.

-- No Spam Please (nos_pam_please@hotmail.com), June 24, 1999.

a,

The credit card debt market is not something about which I can speak from a professional standpoint. My job never involved that side of things.

But on an amateur basis, I'll say that the argument that "no one will show up at the last quarterly debt auction of 99 or the first one of 2000" is one-sided and ignores aspects of financial markets about which even I as an amateur have read.

For example (I think I read this as a response that someone else posted in another thread): The very rumor that some people would stay out of those auctions would be incentive for other people to show up who might not have otherwise. Those others would be enticed by the prospect that a partial boycott would lower the overall bids enough to make it more profitable than usual to attend those auctions. Then once they're there they may well find that they and other contrarians push the bidding just about as high as usual.

Also, if fewer investors show up for an auction, that may well lead to lower bidding and thus higher interest rates, but it's practically impossible for it to result in a total absence of bids. There'll _always_ be someone willing to buy in at a bargain price. Higher rates may mean that the credit card companies run none of their low-low introductory rate promotions for a while, but not that they'll run out of money.

-- No Spam Please (nos_pam_please@hotmail.com), June 24, 1999.

Interesting comments all around. Thanks, No Spam for your insights.

This is a related issue that I've mentioned before but is so troubling that I thought I would add it to the thread.

In 1997, the National Retail Federation commissioned Keene Corp. to survey retail POS systems used at "mid-sized" retailers to determine their Y2K status. The report is worth reading. Bear in mind that it is at least 2 years old, but it shows what an incredible hole retailers were (are?) in:

http://www.nrf.com/hot/it/sur2000/keene.htm

*snip*

KEY FINDINGS

When the NRF compliance survey was launched, it was not clear what would be learned. The goal of the survey was to provide the NRF members with a high level indication of the year 2000 readiness of the industry.

In summary, based on the vendors who replied to the survey, it was discovered that:

7 87 percent of midsize retailers have non-compliant retail management systems, and

7 65 percent of all Point of Sale software and 67 percent of all in-store hardware sold since 1980 is non-compliant.

*end snip*

Have alot of them been remediated? Certainly.

Have enough of them been remediated? We'll see...

-- Lewis (aslanshow@yahoo.com), June 24, 1999.

Cary Mc,

Thank you for the VeriFone glimpse. That message sure looks cookie-cutter doesn't it? Doesn't inspire much confidence in me, unfortunately.

freeman,

Thanks for that Angels Camp report. Little too close to me for comfort.

No Spam Please,

Yours was the reply I requested without knowing it would be from you. Thank you for your comprehensive reply and explanation, and kudos to you and your colleagues for having the foresight to write programs flexible enough to translate 2digit > 4digit that far back. If everybody had done that, this forum might have some other theme, and y2k would be the name of yet another breakfast cereal. (Kellogg's Special Wye-Too......never mind.)

Hope you got a bonus for that. (Did I hit a nerve?...Sorry.)

Good job, everyone.

-- LP (soldog@nohotmail.com), June 24, 1999.

Credit card machines go down in Angel's Camp, California, because of an early Y2K problem, huh? What would Mark Twain have said? "I think they'll get it fixed, but don't bet the bullfrog."

-- Don Florence (dflorence@zianet.com), June 24, 1999.

P.S. For those few souls who don't live in Angel's Camp or who aren't a Mark Twain aficionado, Angel's Camp is the old California mining town where Twain first heard the jumping frog story, as told to him in a saloon by an old Illinois riverboat pilot named Ben Coon, who in turn had probably gotten it from a fellow named Jim Townsend. Twain dressed the story up in his inimitable way, threw in a few additional whoppers for effect, and had it published in the NYC "Saturday Evening Post" on Nov. 18, 1865, thereby launching his national literary career. (He was already known in California and Nevada.) "The Celebrated Jumping Frog of Calaveras County" is set, of course, in Angel's Camp. Whether the frog got any share of the royalties, I don't know.

Today, Jim Smiley would use an ATM to draw out cash to place his bets on straddle bugs and three-legged dogs and jumping frogs--if the ATMs weren't crippled by Y2K, that is.

-- Don Florence (dflorence@zianet.com), June 24, 1999.

LP,

You're welcome.

>Hope you got a bonus for that. (Did I hit a nerve?...Sorry.)

It was just part of the job. The messages coming in on one side had two-digit years. The ones going out on the other side had four-digit years. All we TH (Terminal Handler) guys had to do was be halfway reasonable in the middle. (Nerve? Nope. Deluxe paid well. :-)

The credit for foresight in setting up some year fields as four-digit belongs to those people in management who were in a position to set the standards for date formats.

-- No Spam Please (nos_pam_please@hotmail.com), June 25, 1999.