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| A passer-by walks near an entrance to a Target retail store Thursday, Dec. 19, 2013 in Watertown, Mass. Target says that about 40 million credit and debit card accounts may have been affected by a data breach that occurred just as the holiday shopping season shifted into high gear. |
Target's data-security nightmare threatens to drive off holiday shoppers during the company's busiest time of year.
The
nation's second-largest discounter acknowledged Thursday that data
connected to about 40 million credit and debit card accounts was stolen
as part of a breach that began over the Thanksgiving weekend.
The
theft marks the second-largest credit card breach in U.S. history,
exceeded only by a scam that began in 2005 involving retailer TJX Cos.
and affected at least 45.7 million card users.
Target's disclosure came a day after reports that the company was investigating a breach.
Customers
who made purchases by swiping their cards at its U.S. stores between
Nov. 27 and Dec. 15 may have had their accounts exposed. The stolen data
included customer names, credit and debit card numbers, card expiration
dates and the embedded code on the magnetic strip on back of the card,
Target said.
There was no indication that the three- or four-digit security numbers visible on the back of the card were affected.
The data breach did not affect online purchases, the company said.
Target has not disclosed exactly how the breach occurred but said it has fixed the problem.
Large
companies spend millions of dollars each year on credit-card security
measures. Given the company's heavy security, the theft may have been an
inside job, said Avivah Litan, a security analyst with Gartner
Research.
"The fact this breach can happen with all of their security in place is really alarming," Litan said.
Jason
Oxman, CEO of the Electronics Transaction Association, which represents
the payments technology industry, said past data breaches have been
"heavily organized and sophisticated."
Last
year, global credit and debit card fraud losses reached $11.27 billion,
up 11. 4 percent over the previous year, according to The Nilson Report,
which tracks global payments. And while credit and debit card fraud has
been on the rise, it's because the overall payment industry has
expanded. In fact, Nilson's publisher David Robertson said credit and
debit card fraud still accounts for less than 6 cents of every $100
spent.
Target, which has almost 1,800 stores
in the U.S. and 124 in Canada, said it immediately told authorities and
financial institutions once it became aware of the breach on Dec. 15.
The company is teaming with a third-party forensics firm to investigate
and prevent future problems.
The credit card
breach poses a serious problem and threatens to scare away shoppers who
worry about the safety of their personal data.
"This
is close to the worst time to have it happen," said Jeremy
Robinson-Leon, a principal at Group Gordon, a corporate and crisis
public relations firm. "If I am a Target customer, I think I would be
much more likely to go to a competitor over the next few days, rather
than risk the potential to have my information be compromised."
Target
advised customers Thursday to check their statements carefully. Those
who see suspicious charges on the cards should report it to their credit
card companies and call Target at 866-852-8680. Cases of identity theft
can also be reported to law enforcement or the Federal Trade
Commission.
"Target's first priority is
preserving the trust of our guests, and we have moved swiftly to address
this issue, so guests can shop with confidence," Chairman, President
and CEO Gregg Steinhafel said Thursday in a statement.
Many
displeased customers left angry comments on the company's Facebook
page. Some threatened to stop shopping at the store. Many complained
they could not get through to the call center and could not get on
Target's branded credit card website. The company apologized and said it
was "working hard" to resolve the issue and adding more workers to
field calls and fix website issues.
Christopher
Browning, of Chesterfield, Va., said he was the victim of credit card
fraud earlier this week and believes it was tied to a purchase he made
at Target with his Visa card on Black Friday. When he called Visa on
Thursday, the card issuer could not confirm his suspicions. He said he
has not been able to get through to Target's call center.
On
Monday, Browning received a call from his bank's anti-fraud unit saying
that there were two attempts to use his credit card in California - one
at a casino in Tracey, Calif., for $8,000 and the other at a casino in
Pacheco, for $3,000. Both occurred on Sunday and both were denied. He
canceled his credit card and plans to use cash.
"I
won't shop at Target again until the people behind this theft are
caught or the reasons for the breach are identified and fixed," he said.
Brianna
Byrnes, of Kansas City, Mo., a student at the University of
Missouri-Kansas City and a call center worker, said she made a Target
purchase during the affected period. The situation made her "a little
bit" nervous, but she still planned to shop for toys at the store.
"I've never had anyone steal my identity. I guess it's taking a risk."
Target's stock dropped more than 2 percent, or $1.40, to $62.15 on Thursday.
The
incident is particularly troublesome for Target because it has used its
store-branded credit and debit cards as a marketing tool to attract
shoppers with a 5 percent discount.
During an
earnings call in November, the company said some 20 percent of store
customers as of October have the Target-branded cards. In fact,
households that activate a Target-branded card have increased their
spending at the store by about 50 percent on average, the company said.
"This
is how Target is getting more customers in the stores," said Brian
Sozzi, CEO and Chief Equities Strategist. "It's telling people to use
the card. It's been a big win. If they lose that trust, that person goes
to Wal-Mart."
TJX Cos., which runs stores
such as T.J. Maxx and Marshall's, had a breach that began in July 2005
and exposed at least 45.7 million credit and debit cards to possible
fraud. The breach was not detected until December 2006.
Without
anyone noticing, one or more intruders installed code on the discount
retailer's systems to methodically collect and transmit account data
from millions of cards.
In 2009, TJX agreed to pay $9.75 million in a settlement with multiple states.
In
2011, an even larger hack hit Sony, which had to rebuild trust among
PlayStation Network gamers after hackers compromised personal
information, including credit card data, on more than 100 million user
accounts.
Litan doubts the breach will have
much effect on Target's sales, noting that TJX launched sales promotions
immediately following the news of its breach. The promotions increased
sales.
"People care more about discounts than security," Litan said.
