Global Payments' 1.5 Million-Card Mishap

As much as shareholders of global payment processing facilitator Global Payments (NYS: GPN) wish this was just a bad dream, it's not.

On Friday, news broke that there was a potential security breach potentially affecting millions of Visa (NYS: V) and MasterCard (NYS: MA) credit card numbers and personal data including home addresses and Social Security numbers. The cause was suspected to be a breach in Global Payments' servers. Over the weekend we heard directly from the horse's mouth.

Global Payments did indeed confirm that it was the source of the breach and narrowed the number of affected cardholders down to 1.5 million. Although no names, addresses, or Social Security numbers were taken, enough information was pulled from its network that fraudulent activity could still occur.

This is by no means the biggest boo-boo in the credit industry's long history, though. In 2009, Heartland Payment Systems (NYS: HPY) , which makes credit card swiping machines, paid $139 million in settlements and legal fees stemming from a 2007 breach of its servers in which the information of roughly 130 million credit cards was compromised. It seems pretty fair to assume that there could be legal fees involved with Global Payments' recent snafu.

But this wouldn't be the financial sector if we didn't pour salt in the wound, now, would it? Over the weekend, after the magnitude of the breach was realized, Visa dropped Global Payments from its approved providers list, stating that it is requesting Global Payments to update its security standards to match the rest of the sector. The move doesn't disallow the use of Global Payments services but is more of a brand-recognition slap on the wrist. Global Payments expects that once it has resolved its security issues, it will be reinstated among Visa's approved provider list.

Global Payments is the seventh-largest merchant-acquirer in the U.S. and was responsible for processing 2.44 billion transactions last year throughout its network of 800,000 merchants.

The good news for Global Payments is that even after Heartland's massive breach, it didn't skip a beat. Even though settlements drove the company into a one-time annual loss, revenue continued to tick higher, so there is still optimism from a historical standpoint that Global Payments will persevere just fine.

From an investor's perspective, I'm still skeptical about the company's prospects, given its earnings miss -- however modest -- in its latest quarter. Within the credit card chain you can choose Visa or MasterCard to process your transactions essentially liability-free, or you could move your money over to a company like Green Dot (NAS: GDOT) , which has seen its prepaid debit volume soar. Middlemen and banks just have far too much liability and growth hiccups for my liking, and I'm going to continue to be skeptical of Global Payments until it gets back on Visa's good side and settles whatever fines wind up being levied against it.

What would you do with Global Payments here: Buy it, short it, or avoid it like the plague? Tell me in the comments section below, and consider adding it and its credit peers to your free and personalized Watchlist.

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At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article, and he will be closely monitoring his Visa card over the next few weeks. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of MasterCard.Motley Fool newsletter serviceshave recommended buying shares of Visa and Heartland Payment Systems. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policythat's never compromised.

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