You may not know this but the credit card industry is notorious for covering up its failures. While most experts will tell you that failure is important, as it teaches us what not to do and shows us how things can get done, the credit card industry is known for not learning from it’s mistakes. Just look at how Visa again and again tries to attempt a solid risk management tool with one major failure after another.

I decided to profile some of the recent industry failures because no one wants to talk about them, but I think they are an important part of the process as they teach us and force us to look back and realize what we’ve learned. This isn’t an attack on these companies as I am confident most were run by good, solid people, but rather a look back at what went wrong. Its easy now, as hindsight is always 20/20, but it’s a start.

PaybyTouch - Possibly one of the largest failures in the risk arena. PaybyTouch started out by promising that biometrics will end fraud, but founder Mr. John Rogers quickly found out that few retailers, especially brick and mortar, had a problem with fraud. While it’s common place in gas stations and similar service arenas, the problem just wasn’t that big. Still, Mr. Rogers managed to raise over $250 Million from some major players in the industry. Unfortunately, in the last few months they were pushed into bankruptcy and will soon be forced to shut its doors.

The learning experience here was as old as business itself. They try to build too quickly before clients even existed which isn’t uncommon but when they realized that wasn’t going to happen, they quickly started buying up other failing businesses but none of those panned out. The goal became simple, buy up some sizable failures like Card Systems, absorb their cost into the business and end up ahead. The problem became that the sum of the parts was greater than the whole as employees of the buyouts were never fired and expenses continued to rise.

While biometrics was always a pipe dream, it’s amazing that Rogers was able to raise a quarter of a billion dollars and no one questioned the long term strategy. Oh well, maybe someday someone will find the key to making the biometrics industry work but clearly it’s not going to be PayByTouch.

Comerxia - no site available - Now these guys were interesting. Overnight they became a buzz word, attracting investors such as UPS and other major shipping companies and then without warning, they went out of business. Just like PayByTouch, they tried to build too fast. The promise was simple: allow merchants to sell internationally without the fear of chargebacks but it quickly turned south. The problem Comerxia had was that they insisted on handling the shipping, product storage, and ultimately fulfillment which led to their downfall. They spent nearly $25 Million to build out huge warehouses to store items, millions more on customer service channels and even more on marketing. While they did manage to attract some major names such as Shoes.com, they simply didn’t build up enough steam. The end was pretty bad as they took in tens of millions in merchandise, millions more in credit card payments and then ultimately filed bankruptcy. Unfortunately this is another example of an industry failure that was just pushed under the rug as its bankruptcy proceedings got even uglier. Unfortunately, I think the lesson once again learned is you have to be realistic as it comes to time frames and expectations. The merchant services industry is very hard and to get consumers to change their buying patterns, even when merchants are pushing them, isn’t an overnight thing, which is what Comerxia was looking for.

Paily - This is really an interesting story. In 2001, a company out of Israel started named NPX. For the next few years, NPX, even with local venture funding, was nothing more than another risk management consulting firm. In 2005, they introduced a poorly executed third party billing solution that offered merchants zero chargeback liability, called Paily. They also figured on charging the end consumer the bulk of the fees rather than the merchant. A year later, they closed up that shop. Where it gets interesting is that they then took those clients, raised $11 Million dollars and reworked its failed business into a new venture Fraud Sciences which ultimately is the same product as Paily, with a few small tweaks. It’s shocking to see this type of hubris for a company as to just screw over its past merchants, close up shop in Israel and then re-open in the United States with its old clients. Is anyone watching this stuff? And more so, what lies did they tell to their current venture group to get new funding? I can only imagine it was one excuse or another to explain their past failure. The lesson here would be, don’t try to cover up your old mistakes, accept them and embrace the fact that on the internet, everything gets out.

Merchant Sense - Unfortunately, yet another example of a guy with a few bucks looking to make out like a bandit. While it may come off as a simple and professional solution, the reality is that it’s simply a few pages with two scripts behind it. While MerchantSense did a good job at getting the name out there and lasting it out, the reality is it was only one person who was simply hoping to make it big and use the money to build the business. Unfortunately, in the end, he tried to sell the project on SitePoint’s Marketplace for $80k only to realize the highest price on the table was $2,000.00. I would say here again, be realistic with your expectations. Not having any revenue is also going to be a downfall in selling the company. While people would buy a company based on technology without a doubt when the technology is good, when you can’t show off an interface, historical results, or anything more than a few HTML pages, you are going to have problems.

Failures expected in 2008 - these are my projections for 2008, take them as you wish.

Order Spy - An example of a good idea with bad execution. After years of trying to garner a single client, Order Spy went extreme on its pricing and figured, heck, we can’t sell it at $4.95 a month, let’s try for $995 a month. The company is currently run by a father and son team but the father was looking to retire a while ago and they have since been trying to sell the project for $100k, but no takers. I figure they have a net value of about $5k but considering they have spent at least $50k in cost and time, I don’t imagine they will part so cheaply.

StrikeForce - What’s shocking about these folks is their lack of reality. While they were failing over a year ago, their top management was still taking $120k a year salaries and it was only recently that they cut it in half. Bankruptcy is right around the corner for these folks, with many of its employees jumping ship already.

Vindicia - Come on guys, you raised some money, you spent it, and now you are trying to reshape your failing business. It’s a nice design but you are going to need more substance to that business. This one may not fail, but it’s definitely on a vine. The reality is that there is simply no interest in post chargeback management, why would anyone care about something that has already been written off? The fact is there is a small market but until you guys find some real partners or wake up and smell the real opportunity out there, you are going to find yourselves on the bad end of bankruptcy court trying to explain to your old investors why they feel cheated and shouldn’t sue personally.

Notable Mentions

Verifone - Wow, these guys really screwed up. Talk about throwing dirt on dirt. Once a pillar of the merchant services community, Verifone has become the water cooler joke of Wall Street. The fact is that while these guys may always find a way to continue in one fashion or another, their recent Wall Street downfalls will not go unnoticed. For those of you not paying attention, Verifone spent 2007 alienating their partners, thumbing their nose at Wall Street and violated more SEC rules than I care to mention. Good luck guys!