The Bank of Bermuda lost approximately $30 million from two e-commerce start-ups and was hit by fraudulent credit card use when it was processing online merchant accounts.

The bank invested millions in two e-commerce start ups, FirstEcom.com and Measurisk. It went into a 50-50 partnership with FirstEcom to go into online payment processing with First E-commerce Data Services (FEDs) which was to be a global provider of electronic payment processing solutions.

FEDs was created by the two companies as an independent third-party payment processor licensed by Visa and MasterCard to provide banks and their merchants with the "unique" FEDs processing solution. This solution included authorisation, electronic data transmission for settlement, full transaction reporting and a wide range of new services for researching, retrieving, and archiving the data associated with the transactions processed on behalf of the banks and their merchants.

But the bank paid a heavy price for its investment and had to write off nearly $26 million during 2000 to 2002 for its investment in the two e-commerce start ups.

Measurisk was a little reported a joint venture with XL Capital Ltd., Morgan Stanley Dean Witter & Co. and Micro Modelling Associates in a bid to create an Internet-based software system for measuring risky investments.

The bank also lost close to $5 million lost through the fraudulent use of credit cards.

In the bank's 2001 annual report it said it has lost $4.7 million as a result of agreements with certain online merchants. First Atlantic Commerce (FAC) was the processor of credit card transactions that were then passed on to the Bank of Bermuda for settlement.

There are no allegations of fraud in Bermuda, but in accordance with credit card procedures, the card processors are liable for the fraudulent credit card charges.

At June 30, 2000 the loss was estimated at $3 million. At December, 2000 the total charge backs were $5.7 million, plus an additional reserve of $1.3 million put aside taking the loss estimate to $7 million.

In the 2002 annual report, it said that $1.3 million of this in reserve was released and a further $1.8 million was recovered, but $1 million went to the insurance company. The remaining $0.8 million went to the loan and the rest was written off.

The losses stem from Visa and MasterCard requirements that leave banks on the hook for inappropriate credit card charges made to customer accounts here.