A new study suggests that card issuers have their hands full trying market to households earning over $100,000 annually. The emerging mass-affluent demographic has become very demanding, willing to speak up, walk out, or refuse to buy a product or service due to a poor experience. The MasterCard report, based on Yankelovich’s annual study of consumers, concludes that customization is becoming a necessity and that financial services companies must offer more choice and convenience to tap the mass-affluent market. According to the findings, 85% of mass-affluent consumers say they will speak up when experiencing bad service. Nearly three-quarters will walk out of a store if mistreated, even if the store has exactly what they are looking for. More than half have refused to buy a particular product or service over the past year as a form of activism. However, only 12% of mass-affluent consumers describe themselves as having “a lot of money.”
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Heartland Payment Systems recently exceeded its 100,000th active customer. Heartland has experienced rapid growth in the restaurant industry over the past several years, as well as achieving significant penetration in the hotel and retail markets. Restaurant merchants now account for 33% of its customer base. Heartland Payment Systems is a multiple product transaction processor of low-risk businesses across all 50 states and a portfolio in excess of $30 billion in annual bank card processing volume.
Credit card delinquency in Canada has increased to 5.3% this year, compared to a 4.6% ratio for late 2004. The modest upturn is expected to produce a similar increase in gross charge-offs in the next several months. A new report from CIBC World Markets also shows that the
growth in credit card portfolios has leveled off to about 10% and that the rates of growth of “Standard” and “Premier” cards have converged.
The research found that during the first quarter, overall household debt rose by 2.2% while personal disposable income rose by only 0.3%. Therefore, the debt-to-income ratio, has grown from 113% to 115%. CIBC believes the debt ratio will continue to rise. At the same time, the debt service ratio, as measured by debt interest payments as a share of disposable income, has risen a bit in the first quarter, but at 7.6% it is still extremely low. CIBC also noted in its report that personal bankruptcies in Canada are on the decline with the cumulative number personal bankruptcies during the year ending April 2005 falling by 1.5%.
Bank of America announced a definitive agreement to buy approximately 9% of the stock of China Construction Bank for $3 billion, with the option of increasing its stake in future years. CCB, the second largest commercial bank in China, has RMB 3,910 billion ($472 billion) in assets and RMB 3,491 billion ($422 billion) in deposits and 136 million active retail deposit account relationships. The bank is currently majority owned by China SAFE Investments Limited, an entity of the government of China. Bank of America is one of the world’s largest financial institutions, serving 33 million consumer relationships.
Scottsdale, Arizona-based LifeLock has launched a proactive identity theft protection service for consumers that places alerts on credit bureaus, stops pre-approved credit card applications, and monitors credit files. LifeLock guarantees the effectiveness of its system by offering up to $25,000 in reimbursement for any cash losses if an identity is compromised while a LifeLock customer. The company will also resolve any credit issues, no matter the cost or hours, at LifeLock’s expense. Last year, nearly 10 million people were victims of some form of identity theft. Losses to victims and businesses last year exceeded $50 billion.
A recent report by a German firm has found that even though the average chargeback ratio in European e-commerce seems to be quite low at only 83 basis points, there are significant concerns revealed in a more thorough analysis. Pago says the share of chargebacks resulting from manipulated credit card data has risen from just over 4% in 2003 to more than 7% in 2004. Pago believes the overall increase is due to a rise in organized credit card fraud. The report also found that the relationship between chargeback ratio and shopping cart value has deteriorated. Whereas the chargeback ratio for transactions of under 10 Euros is only 28 basis points, transactions over 500 Euros carry a 371 basis point chargeback ratio. The research was based on 20 million real purchase transactions processed through the Pago platform last year.
Minnesota-based Ceridian has named Randy Strobel as its new VP/Finance and Controller. Strobel brings more than 15 years of financial management experience to Ceridian. He formerly was vice president of finance for Minneapolis-based Mesaba Aviation, Inc. He will be responsible for managing Ceridian’s internal and external accounting and reporting processes. Ceridian Corporation provides information services and human resources outsourcing.
Chase and three major league baseball teams have partnered to launch the “Ultimate Fan Rewards Program.” The Arizona Diamondbacks, Detroit Tigers and San Diego Padres have added the programs to their respective cobrand cards. Chase says it plans to announce more sport team partners for the new program. The “Ultimate Fan Rewards Program” offers cardholders exclusive sporting event experiences, memorabilia and other merchandise. Cardholders earn one point for each dollar charged.
BJ’s Wholesale Club has inked a settlement with the FTC over charges it failed to take appropriate security measures to protect the credit and debit card information of thousands of its customers. The FTC says millions of dollars of fraudulent purchases were made as result of BJ’s lax security which became evident early last year. Since then, banks and credit unions have filed lawsuits against BJ’s and pursued bank procedures seeking the return of millions of dollars in fraudulent purchases and operating expenses. BJ’s recently reported that outstanding claims total about $13 million. BJ’s says it took immediate steps to address the situation in early 2004 and that no conclusive evidence of a breach was found. However, it issued a public statement in March 2004 alerting consumers to the potential issue, and recently agreed to the settlement with the FTC without an admission of either any wrongdoing or that the facts in the FTC draft complaint are true. The FTC settlement requires BJ’s to establish and maintain a comprehensive information security program and to obtain a security audit every other year. The FTC is seeking public comment on the proposed settlement. BJ’s operates 150 warehouse stores and 78 gas stations in 16 states.
Los Angeles-based No Borders has hired Randy Gutierrez, former executive at Wells Fargo Bank and BankServ, as COO. Gutierrez joins No Borders with more than 20 years financial payment systems experience in domestic and international money transfer systems and operations, automated clearing house systems and operations, and credit card, bill payment and remittance systems. Mr. Gutierrez spent 15 years with Wells Fargo Bank in a variety of management positions and has spent the last 8 years with BankServ, a San Francisco based electronic payments company. No Borders provides a debit and stored value card programs for residents of developing countries and to immigrants in the US to send money back home on a regular basis.
The announced departure this week of Morgan Stanley’s Chairman and CEO may give the investment bank reason to reconsider its planned spin-off of Discover. Analysts are also pointing out that Discover may drain more capital than expected from its parent in order for it to operate as a stand-alone entity. The proposed spin-off will be reported on and evaluated by the MS board on Tuesday. MS will report second quarter earnings on Wednesday. (The Company expects its second quarter earnings to be approximately 15% to 20% below 2Q/04.) The Wall Street Journal this morning reports that since April, MS has been meeting with credit-rating companies to determine how best to structure and capitalize Discover but hasn’t provided significant details as how the unit will do that. Earlier this week, Chairman and CEO Philip Purcell announced he will retire no later than March of next year, citing continuing personal attacks and the level of negative attention that the Company has drawn as reasons for leaving. On April 4th, after extraordinary shareholder pressure, the MS board gave management the green light to the pursuit of a spin-off of Discover Financial Services. Discover’s market value has been estimated between $10 billion and $15 billion. (CF Library 4/5/05; 6/13/05)