Proton vs. Mondex

VISA and American Express put down their armaments Wednesday and joined hands to establish ‘Proton’ smart card technology and the Common Electronic Purse Specifications or ‘CEPS’ as the world standard of smart card and e-purse cards. As a result, both companies announced yesterday they have become major investors in a newly created firm called:  Proton World International, a company formed by the spin-off of ‘Proton’ smart card technology assets developed by Banksys. Joining VISA and AmEx as shareholders are: Australia-based ERG Card Systems Ltd and Belgium-based Banksys. ‘Proton’  is an electronic purse application broadly implemented and actively used in Europe. Currently ‘Proton’ has 30 million electronic purse smart cards accepted in 200,000 terminals in fifteen countries. Australia, Belgium, Netherlands, Sweden and Switzerland have national roll-outs of ‘Proton’ electronic purse cards. In Belgium, more than 2.3 million transactions are performed each month using Proton-based cards. ERG asserted yesterday that the establishment of PWI is a watershed for the global smart card and, given the calibre and vision of the shareholders involved, it will ensure that consumers worldwide will have access to the “VHS” of smart card technology. MasterCard reportedly gave no indication yesterday it will abandon its Mondex smart card technology or its ‘Multos’ operating system in favor of  the ‘Proton’ standard. ‘Mondex’ has a number of rollouts, worldwide, underway. American Express continues to play both sides of the fence, as licensees of both ‘Multos’ and ‘Proton’, with plans to implement ‘Proton’ on ‘Multos’.

Discover Rated

Duff & Phelps Credit Rating Co. (DCR) has rated Morgan Stanley Dean Witter & Co.’s (MSDW) GBP200 million floating-rate note offering ‘AA-‘ (Double-A-Minus).  The securities have an issue price of 99.946 and have a final maturity of August 3, 2011, with a call in August 2001.  The bonds pay a coupon of three-month LIBOR plus 17 basis points.

On April 20, 1998, DCR placed the ratings of MSDW on Ratings Watch–Up. The three areas cited were a desire to see improvement in asset quality measures related to the firm’s credit card portfolio, an evaluation of the firm’s appetite for balance sheet leverage in light of the $3 billion stock repurchase program and continued realization of revenue synergies from merger integration.  MSDW’s current ratings reflect the firm’s considerable market position in its three major business segments, healthy and relatively stable earnings profile, highly liquid and very reasonably leveraged balance sheet and sound risk management (i.e., liquidity, credit, market).  In addition, integration of the two firms with an emphasis on revenue synergies continues to proceed smoothly.  Integration of the powerful global product origination and research capability with the firm’s substantial U.S. retail distribution network holds substantial promise with respect to several revenue segments.

Beyond this, the merger creates a more diversified, lower volatility revenue base.  The ratings also incorporate the firm’s judicious alternative liquidity/contingency funding plans, as well as its prudent holding company financial policies and funding structure. While the recently announced authorization to repurchase up to $3 billion of common stock will affect balance sheet leverage, current overall leverage measures are conservative relative to other securities firms.  Furthermore, internal capital generation, preferred issuance and compensation-related stock issuance should largely offset the repurchase-driven capital reduction, which will be implemented over a 12- to 24-month period.

Net income for the first six months of the fiscal year of $1.545 billion represents a 33 percent increase over 1997’s first half.  Pretax profit margin rose to a solid 29.3 percent versus 28 percent in the first quarter of fiscal year 1998 and 26 percent for the first half of 1997.  Net revenues increased 23 percent fueled by a 62 percent surge in investment banking, healthy trading results and continued growth in asset management and commissions.  Investment banking revenue soared on the strength of a robust global M&A environment and strong high-yield issuance, a sector in which MSDW has markedly expanded market share.  Asset management and commissions continued to benefit from healthy equity markets (i.e., volume and level) and surging retail investor demand.  Credit services continues to earn reasonable returns.  However, loss provisions and charge-offs remain high, although NCOs show signs of declining.

MSDW’s liability structure and funding profile portray a prudent approach to managing funding/liquidity risk.  Key elements of the firm’s liquidity management include substantial use of term debt, use of a ‘long funding’ policy relative to the related asset for unsecured funding, concentration of most unsecured borrowing at the holding company, and diversification of sources by investor and maturity.

Contingency funding models are based on shifting to a secured funding environment and/or asset liquidation.  The firm’s position is monitored using the concepts of net cash capital and a liquidity ratio.  Net cash capital measures the excess of long-term funding over that which would be necessary to fund the balance sheet on a fully secured basis.  The liquidity ratio compares cash and unhypothecated securities to short-term unsecured borrowings. Both are calculated regularly and have prudent target minimums.  Committed bank facilities, secured and unsecured, total $9.7 billion, excluding the $2.55 billion in place to support issuance of asset-backed commercial paper.  Substantial term debt provides funding stability and comfortably exceeds illiquid and potentially less liquid assets. Overall leverage measures remain moderate relative to other securities firms, although the aforementioned repurchase program is moving MSDW toward peers. The holding company’s funding structure is sound with an equity double leverage ratio of 90.6 percent, inclusive of preferred equity, and precise policies in place limiting secondary double leverage.

MSDW is the U.S.-based holding company for a diversified financial services firm with major market positions in global investment banking, institutional sales and trading, retail brokerage, asset management and credit cards.  The firm has a powerful franchise in higher-margin businesses.  The asset management business has scale, a full array of products and good brand identity.  Credit services will focus on controlling credit losses, building on the Discover brand and international expansion.  Recent sales of global custody, clearance and SPS transaction services are consistent with the firm’s focus on core businesses.

ORGA Regroups

A new business strategy and corporate structure are to help ORGA meet the future challenges of the smart card market.  The company aims to concentrate its activities on processor cards and complex systems and to continue to improve its market position.

ORGA’s scope of supply includes large quantities of processor and memory chip cards, as well as complex personalization and background systems and customized solutions, such as ID card or City Card projects.  The years to come will see business activities focusing on the development, production and sales of processor cards and systems.

As Winfried Gottwald, spokesman for ORGA’s Executive Board, puts it: “The increasing demand for technically sophisticated smart card solutions means that we are targeting our know-how on this market sector.”  The smart card specialist will be concentrating in particular on the fields of mobile communications and banking, but will also be extending its activities in the ID and health care sector, the retail trade and in new smart card applications currently coming to the fore, for example in conjunction with the Internet. “We are aiming for an overall improvement in our market position.  We want to attain at least second place in the GSM sector of the smart card solutions market”, says Gottwald.

ORGA recently approved a new corporate structure with the aim of achieving these goals.  This new organization defines three distinct Lines of Business, which are characterized as follows:

— Standard Components – defined as the entire range of smart cards and small equipment such as card readers.

— Systems Business – basically billing and background systems, personalization systems, test and measuring equipment as well as special equipment and the corresponding customized hardware and software developments.

— Special Project Business – including consulting and strategy development services, customer-specific solutions and development of new applications.

This reorganization will enable ORGA to bring products onto the market quickly and selectively.  The newly established target group management is specifically tailored to the various sectors of the smart card market.

Winfried Gottwald sees the new structure providing an important key to success for the company: “The central idea behind these changes is to further develop our proactive network of regional subsidiaries and specialized lines of business around the globe.  We aim both to increase our existing market shares and to open up new sectors of the market.”

FCNB Helps Spiegel 2Q

Spiegel, Inc. reported Wednesday improved results for its second quarter ended July 4, 1998.  It was the third consecutive quarter of year-over-year performance improvements for the company.

The company recorded a net loss of $2.4 million for the quarter compared with a net loss of $13.5 million in last year’s second quarter.  A per share loss of $0.08 was reported, including a $0.06 negative earnings-per-share impact from the redemption of Newport News preferred stock in the quarter. Excluding the impact of the preferred stock redemption, there was a loss of $0.02 per share, compared with a loss of $0.11 per share in the second quarter of 1997.  The loss per share figures are the same for both basic and diluted.

The earnings available to common shareholders and the corresponding EPS calculation reflect the impact of the redemption of Newport News preferred stock in the quarter.  While the preferred stock redemption had no impact on net earnings, the excess of the redemption value over the carrying value of the preferred stock reduced earnings available to common shareholders by $8.5 million, and the related earnings per share calculation by $0.06 per share for the quarter.

James W. Sievers, office of the president and chief financial officer of Spiegel, Inc., said, “We see our second-quarter results as a positive indicator that we are starting to realize the benefits of the cost-cutting initiatives and brand-building strategies developed by each of our businesses. The magnitude of this quarter’s improvement is even greater given that we recognized a $19.7 million gain from the implementation of SFAS 125 in last year’s second quarter, compared with a $3.0 million gain recognized in this year’s second quarter.  While the performance of our Eddie Bauer division was less than expected, we achieved our operating objectives in the other merchant divisions, Spiegel Catalog and Newport News, and experienced continuing improvements in our credit operations.”

Commenting on the company’s credit card bank, Michael R. Moran, office of the president and chairman of First Consumers National Bank, stated, “We have seen significant improvement in the performance of our credit card portfolio, both private label and MasterCard.  Overall, the results have been driven by higher revenue and our continued favorable trends in delinquencies and charge- offs.”

Revenue for the quarter decreased 2 percent to $684.0 million from $696.2 million for the second quarter of 1997, representing the net affect of a 4 percent decrease in net sales and a 40 percent increase in finance revenue.

The net sales decrease was composed of an 11 percent decline in total catalog sales and a 5 percent increase in total retail sales.  Total catalog sales for the quarter were on plan, reflecting a decrease in catalog pages circulated for Spiegel Catalog and, to a lesser degree, Eddie Bauer.  Newport News, however, experienced an increase in catalog sales.

The increase in total retail sales was due to the growing number of Eddie Bauer stores and higher sales from the company’s outlet stores, offset somewhat by a 9 percent decline in Eddie Bauer’s comparable-store sales for the quarter.  Eddie Bauer had 477 stores at the end of the second quarter, (excluding outlet stores) compared with 412 stores at the end of the second quarter in 1997.  Eddie Bauer’s retail sales were below plan due to weak customer response to certain spring products, countered slightly by steady demand for the “Bauer Basics” product offer.

Finance revenue increased 40 percent for the quarter, rising to $54.4 million from $38.7 million in last year’s second quarter.  This increase resulted primarily from pricing changes implemented by the company’s credit card bank in October 1997.  Finance revenue for the quarter includes a pretax gain of $3.0 million recognized pursuant to SFAS 125, compared with a pretax gain of $19.7 million recognized in the second quarter of 1997 as a result of the implementation of SFAS 125.

The gross profit margin on net sales decreased to 31.0 percent in the second quarter of 1998 from 32.7 percent in the year-earlier period.  Margin performance was mixed by division, with improvements at Spiegel Catalog and Newport News offset by lower margins at Eddie Bauer.  The margin decline at Eddie Bauer resulted from a higher level of markdowns taken to manage inventory levels.  Total inventories for The Spiegel Group at quarter-end were down 4 percent compared with the year earlier level.

Selling, general and administrative expenses were 36.1 percent of total revenues for the quarter, compared with 38.0 percent last year.  Total S,G&A expenses declined 7 percent due to cost-cutting initiatives, primarily at Spiegel Catalog.  Spiegel Catalog and Newport News both realized better catalog productivity, improving the utilization of their advertising expenses.

“While building on the positive achievements of Spiegel Catalog and Newport News, we look for Eddie Bauer’s performance to improve as customers respond to their new fall season merchandise,” Moran said.  “Eddie Bauer’s key initiatives for the fall season include a significant reduction in style count to create greater item impact and a more focused offer, lower inventory commitment to minimize inventory risk, better in stock position of “Bauer Basics,” and a product offer that is grounded in more classic styles and colors.”

For the first six months,  total revenue declined 2 percent to $1.275 billion from $1.298 billion for the comparable period last year.  A net loss of $25.5 million was reported for the six months ended July 4, 1998, compared with a net loss of $44.7 million last year.

Spiegel, Inc. is a leading international, specialty retailer marketing fashionable apparel and home furnishings to customers through catalogs, more than 500 specialty retail stores and innovative electronic platforms. Spiegel’s businesses include Spiegel Catalog, Eddie Bauer, Eddie Bauer HOME, AKA EDDIE BAUER and Newport News.  Spiegel’s Class A Non-Voting Common Stock trades on the NASDAQ National Market System under the ticker symbol: SPGLA.

Tidel Heads North

Tidel Technologies, Inc. announced Wednesday it has received certification for its AnyCard automated teller machines by Toronto-based TNS, Inc.  TNS is the largest processor in Canada of white-label, or independent, automated banking machines on the Interact network.  Interact is the only shared ATM network in Canada.

Tidel stated it will begin selling ATMs in Canada through distribution channels immediately.

Michael F. Hudson, Executive Vice President, stated, “We have received certification on schedule and are tremendously excited about the future for ATM sales in Canada.  Changes in banking regulations to allow white-label processing have opened a tremendous market for retail cash dispensers.”  He added that the Company plans to expand its international distribution efforts into Central and South America later this year, with entries in the European market in 1999.

Tidel Technologies, Inc. is a Texas-based manufacturer of automated teller machines and cash security equipment designed for specialty retail marketers.

GlobeSet Signs Swedish Partner

GlobeSet Inc., the world’s largest provider of SET Secure Electronic Transaction software for OEM solutions, has announced a new OEM channel partner to expand its worldwide market presence in the electronic commerce payment transaction arena.

InfiniCom Electronic Commerce AB of Sweden has inked an agreement to market, integrate and support the GlobeSet Payment System(tm) to banks and retailers in Scandinavia. InfiniCom Electronic Commerce AB, established in 1997 as a subsidiary to InfiniCom AB, is a distributor offering customers complete electronic commerce solutions over the Internet.

InfiniCom provides software, consulting, system integration and support center services. Among its customers in Sweden are the National Swedish Post Office, TELE2, the largest Internet provider, and Enator, the second largest consulting firm. The company is based in Sweden, with an office in Oslo, Norway.

The GlobeSet Payment System is an end-to-end solution for customers to conduct secure payment card transactions over the Internet. It implements the SET standard and consists of the following software applications:

— GlobeSet Wallet – a cardholder application that stores a buyer’s account information and communicates with merchants;

— GlobeSet POS – a payment server application that connects the merchant to the buyer’s cardholder application and to the financial payment gateways;

— GlobeSet Gateway – a payment gateway application connecting the merchant to the payment processor’s legacy systems for payment authorization;

— GlobeSet CA – a digital certificate authority application that generates and manages the identification certificates supporting SET, public-key encryption.

Three of the applications, the GlobeSet Wallet, GlobeSet POS and GlobeSet CA have been awarded SET Marks by SETCo, an organization established by Visa and MasterCard to manage and promote the global adoption of SET. SET is the emerging standard for secure payment card transactions over the Internet.

The awarding of a SET mark signifies that each application has been determined to be compliant with the SET 1.0 protocol, which provides a higher level of confidence and authentication for payment card transactions made over the Internet. Austin-based GlobeSet is the only SET software vendor in the world to receive SET Marks for its wallet, payment server and certificate authority applications.

“We are confident our relationship with InfiniCom will grow and flourish to provide customers with solutions for secure Internet transactions,” said Dennis Jolly, vice president, Sales, Marketing and Operations, GlobeSet. “With GlobeSet’s industry-leading SET Marks and guarantee that we will interoperate with other vendor products that receive a SET Mark, we believe we are in a prime position to provide products for InfiniCom as they provide integrated solutions for their customers.”

“We are very happy about our relationship with GlobeSet because their products help us with our business strategy,” said Ulf Thornquist, managing director, InfiniCom. “With this partnership we can deliver the necessary tools and the best e-commerce solutions on the Internet for customers in the entire Nordic region.”

About GlobeSet

GlobeSet is the world’s largest provider of SET software for OEM solutions. GlobeSet provides all four SET applications, including GlobeSet Wallet, GlobeSet POS, GlobeSet Gateway and GlobeSet CA. All products are in general availability, offer multi-platform support and fully support secure hardware cryptography and key management.

With offices in the United States, Europe and Asia Pacific, GlobeSet has implemented numerous SET solutions around the world for major banks, retailers and financial processors. GlobeSet is a strategic SET solution provider for OEMs worldwide. Founded in 1994, GlobeSet Inc. is a privately held corporation headquartered in Austin, Texas. Additional information about GlobeSet can be found at .

Faster POS Modems

Hypercom said Wednesday it is seeking to upgrade electronic payment transactions from the existing 1200/2400 bps transmission rates to 9600 bits per second (bps). Beginning in October, Hypercom POS terminals will be available with the ‘FastPOS 9600’ bps modem technology at no extra cost. Although the PC industry is rapidly migrating to 56K bps modems, POS terminals currently operate at 1200 bps or at most 2400 bps. Modem technology used in PC’s is unsuited to the POS environment due to the long training time and high cost of these modems. PC modems require 8-15 seconds just for training — the time spent by the modem before it can send data — but POS transactions typically need to be completed within 8 seconds. With FastPOS, transactions can be completed in as little as 3.6 seconds from the time of connection, a reduction of nearly 50% over 1200 bps modems. The difference is even greater for batch loads. A batch of 15 transactions will load with FastPOS in 6.7 seconds from the time of connection, compared with 26 seconds using the old 1200 bps technology. FastPOS will be first supported by Transaction Network Services, Inc.’s nationwide transaction transport network.

Internet Reloadable Smart Cards

Bank of America announced Wednesday that it will launch a smart card pilot program that allows ‘VISA Cash’ stored-value smart cards to be loaded with funds via the Internet to lead to transforming personal computers and other consumer devices into home ATMs. The new smart card pilot program is expected to be rolled out to several hundred Bank of America and VISA employees beginning next month. The pilot will allow participating BofA and VISA employees to use Bank of America’s Internet ‘HomeBanking’ service to transfer funds from their checking account to a ‘VISA Cash’ stored-value chip card. The ‘VISA Cash’ smart card can then be used to make purchases from participating merchants in the physical world or from Internet merchants who have been participating in a separate Bank of America/Visa smart card program that was launched in May 1997. Pilot participants will be able to load funds onto a ‘VISA Cash’ stored-value smart card via a portable, Fischer ‘smarty’ smart card reader that can be inserted directly into a personal computer’s diskette drive. Bank of America’s Smart Card Group is working with VISA and SPYRUS to develop the ‘VISA Cash’ Internet-load pilot.

Husky – BankBoston Card Link

Northeastern University has teamed with BankBoston and Diebold to link financial services to Northeastern’s “Husky Card.”  By linking both organizations’ carding processes, students can use their campus ID cards to perform banking transactions and purchase products from off-campus merchants, in addition to the university services already provided by the Diebold card system. Diebold custom software provides the necessary link between the University and BankBoston networks to create cards that share a mutual card number.  That card number refers to bank systems transactions and Northeastern’s Diebold system for campus transactions. Students are able to open their BankBoston accounts without having to visit a BankBoston branch since the cards are still issued from Northeastern’s carding office.  BankBoston services are activated immediately and the student, faculty member or staff member can make an opening deposit in an on-campus ATM or nearby branch.  The ‘Husky Card’ is the first campus ID card that will function as a multiple-application campus ID card, signature-based debit or PIN-based debit card and an ATM card.

Unisat’s Spanish & German Phone Cards

Unisat Inc. Wednesday announced a contract that enables the provision of different types of calling cards to cover customer needs from the global traveler to affinity groups and covering all key countries.

The contract with Unitel Communications of the U.K. is through Unisat’s wholly owned subsidiary, Inter Konsult Group Inc. Initial products will include a Global Unisat calling card, in language cards for Spanish and German speaking markets as well as specialist products for high value residential segments of the U.K. market.

Formed in 1994, Unitel Communications has developed the Intelligent Telecom Services (ITS) platform for pre- and postpaid card services, prepaid cellular services and extensive interactive voice response (IVR) programs. The platform is considered by industry experts to be leading edge technology.

The flexibility of the ITS platform and the IVR programs allows the fast development of customized services to enable niche markets, or newly developing market segments to be served ahead of the competition.

The services customized for Unisat sales to its customers include voicemail, forward messaging services, and instant indirect access provisioning (where legally allowed). Customized services have also been developed in a number of languages for markets such as Spain and Germany. Further specialist card products will be developed for Unisat group companies.

Unitel Communications has fifteen of Europe’s leading telecoms resellers as customers and recently was contracted by NTL (one of the United Kingdom’s largest cable TV and telecoms operators) to provide Intelligent Network services.

US Wireless Picks $2 Million

U. S. Wireless Data, Inc. announced Wednesday it has concluded a private placement pursuant to Regulation D of the Securities Act of 1933 with two institutional investors by which the Company raised gross proceeds of $2,000,000.

The Company issued 6% Convertible Subordinated Debenture due July 21, 2000. The Company plans to file a report on Form 8-K with the Securities and Exchange Commission setting forth further details with respect to the financing including minimum floor and maximum ceiling conversion prices.

Commenting on the announcement, Bob Robichaud, CFO of U.S. Wireless Data stated, “This financing demonstrates continued investor confidence in U.S. Wireless Data and its commitment to make USWD the industry standard in wireless transaction and credit card processing. This financing provides for near term needs while we complete a more significant financing which should allow for full implementation of our business strategy.”

U.S. Wireless Data, Inc. has developed, tested and is now delivering new proprietary products, programs and standards for the transaction processing and credit card industry which utilizes wireless cellular digital packet data (CDPD) networks. USWD delivers the fastest and most cost-effective transaction processing solution to retail merchants in the United States today. The Company has joint marketing initiatives in place with GTE Wireless, Bell Atlantic Mobile and Ameritech.

MBNA Completes Triple Crown

MBNA America announced yesterday it has acquired the endorsement of The Maryland Jockey Club, giving MBNA exclusive rights to market the official credit card at each site of horse racing’s premier event, The Triple Crown. The agreement with The Maryland Jockey Club, which owns Pimlico Race Course, home of the ‘Preakness’, adds to MBNA’s existing credit card programs for Churchill Downs and the New York Racing Association.  MBNA acquired the endorsements of Churchill Downs, home of the ‘Kentucky Derby’, in 1994, and the New York Racing Association, which owns Belmont Park, site of the ‘Belmont Stakes’, in 1997.