VISA’s HoloMag Decision Hurts ABNH

NJ-based American Bank Note Holographics reported that sales in the fourth quarter nearly doubled to $10.1 million, compared with one-year ago. However, the Company posted a net loss of $2.8 million in the fourth quarter as compared to net income of $0.5 million in the fourth quarter of 2004. The loss was due to a $5 million fourth quarter charge taken following VISA International’s decision to discontinue the use of the current version of the Company’s “HoloMag” product. On March 14th, VISA informed ABNH it was discontinuing the use of “HoloMag” due to an infrequently occurring technical problem at the point of sale that results from a combination of factors including low humidity environments at the point of sale, point of sale equipment with a relatively low tolerance to electrostatic discharge and higher electrostatic conductivity of cards with “HoloMag” compared to conventional magnetic stripes. ABNH says it is developing a second generation “HoloMag” product that addresses the ESD issue and remains committed to supporting the needs of the payment card industry. For complete details on American Bank Note Holographics latest performance, visit CardData ([www.carddata.com][1]).

ABNH NET INCOME HISTORICAL
4Q/04: $0.5 million
1Q/05: $0.6 million
2Q/05: $0.5 million
3Q/05: $1.1 million
4Q/05: -$2.8 million
Source: CardData (www.carddata.com)

[1]: http://www.carddata.com

DATA Act Passes a U.S. House Committee

Another data security bill is making its way through Congress. This week, the House Energy and Commerce Committee unanimously approved the “Data Accountability and Trust Act, passed 41-0. The “DATA Act” requires that consumers be notified if their privacy may have been violated because of a security breach. Data brokers will be required to implement effective security safeguards. If there is a reasonable risk of identity theft to the individual to whom the personal information relates, fraud or other unlawful conduct, these data brokers must notify consumers. Additionally, data brokers will be prohibited from falsely representing themselves to obtain personal data. The legislation also directs the FTC to create rules setting rigorous national standards for data brokers to protect personal information. It also require entities to appoint and identify a person in the organization that is responsible for information security.

Fast Food Card Volume Rises 47% in 2005

Americans charged $33.2 billion worth of fast food to their credit and debit cards last year, compared to $22.5 billion one-year ago. The 47% increase was driven by merchant expansion and promotion of card usage during 2005. Last year, McDonald’s increased payment credit acceptance from 3,000 locations in 2004 to 13,000 in 2005. McDonald’s has also geared up for contactless payments. The average QSR credit card ticket, based on the most recent VISA data, is $10.75. Americans spend about $150 billion per year in quick service restaurants.

QSR ON PLASTIC HISTORICAL
2000: $ 1.7 billion
2001: $ 3.7 billion
2002: $ 6.1 billion
2003: $12.9 billion
2004: $22.5 billion
2005: $33.2 billion
Source: CardData (www.carddata.com)

CARD SHARE

The market share of American Express and Diners Club has slipped in January to its lowest level since June. In December AmEx and Diners held a 16.8% share but it plummeted to 15.2% in January. One-year ago the two card networks held a combined share of 17.0%. While the January decline can be attributed to higher VISA, MasterCard and Bankcard activity during the holiday season, merchants are resisting the higher fees charged by American Express and Diners Club. The Reserve Bank of Australia forced pricing reforms on VISA, MasterCard and Bankcard in 2003. The average merchant service fee charged by Bankcard, MasterCard and VISA in the fourth quarter rose slightly to 96 basis points but remains down by three basis points compared to one-year ago, but up four basis points from the prior quarter. American Express’ average merchant service fee declined by five basis points to 2.30% from the prior quarter and eight basis points lower than one year ago. Diners Club edged up by four basis points to 2.33%, compared to the prior quarter.
(CFI Library 3/15/06)

Bankruptcy Surge Lowers Q4 Delinquencies

Credit card delinquencies, based on total dollars outstanding, dipped to its lowest level in more than fifteen years for a fourth quarter period. Sequentially, delinquent dollars slipped 53 basis points largely due to the recent change in the bankruptcy law. The number of past-due credit card accounts also dropped. According to the American Bankers Association’s “Consumer Credit Delinquency Bulletin,” delinquencies based on total dollars outstanding for 4Q/05 were 3.21%, compared to 3.74% in the third quarter and 4.19% for 4Q/04. Based on the number of accounts past-due, the figures were 4.27% for 4Q/05, 4.74% for 3Q/05, and 4.20% one-year ago. The ABA says the Oct 12th deadline for filing bankruptcy under the old system had a close-out sale effect on filings, wiping clean credit card debt that would normally have been reported as delinquent in the fourth quarter.

4Q CREDIT CARD DELINQUENCY HISTORY
(based on total dollars outstanding)
1999: 4.28%
2000: 4.25%
2001: 4.67%
2002: 4.63%
2003: 4.92%
2004: 4.19%
2005: 3.21%
Source: ABA Delinquency Bulletin

Goldfish to Drive MS UK Expansion

Morgan Stanley reported that credit card outstandings for its British MasterCards during the quarter ended February 28th rose by $1.5 billion to $4.2 billion. The quarter included $1.4 billion of managed loans associated with the acquisition of the Lloyds TSB “Goldfish” credit card business in the U.K., which closed on February 17th. The number of accounts for its “Classic,” “Gold,” “Platinum,” and “buy & fly!” cards rose by 100,000 accounts to 1.6 million, compared to one-year ago. There are approximately 1 million “Goldfish” credit card accounts. MS, which issues the “Discover” card in the U.S. paid a 22% premium for the “Goldfish” portfolio. The Company is gearing up to aggressively promote the “Goldfish” brand. MS introduced its first credit card in the U.K. in 1999. For complete details on Morgan Stanley’s latest performance, visit CardData (www.carddata.com).

Discover Profits Up 35% as Metrics Improve

Morgan Stanley reported this morning that its Discover unit posted a record $479 million in pre-tax profits for the quarter ending February 28th, a 35% gain over the year-ago quarter. Gains on securitizations and lower loan loss provisions in the wake of the fall bankruptcy losses were key drivers for the quarter. Discover also posted record gross dollar volume of $26.8 billion, a 3% gain over the prior year quarter. Purchase dollar volume rose 8% over 1Q/05. Managed merchant, cardholder and other fees were $519 million for 1Q/06, up 8% from a year ago. Managed outstandings were flat to year-ago levels, however, U.S. managed outstandings declined from $45.1 billion one-year ago to $43.6 billion. During the quarter Discover purchased $1.4 billion in card outstandings from Goldfish in the U.K. The managed credit card net charge-off rate for the first quarter was 5.06%, 5 basis points lower than a year ago. The managed credit card over-30-day delinquency rate was 3.45%, a decrease of 79 basis points from the first quarter of 2005 and the managed credit card over-90-day delinquency rate was 1.61%, 44 basis points lower than a year ago. The account base increased during the first quarter by approximately 600,000 accounts from the fourth quarter but includes the addition of 1.1 million Goldfish accounts. Active accounts rose slightly from 1Q/05 to 19.6 million. For complete details on Discover’s first quarter performance, visit CardData ([www.carddata.com][1]).

DISCOVER CARD PORTFOLIO SNAPSHOT
1Q/05* 2Q/05* 3Q/05* 4Q/05 1Q/06 Y/Y CHNG
Outstandings: $47.8b $46.8b $47.1b $46.9b $47.8 NC
Volume: $25.9b $25.4b $26.7b $26.1b $26.8 +3%
Accounts: 46.0m 45.9m 45.6m 45.5m 46.1 NC
Actives: 19.5m 19.3m 19.2m 19.2m 19.6 +1%
Chargeoffs: 5.11% 4.94% 5.12% 5.76% 5.06 -5bps
Delinquency**: 4.24% 3.90% 3.91% 3.98% 3.45 -79bps
Yield: 11.23% 11.69% 12.04% 11.94% 12.13 +90bps
Notes: * 1Q/05 ended 2/28/05; 2Q/05 ended 5/31/05; 3Q/05 ended 8/31/05;
4Q/05 ended 11/30/05. 1Q/06 ended 2/28/06** delinquency is 30-90 days
and excludes 90+ days. Includes both domestic and international cards.
Source: CardData (www.carddata.com)

[1]: http://www.carddata.com

Australian Card Debt Growing 14% Y/Y

Credit card debt in Australia took its typical post-holiday downturn in January, dropping A$700 million from the prior month, compared to an A$800 million drop one-year ago. During the past twelve months, credit card debt has increased 14% while credit card volume rose 12%. For January, credit card balances dropped to A$33.5 billion after reaching a record high of A$34.3 billion in December. One-year ago credit card debt stood at A$29.4 billion. Gross dollar volume on credit card and charge cards in January was A$13.8 billion, compared to A$12.3 billion one-year ago. Card credit limits reached A$92.6 billion at the end of January, compared to A$82.4 billion for January 2005. There are currently 12.6 million credit card and charge card accounts in Australia, compared to 11.7 million one-year ago, according to CardFlash International.

MasterCard Posts a Fourth Quarter Loss

Citing a number of seasonal and exceptional factors MasterCard posted a fourth quarter loss of $53 million. Heavy advertising, promotions and incentives as well as currency fluctuations impacted earnings and revenue. Merchant promotions and tiered pricing arrangements were also negative factors along with a boost in litigation reserves. However, MasterCard’s Q4 gross dollar volume increased 11.9% on a local currency basis to $445.8 billion. General and administrative expenses rose 11% in 4Q/05 while advertising and market development increased 17%, compared to one-year ago. As of December 31st, MasterCard’s customer banks issued 749.3 million MasterCard cards. For complete details on MasterCard’s fourth quarter performance, visit CardData ([www.carddata.com][1]).

MASTERCARD HISTORICAL ($ millions)
4Q/04 1Q/05 2Q/05 3Q/05 4Q/05
G&A: $338.7 $306.6 $319.2 $350.1 $376.1
A&M: $329.5 $171.7 $231.6 $219.2 $385.5
Net Income: $ 1.3 $ 93.3 $120.2 $106.1 ($ 53.0)
Note: G&A: General & Administrative Expenses; A&M:
Advertising & Market Development Expenses.
Source: CardData (www.carddata.com)

[1]: http://www.carddata.com

JAN 06 DEBT

Credit card debt took its typical post-holiday downturn in January,
dropping A$700 million from the prior month, compared to an A$800
million drop one-year ago. During the past twelve months, credit card
debt has increased 14% while credit card volume rose 12%. For January,
credit card balances dropped to A$33.5 billion after reaching a record
high of A$34.3 billion in December. One-year ago credit card debt stood
at A$29.4 billion. Gross dollar volume on credit card and charge cards
in January was A$13.8 billion, compared to A$12.3 billion one-year ago.
Card credit limits reached A$92.6 billion at the end of January,
compared to A$82.4 billion for January 2005. There are currently 12.6
million credit card and charge card accounts in Australia, compared to
11.7 million one-year ago.

MERCHANT FEES 4Q/05

The average merchant service fee charged by Bankcard, MasterCard and VISA in the fourth quarter edged up slightly while fees charged by American Express and Diners Club remained more than twice as high. Yesterday, the Assistant Governor of Financial Systems for the Reserve Bank of Australia confirmed that since it forced pricing reforms on VISA and MasterCard in 2003, the market share of American Express and Diners Club has climbed from 14.5% to 16.5% and that the year-on-year growth in the value of transactions for all credit cards has declined to less than 10% compared to nearly 30% five years ago. The pricing advantage has enabled American Express and Diners Club to offer more generous rewards program. The average merchant service fee charged by Bankcard, MasterCard and VISA in the fourth quarter rose slightly to 96 basis points but remains down by three basis points compared to one-year ago, but up four basis points from the prior quarter. American Express’ average merchant service fee declined by five basis points to 2.30% from the prior quarter and eight basis points lower than one year ago. Diners Club edged up by four basis points to 2.33%, compared to the prior quarter.

Merchant Fee Reforms Alter the Landscape

The average merchant service fee charged by Bankcard, MasterCard and VISA in Australia for the fourth quarter edged up slightly while fees charged by American Express and Diners Club remained more than twice as high. Yesterday, the Assistant Governor of Financial Systems for the Reserve Bank of Australia confirmed that since it forced pricing reforms on VISA and MasterCard in 2003, the market share of American Express and Diners Club has climbed from 14.5% to 16.5% and that the year-on-year growth in the value of transactions for all credit cards has declined to less than 10% compared to nearly 30% five years ago. The pricing advantage has enabled American Express and Diners Club to offer more generous rewards program, according to this week’s CardFlash International. The average merchant service fee charged by Bankcard, MasterCard and VISA in the fourth quarter rose slightly to 96 basis points but remains down by three basis points compared to one-year ago, but up four basis points from the prior quarter. American Express’ average merchant service fee declined by five basis points to 2.30% from the prior quarter and eight basis points lower than one year ago. Diners Club edged up by four basis points to 2.33%, compared to the prior quarter.

MERCHANT SERVICE FEES
3Q/04 4Q/04 1Q/05 2Q/05 3Q/05 4Q/05
Bankcard/MC/VS: 0.97% 0.99% 0.94% 0.91% 0.92% 0.96%
American Exp: 2.38% 2.38% 2.36% 2.36% 2.35% 2.30%
Diners Club: 2.32% 2.34% 2.30% 2.31% 2.29% 2.33%
Source: Reserve Bank of Australia