Charge-Offs Dip Slightly but Set to Rise

Charge-offs among credit card-backed securities again headed south during August for both prime and sub-prime portfolios. However, the improving ratio may be short-lived as a second wave of increased personal bankruptcy filings this year is under way. Personal bankruptcy petitions in August soared by nearly 24% from last year and were up about 15% from the prior month. For August, charge-offs in the “prime” asset-backed credit card securities market slipped one basis point to 5.97%. “Sub-prime” charge-offs fell by 61 basis points to 12.03%. One-year ago, “prime” charge-offs were 6.01% and “sub-prime” charge-offs stood at 15.58%. According to the “Fitch Credit Card Index,” “prime” delinquency (60+ days) rose to 2.61% in August, a very slight increase and well below monthly levels of the past ten years. “Sub-prime” delinquency (60+days) for August also increased slightly to 6.42%, but continues to hover at the lowest level in four years.

ABS CHARGE-OFF HISTORICAL
Month Prime Sub-Prime
Aug 04: 6.01% 15.58%
Jul 05: 5.98% 12.64%
Aug 05: 5.97% 12.03%
Source: Fitch Ratings

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Dexit Launches RFID Readers in Ottawa

Dexit announced it has begun a controlled launch of “Dexit
RFID” tag readers and terminals at four locations at Place Bell in
downtown Ottawa. Dexit has supplied approximately 1,500 RFID tags for
distribution to the more than 5,000 people who work in the Place Bell
office tower. Dexit launched its service in September 2003, initially in downtown Toronto. More than 50,000 consumers have registered for the Dexit service, which is currently available in more than 500 merchant locations.

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Agent Card Performance Varies by Support

Even though 90% of all portfolio sale deals last year included an agent credit card program going forward, the performance of the agent relationship is dependent on how intelligent and aggressive the agents are. As a result, accurately predicting the application and booked account flow through their agents’ branches has become a challenge. Seasoned agent bank/credit union specialist, R.K. Hammer, says their experience with over 700 agent banks and credit unions over 25 years shows that if you directly reward the branch and the branch personnel for card sales, the results will be far greater than if the agent simply takes the reward flow into corporate income and not share it with the retail team. Hammer found that a “weak-performing” agent relationship with little intelligent marketing or branch training and support, will produce some 24-36 new booked accounts per branch per year. A “medium-performing” agent with some marketing to the branch customers and some mild support in the branches by the retail sales staff will generate 48-60 new accounts per branch per year. A “high-performing” agent with very smart consistent marketing by the issuer and very aggressive sales efforts by the agent’s branch staff will produce as many as 72-84 new accounts per branch per year.

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AUG 05 DEBT

Credit card outstandings picked up some steam in August rebounding to GBP 56.2 billion during August, but remain below year-ago levels by GBP 200 million. Meanwhile, the Bank of England is likely to keep its benchmark interest rate unchanged for a second month at 4.5% when it meets this week. The BOE’s Monetary Policy Committee met August 4th to reduce the Bank’s repo rate by 0.25 percentage points to 4.5%. The next
two-day meeting is scheduled for October 4th. The increase in total net
lending to individuals in August (GBP 8.9 billion) was larger than in
July and broadly in line with the previous six month average. Within the
total, the increase in net lending secured on dwellings (GBP 7.6
billion) was stronger than the increase in July and stronger than the
previous six month average. The twelve-month growth rate fell to 10.3%
in August from 10.4% in July. The increase in consumer credit (GBP 1.3
billion) was slightly higher than July’s outturn. Within this, net
credit card lending was stronger than in July but in line with the
previous six month average, while net other loans and advances were
weaker than July’s outturn and the previous six month average.

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Alpha Card Services Signs with GPN

Atlanta-based Global Payments has sealed a deal with Philadelphia-based Alpha Card Services to provide a comprehensive suite of merchant card processing solutions, including authorization, capture, settlement and BIN sponsorship. Alpha Card Services is a payment solutions provider offering clients a full suite of products and services including credit, debit, EBT, check conversion and guarantee, ATM, gift and loyalty cards and online payment gateway solutions. Global Payments offers processing solutions for credit and debit cards, business-to-business purchasing cards, gift cards, electronic check conversion and check guarantee, check verification and recovery, as well as point-of-sale equipment services.

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UK Post Office Launches a Unique MasterCard

The U.K. Post Office and the Bank of Ireland this morning launched a MasterCard offering two interest rates. The new “two in one” “Post Office Credit Card” offers standard credit card functionality but also offers a installment loan-like facility with a discounted interest rate for larger purchases. Cardholders can transfer large purchases between GBP 500 and GBP 2000 into the special line with an interest rate of 6.8%. (The credit card feature generally carries a 14.9% interest rate.) The purchases transferred to the special line can be repaid over a period of 12 months. Cardholders can use the facility for up to two purchases at any one time subject to an aggregate limit of GBP 2,000 and have one month to transfer the purchase to the loan-like facility of the card. The U.K. Post Office has 14,600 branches across the country.

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VISA Names a New EVP of Client Services

VISA USA has promoted Bruce McElhinney to EVP/Client Services from SVP/Merchant Sales to replace Kevin Schultz who recently announced his plans to take a position at Global Payment Systems as EVP/Sales. In his new role McElhinney will serve as chief relationship officer charged with managing Visa’s Member relationships, and the merchant sales and acceptance teams in the United States. McElhinney is a 13-year veteran of Visa USA’s Client Services team and most recently led Merchant Sales where he was responsible for expanding Visa’s relationships with the merchant community and selling acceptance of Visa payment products.

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No Borders Picks Up $2.5MM in Funding

Los Angeles-based No Borders has concluded agreements with Bridgepointe Partners and Miller Investments for the offer and sale of up to $2,500,000 in aggregate principal amount of two-year convertible debentures. The parties have closed on the first two debentures for a total of $500,000. No Borders has the right to “put” to Bridgepointe up to three additional debentures each in the principal amount of $250,000 subject to No Borders having first achieved specific financial and operational deliverables and milestones. No Borders is in the business of providing a debit and stored value card platform for products and services tailored to residents of developing countries and to immigrants who send money back home on a regular basis.

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JCB Aligns with VISA and MasterCard PED

JCB has joined VISA and MasterCard to align “PIN Entry Device” security requirements and approval procedures. “PED” manufacturers submitting devices for security testing will be able to rely on a single set of standards, helping ensure cardholder security and providing faster time-to-market for financial institutions. MasterCard and VISA previously agreed to support common standards which were fully put into effect October 2004. JCB’s merchant network includes 12.4 million merchants. JCB cards are now issued in 19 countries and territories, with 55.14 million cardholders.

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Credit Card Returns Edge Up in August

The after-tax return on average credit card assets has been slowly rebounding this year as delinquency and charge-offs have moderated. The rebound has also been assisted by issuers’ ability to reset interest rates quickly in response to short-term interest rate hikes. According to CardData ([www.carddata.com][1]), the ROAA peaked at 1.94% in October 2002 and slipped to 1.17% in July of this year. For August the figure rebounded to 1.39%, about the same level as February of 2005.

Return on Average Assets Historical
Aug 04: 1.45%
Sep 04: 1.54%
Dec 04: 1.48%
Jan 05: 1.41%
Mar 05: 1.24%
May 05: 1.17%
Aug 05: 1.39%
Source: CardData (www.carddata.com)

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

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JCB Marks 8th Philippines Anniversary

JCB celebrates its 8th anniversary of the opening of its
representative office in the Philippines with the “P1 Million JCB Credit
Reload “, offering a grand prize of one million pesos and many other
cash credit prizes under the slogan “enriching your life”. Additionally,
in order to capture a significant share of the remaining untapped
cardholder base in the Philippines, JCB is offering innovative products
such as “myDream JCB”, launched in 2003 by Bankard, with a uniquely low
annual fee of P800, compared to the usual P1,200, and a finance charge
rate of 2.5% compared to the usual range of 3.25%-3.5%. JCB has had a presence in the Philippines in the acquiring business since
1982 and in card issuing since 1996.

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VISA Grants an Extension to CardSystems

VISA USA has agreed to extend its relationship with processor CardSystems Solutions until January 31st. VISA granted the extension for the sole purpose of helping to facilitate CyberSource’s planned acquisition of CardSystems’ assets. VISA said the extension is contingent upon several security requirements. In July, VISA and American Express announced plans to pull the plug on their relationship with CardSystems Solutions by October 31st. In June, CardSystems publicly acknowledged that as many as 40 million credit card accounts may have been affected by an internal security breach. The breach reportedly took place following the installation of new data mining software which enabled a rogue computer program to extract files. CardSystems Solutions processes payment transactions for more than 119,000 customer locations and handles about $15 billion in annual volume. (CF Library 6/20/05; 7/20/05; 9/1/05; 9/23/05)

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