Discover’s Future Credit Ratings Unknown

Discover’s credit ratings will understandably be under review until the capital structure of the new autonomous company is known. Fitch yesterday said Discover’s ratings were dependent on and linked to the support provided by Morgan Stanley. Also, Fitch believes the credit services segment provides some diversification and revenue stability benefits to Morgan Stanley. For fiscal year-end 2004, Credit Services contributed approximately 15% of net revenues and 20% of pretax income to the results of Morgan Stanley. Fitch noted that revenues from consumer financial services are less volatile and more predictable than Morgan Stanley’s major sources of revenues, principal trading and investment banking. Fitch also noted that Discover’s growth from new alliances in the U.S. market will be limited due to the fact that these products are mature with overcapacity in the industry.

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RSB & AMEX

Russian Standard Bank has signed an agreement to exclusively issue and market American Express card products in Russia. RSB will issue the first Russian ruble-denominated AmEx cards and can also issue US dollar-denominated AmEx cards. RSB will be responsible for issuing the cards, managing the customer relationships, providing customer service, billing and credit management. RSB has more than seven million loan customers and more than 2.4 million credit cards issued.

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Discover’s Future – Spin-Off? or Sale?

While Morgan Stanley has disclosed it wants a tax-free spin-off of Discover Financial Services and not a sale, there is continued speculation that a sale could take place despite the tax consequences. Morgan Stanley estimates the spin-off to be worth about $9 billion, but Wall Street in general suggests an acquisition could be worth $5 billion to $6 billion more due to the rising value of its payment network. GE Consumer Finance is the name floated most often as a possible buyer due to its expansive relationships with retailers and deep pockets. Some analysts say such a combination could raise competition in the interchange battle to a new level. This year, GECF facilitated the launch of the first Discover card issued by an outside company via Wal-Mart. This month, GECF is launching Discover’s first business cards via its partnership with Wal-Mart’s SAM’S CLUB. As of February 28th, Discover had managed domestic credit card loans of $45.1 billion and international card loans of $2.6 billion, according to CardData ([www.carddata.com][1]). While the average portfolio premium is currently about 18.75%, jumbo portfolios can produce premiums in excess of 20%. Besides a credit card portfolio worth at least $9.0 billion, Discover now owns the “PULSE” EFT network which links more than 250,000 ATMs and 3.3 million POS terminals at retail locations to 4,100 banks and 90 million cardholders nationwide. Discover paid $311 million for PULSE in January. Following the U.S. Supreme Court decision in November that allowed Discover to work with other financial institutions, the value of its network could add significantly to the acquisition price. (CF Library 11/15/04; 1/13/05; 1/18/05; 2/22/05; 3/15/05; 3/17/05)

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

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Interchange to Average 1.86% by 2010

A recent study has found that VISA and MasterCard interchange dollar volume grew to $17.4 billion last year, compared to $9.4 billion six years ago. The research revealed that the weighted average for VISA and MasterCard interchange had increased from 1.58% in 1998 to 1.75% in 2004. The report from Morgan Stanley projects the weighted average for VISA and MasterCard will grow to 1.86% and $32.4 billion in 2010. New interchange rates for VISA and MasterCard went into effect last week. Last year, Americans charged $2.36 trillion on signature credit and debit cards, according to CardData ([www.carddata.com][1]). VISA and MasterCard collectively handled about 83% of the total U.S. gross dollar volume.

General Purpose Credit and Debit Cards
(GDV $billions – U.S. Only)

2004 Volume Share
VISA $1265.1 billion 53.6%
MasterCard $ 691.6 billion 29.3%
American Express $ 304.8 billion 12.9%
Discover $ 98.7 billion 4.2%
TOTAL $2360.2 billion
Source: CardData (www.carddata.com)

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

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Consumers Concerned About Rising Rates

Consumers have become less positive about their credit situation since last month. The latest “Experian-Gallup Personal Credit Index” is now at 82, compared to last month’s benchmark score of 100. The index measures consumers’ perceptions of their credit status including four key areas related to credit: level of debt, monthly payment burden, credit rating and debt extension capability. The drop in the index suggests that rising interest rates are creating some concerns among consumers about their ability to continue borrowing money at good terms in the future. The Experian-Gallup survey also shows that the largest decline occurred among the youngest consumers.

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MBI Benefits Card Gets a TriZetto Link

MBI and The TriZetto Group have joined forces to implement real-time cash management and adjudication of healthcare claims. The collaboration will offer health plans and third-party administrators the ability to process, track and transfer payments for tax-free healthcare accounts and to link multiple benefit accounts with the MBI Benefits Card. MBI offers a consumer-directed benefits payment platform for more than 14,000 employers. TriZetto serves the health insurance payer market and benefit administrators.

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Abanco IPS Names a National Sales Manager

Illinois-based Abanco International has announced that Steve Hicks has joined the company as national sales manager of integrated payment solutions. Previously, Hicks served as channel manager for POS developers and resellers of GO Software. Abanco International, LLC is a provider of payment processing solutions that develops and markets services to the automotive, healthcare, hospitality, insurance, retail and transportation industries.

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U.S. Bank Launches a UNFAA Affinity VISA

The University of North Florida Alumni Association and U.S. Bank have partnered to create an affinity card that will benefit UNF every time the card is used and offers a reward points program for cardholders. UNF is a public urban university located in Jacksonville, FL. U.S. Bancorp, with assets of $195 billion, is the 6th largest financial holding company in the US.

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MAESTRO 4Q/04

“Maestro,” MasterCard’s global PIN-based debit brand, now appears on nearly 563 million cards worldwide, an 8% increase over one year ago. Europe continued to be the largest cardholder base for “Maestro” with 258 million cards as of December 31st, a 7.6% increase over the same date in 2003. At the end of the fourth quarter, there were 148.1 million “Maestro” cards issued in Asia/Pacific, a slight decline from the third quarter. Latin America increased nearly 29% to almost 81.0 million, while the South Asia, Middle East and Africa region surged by 44% to 29.4 million cards. In the United States, PIN debit purchase transactions grew 456% for the fourth quarter compared to 4Q/03. As of December 31st, there were nearly 1.5 million merchant locations accepting MasterCard and Maestro, as well as 383,000 Cirrus ATMs.

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ChevronTexaco to Use Wincor Nixdorf POS Software

Germany’s Wincor Nixdorf will supply point-of-sale software to ChevronTexaco Corporation’s branded service stations through a global agreement. ChevronTexaco has purchased an Enterprise License Agreement for the NAMOS Compact software. NAMOS includes a POS application, the Manager’s Workstation back-store component and the Wet Data Manager. Wincor Nixdorf is the number one supplier of POS systems in Europe. ChevronTexaco conducts business in approximately 180 countries around the world, producing and transporting crude oil and natural gas, and refining, marketing and distributing fuels and other energy products.

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Russian AmEx Card to be Launched

Russian Standard Bank has signed an agreement to exclusively issue and market American Express card products in Russia. RSB will issue the first Russian ruble-denominated AmEx cards and can also issue US dollar-denominated AmEx cards. RSB will be responsible for issuing the cards, managing the customer relationships, providing customer service, billing and credit management. RSB has more than seven million loan customers and more than 2.4 million credit cards issued.

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