DIONE & VISA PED

Dione’s “Xtreme” PIN pad and “IC-Xpress” swipe & park card reader have passed “VISA’s PIN Entry Device Offline” security requirements. Significantly the terminals have been successfully tested both for “Enciphered” PIN and “Plaintext” PIN, a mandatory requirement in the UK. Cards issued in the UK operate with “Plaintext” PIN as opposed to “Enciphered” PIN, so gaining VISA “PED Offline” approval does not necessarily protect the merchant if the terminal has only been assessed for “Enciphered” PIN. The Dione terminals are capable of dealing with both, offering complete “Chip & PIN” capability.

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VISA’s Interlink Transactions Soar as PLUS Transactions Sink

While the number of transactions on VISA’s “PLUS” ATM network in the USA dropped 21% in the second quarter, VISA’s “Interlink” PIN POS network transaction dollar volume has soared by 32%. VISA processed more than 240 million “Interlink” transactions in 2Q/03, a 29% jump over year-ago levels, driven by a solid increase in the number of merchant acceptance locations. “PLUS” transactions declined 21% to 127 million for the second quarter. Approximate dollar volume for “Interlink” POS transactions during the second quarter was $8.4 billion, a 32% increase over 2Q/02. The number of “Interlink” merchant locations now exceeds one million, a 27% expansion over 2Q/02. At mid-year the number of cards carrying the “Interlink” brand was up 13% to 70 million. The number of “PLUS” ATMs was up a mere 3% to 364,000. For complete details on VISA’s second quarter performance visit CardData (www.carddata.com).

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Credit Card Account Gap Widens Between VISA and MasterCard

In terms of cards issued, VISA has picked up the lead again in the U.S. credit card horse race, after falling behind MasterCard for three consecutive quarters. However, based on the number of domestic credit card accounts, MasterCard has widened its lead to 15 million accounts after first surpassing VISA in 3Q/02. At the end of 2Q/03, VISA had 270.5 million domestic credit cards-in-force, compared to MasterCard’s 269.1 million. In the third quarter of 2002, MasterCard pulled ahead of VISA with 264.2 million cards versus VISA’s 259.0 million cards, according to CardData ([www.carddata.com][1]). MasterCard maintained its lead by 8.5 million cards in the fourth quarter of last year, and by 1.6 million in the first quarter of this year. Based on the number of U.S. credit card accounts, MasterCard now has 211.8 million compared to VISA’s 196.8 million. In 3Q/02, MasterCard pulled past VISA by 5.1 million accounts. The gap widened by 8.6 million accounts in the fourth quarter. In the first quarter of this year, MasterCard had 208.4 million accounts compared to VISA’s 200.9 million. VISA has steadily been losing credit card accounts for the past 18 months. However, VISA has always dominated MasterCard in credit card volume. For example, VISA’s second quarter volume was $158.8 billion compared to MasterCard’s $125.8 billion. For complete details on VISA’s and MasterCard’s second quarter performance visit CardData ([www.carddata.com][2]).

Quarterly V/M Credit Card Accounts (millions)
2Q/03 1Q/03 4Q/02 3Q/02 2Q/02 1Q/02
VISA: 196.8 200.9 201.4 203.3 204.4 206.6
MasterCard: 211.8 208.4 210.0 208.4 198.9 190.5
TOTAL: 408.6 409.3 411.4 411.7 403.3 397.1
Source: CardData (www.carddata.com)

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

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Consumers Need to Apply for Foreign Exchange Fee Refunds

Alameda County California Superior Court Judge Ronald Sabraw issued a tentative decision yesterday that requires consumers to file a claim to receive refunds of credit card foreign exchange fees charged by VISA and MasterCard. The judge ordered the card associations to enlist their 30 largest member banks to include bill stuffers in regular monthly billing for three consecutive months. The plan to shift the burden of reimbursement to consumers was proposed by the two card associations. However, VISA and MasterCard are confident that Sabraw’s April ruling that they violated California’s unfair competition law, will be overturned on appeal. In April Sabraw ordered VISA, which is headquartered in California, to refund the one percent currency conversion fees to all cardholders in the USA who paid the fees from February 15, 1996 to the present. MasterCard, which is headquartered in New York, was ordered to refund the currency conversion fees to all its California consumers who paid the fees during the same period. (CF Library 4/9/03; 9/11/03)

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Card ABS Solid Despite Sub-Prime Early Amortizations

The early amortizations in the sub-prime segment has tarnished the image of credit card asset-backed securities. However, Fitch Ratings says the ABS segment remains strong. Fitch says issuance for credit card ABS remains solid totaling $44.8 billion in the first half of this year, compared to $44.9 billion during the same period in 2002. Top tier issuers continue to enjoy uninterrupted market access at good execution levels, but less frequent issuers and those with portfolios concentrated in the higher-risk, sub-prime segment face much greater challenges, in many cases forced to execute more expensive transactions with more restrictive terms. Fitch’s outlook on the prime credit card ABS segment remains stable and future negative rating activity is expected to be very limited. Despite continued pressure on industry yields and weakening credit quality metrics, excess spread for this segment remains strong. Fitch’s rating outlook on the sub-prime ABS segment remains negative. According to Fitch’s “Sub-Prime Index,” sub-prime charge-offs totaled 18.01% for the June 2003 collection period, compared with 15.13% a year ago and 12.01% in 2001. Positively, late-stage delinquencies (60 days or more) appear to have leveled off in recent months, albeit at high levels.

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Delinquency and Charge-Offs Stabilize Among Card Bonds

Charge-offs remained stable, but relatively high at 7.2%, among credit card-backed securities during July. Delinquencies also remained stable at 5.1%, the same level as one year ago. Yields have appeared to have leveled off in the 17% range, and the payment rate has remained consistent and strong in the 15% to 17% range, according to Standard & Poor’s “Credit Card Quality Index.” The average charge-off rate of 7.2% for June and July 2003 follows a three-month period in which charge-off rates averaged 7.5%, the second highest historical charge-off rates experienced by the master trusts followed by S&P. On a comparative basis, the 7.3% average charge-off rate for 2003 (year-to-date through July) is 30 bps higher than the 2002 average of 7.0%. However, overall charge-off rates have been relatively stable since the March 2002 peak of 7.6%, ranging from 6.5% to 7.5%. The 30-plus delinquency levels have remained relatively stable in the 5% to 5.5% range, and are currently at their lowest levels since July 2002. However, the overall delinquency trend in the 60- and 90-plus buckets continues to rise. Both the 60- and 90-plus delinquency buckets reached historical peaks in May 2003, posting delinquency rates of 4.4% and 2.9%, respectively. While each of the delinquency buckets improved modestly in July, the 5.3%, 4.1%, and 2.5% average delinquency rates (for the 30-, 60-, and 90-plus delinquency buckets, respectively) for 2003 (year-to-date through July), compared to 2002 averages of 5.3%, 3.6%, and 2.0%, respectively.

Credit Card-Backed Securities Performance
Month July 2001 July 2002 July 2003
Yield: 19.9% 18.8% 17.8%
Payment rate : 16.3% 16.1% 16.8%
Charge-offs: 6.6% 6.8% 7.2%
Delinquencies : 5.0% 5.1% 5.1%
Source: Standard & Poor’s Credit Card Quality Index

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InfiCorp Nails Principal Card Portfolio

Atlanta-based InfiCorp Holdings has acquired Des Moines-based Principal Bank’s $23 million credit card portfolio. Principal, part of the Principal Financial Group, also signed a credit card agent agreement with InfiCorp. The Principal Financial Group has $116.3 billion in assets under management and serves some 13 million customers worldwide. InfiCorp Holdings is a wholly owned subsidiary of First National of Nebraska. The firm has been actively acquiring smaller portfolios, mostly from credit unions. OR-based AssetExchange facilitated the Principal transaction and many of the prior acquisitions.

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