FOREX ACCOUNTS

The Reserve Bank of India has issued new rules permitting residents who maintain foreign currency accounts in India to obtain international credit cards issued by financial institutions outside the country. However, restrictions on the use of international credit cards by residents for the purchase of lottery tickets, banned magazines, participation in sweepstakes, and payment for call back services would continue to apply. In January, the RBI lifted its $10,000 annual limit on foreign credit card spending by consumers and its $25,000 for annual restriction on international business travel credit card spending as mandated by the Foreign Exchange Management Act. The RBA says credit card users will now be limited by their credit card credit lines and will no longer need special permission to exceed the annual RBA limits. Under the current RBA rules, the credit limit for a “Classic”/”Silver” credit card is between Rs 15,000-Rs 50,000 (apprx. $300 and $1000); “Gold” card credit limits are now between Rs 50,000-Rs 300,000 (apprx. $1000 and $6000); and, “Platinum” card credit limits begin at Rs 500,000 (apprx. $10,000). India has about six million credit cards and the average annual credit card volume per card of about Rs 17,000 ($350). There are less than 10,000 “Platinum” credit cards in the country.

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Smart Cards 2002

Brussels-based Eurosmart reported that banking/retail smart cards grew 16% last year worldwide, reaching 175 million units. The industry group predicts that smart cards in this category will grow 17.1% in 2003 to hit 205 million units. Overall, more than 700 million microprocesor-based smart cards were shipped last year, with telecom making up 430 million of the total shipments. Eurosmart also reported that shipments of smart cards containing a memory chip with read/write capability and in some cases hardwired security functions totalled more than 1 billion last year, with 95% used in telecom. Memory cards are not considered smart cards by many. Eurosmart is the main international smart card association, representing the “Voice of the Smart Card Industry” for multi-sector applications.

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RBA DEFENSE

The Federal Court hearing over credit card reforms entered its second week as attorneys representing The Reserve Bank of Australia insisted that a thorough review was conducted prior to the adoption of the new rules. RBA attorneys say that sufficient empirical evidence was gathered before they decided to cut interchange fees and permit retailers to surcharge customers for credit card transactions. Last week, VISA and MasterCard argued they are not payment systems under the definitions used in the “Payment Systems Act.” VISA and MasterCard also say the RBA rushed the reforms. The new RBA rule, cutting interchange from 95 bps to 55-60 bps per transaction, will cost bank credit card issuers about US$300 million per year. The Federal Court hearing is expected to last up to six weeks.

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Hudson’s Bay 1Q/03

Toronto-based Hudson’s Bay Company reported that its financial division posted a 22% gain in first quarter credit card outstandings to $478 million. HBC says the increase in credit card receivables reflects the higher credit card blend at the Bay and Zellers stores and additional third party volumes. As of April 30th, there were 1.4 million active Bay credit card accounts and 1.4 million active Zellers credit card accounts. The current and 30 days past due balance represented 94.5% of the receivable portfolio, compared to 94.9% at April 30, 2002. During the first quarter, the number of charge-off accounts decreased by 8%. Of the dollars charged-off, the value of bankrupt accounts increased from last year by $1.7 million. Net bad debt expense in 1Q/03 of $22.2 million was $4.6 million higher than 1Q/02. For complete details on HBC’s first quarter results visit CardData ([www.carddata.com][1]).

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

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LOYALTY PATENTS

VISA, Australia’s Catuity, and France’s Welcome Real-time have hammered-out a patent cross license agreement to increase the availability of interoperable systems for smart-card based loyalty rewards at the POS. Catuity and Welcome Real-Time had been embroiled in a patent dispute in 2001 over smart card loyalty software. The companies settled their disputes in April 2002. Under the “VISA Loyalty Program Patent Agreement,” announced this morning, the three companies will cross license existing and future patents for VISA smart loyalty programs. This cross license will be worldwide and royalty-free until the last patent expires. The cross license will extend to all Visa affiliates, members and merchants. Participants will develop and promote interoperable loyalty solutions by integrating the VISA interoperability toolkits within their platforms.

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Translucent Cards

Capital One has launched a new series of translucent credit cards promoted as “See-Through Designs.” The issuer, known for unique card designs, unveiled the new suite of “Platinum MasterCards” with May’s direct mailings. The new cards are available in seven see-through colors including amber, blue, gray, green, orange, purple, and red, according to CardWatch ([www.cardwatch.com][1]). American Express was the first major U.S. issuer to adopt the translucent card design with the 1999 introduction of its “Blue” smart card. MBNA followed with the launch of its translucent “Quantum VISA/MasterCard.” In September 2000, Providian introduced a translucent card with the introduction of the first ‘smart VISA’ cards in the USA. Other issuers have since followed the trend. Oberthur, Perfect Plastic Printing, and most card manufacturers now offer some version of translucent or clear payments cards. (CF Library 6/16/00; 7/7/00; 10/26/00; 4/30/01)

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

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OTI 1Q/03

Contactless smart card specialist OTI reported first quarter revenues of $4.7 million, a 14% gain over the year-ago quarter. Gross profit for first quarter was $2.4 million, up 24% from $1.9 million in the first quarter of last year. Operating loss for first quarter decreased 49%, to $654,000. OTI says it saw significant progress in its petroleum payment management and micropayments products. Since the end of the quarter, OTI announced that it is providing integrated point-of-sale solutions to Loews Cineplex as part of MasterCard’s “PayPass” trial in Orlando, Florida. The Company also recently announced that ABSA, the largest commercial bank in South Africa, had joined OTI’s “FuelMaster Express Program” geared towards private motorists.

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5/3 Cardinal Centinel

Today, CardinalCommerce Corporation and Fifth Third Bank announced that they have signed an agreement to provide Fifth Third online merchants with CardinalCommerce’s payment authentication software, Cardinal Centinel.

CardinalCommerce will enable MasterCard® SecureCode(TM) and Verified by Visa® to authenticate cardholders during online transactions at participating merchants. The service requires cardholders to enter their private password in a pop-up window on their PC before their online transaction can be approved and completed. With these extra security measures, members can be confident that their account is protected, and Fifth Third Bank merchants gain greater assurance about the identity of the person completing the transaction.

CardinalCommerce is the leading provider of online merchant payment authentication for securing online transactions. Cardinal Centinel is designed for financial institutions, merchant service providers and their merchants. The software reduces the level of online fraudulent transactions and guarantees payment to online merchants who use it, while protecting the accounts of cardholders.

“Fifth Third Bank is one of the leading merchant acquiring banks in the United States,” stated James Butler, Executive Vice President for Cardinal Commerce. “Fifth Third’s selection of CardinalCommerce as their provider of payment authentication services is a great compliment. Their merchants will gain immediate benefits with our software by eliminating their fraud liability, gaining guaranteed payments for the first time, and increasing the security and confidence of online customers.”

Robert A. Sullivan, Fifth Third Bank Executive Vice President, offers, “Payment authentication is very important to our online merchants–they want an easy to use, reliable system and CardinalCommerce was able to provide that. Cardinal Centinel has the leading-edge technology Fifth Third customers have come to expect and we are thrilled to have the opportunity to partner with CardinalCommerce.”

CardinalCommerce Corporation is a leading provider of a technology-neutral authentication platform for securing electronic and wireless commerce, thus ensuring that individuals, businesses and government agencies can process electronic transactions and access confidential information safely, securely and privately. Cardinal’s proprietary technology provides consumers, merchants, credit/debit card issuers, and processors the ability to conduct fully authenticated Internet-based e-commerce, while protecting the transactions from fraud. Cardinal Centinel has been chosen as the solution for merchants by more acquirers, processors, gateways and merchants around the world then any other 3D Secure product. CardinalCommerce is based in Cleveland, Ohio, and has partners throughout the United States, Europe, Africa, the Middle East and India. For more information, visit [www.cardinalcommerce.com][1].

Fifth Third Bank processes 8.2 billion ATM and POS transactions per year for more than 185,000 retail locations and financial institutions worldwide, including The Kroger Co., Abercrombie & Fitch, Nordstrom, Inc. and The Finish Line. Fifth Third processes $83 billion in credit card sales annually. Fifth Third Bank is the fifth largest bank acquirer according to The Nilson Report (March, 2003).

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $84 billion in assets, operates 17 affiliates with 941 full-service Banking Centers, including 132 Bank Mart® locations open seven days a week inside select grocery stores and 1,880 Jeanie® ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia. The financial strength of Fifth Third’s affiliate banks continues to be recognized by rating agencies with deposit ratings of AA- and Aa1 from Standard & Poor’s and Moody’s, respectively. Additionally, Fifth Third Bancorp continues to maintain the highest short-term ratings available at A-1+ and Prime-1, and was recently recognized by Moody’s with one of the highest senior debt ratings for any U.S. bank holding company of Aa2. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Fifth Third Processing Solutions. Investor information and press releases can be viewed at [www.53.com][2]. The company’s common stock is traded through the Nasdaq National Market System under the symbol “FITB.”

[1]: http://www.cardinalcommerce.com
[2]: http://www.53.com

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Account Acquisition Stats

A new study has found that the break-even point for credit card account acquisitions is the lowest among accounts produced through a direct portfolio purchase or agent bank relationships. However, compared to other methods of account acquisition, direct mail delivers accounts with the highest activity and renewal rates. The study by CA-based RK Hammer Investment Bankers shows the break-even point for accounts picked up through portfolio acquisition is about 11 months, as compared to accounts acquired through pre-approved with telemarketing, which took up to 40 months. The lowest activity rates and renewal rates occurred with Internet acquired credit card accounts.

ACQUISITION TYPE ACTIVE RATES RENEWAL RATES BREAK-EVEN
Portfolio Acquisition NA NA 11 mos
Direct Mail 80%-90% 85%-90% 28 mos
Pre-Approved 70%-80% 80%-85% 24 mos
Telemarketing 60%-70% 65%-70% 36 mos
Pre.Appr+Tele 55%-60% 60%-65% 40 mos
Internet App 55%-60% 50%-60% 20 mos
Agent Bank 65%-75% 75%-85% 18 mos
AVERAGE 68% 82% 25 mos

Source: RK Hammer Investment Bankers

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DoCommerce

Japan’s NTT DoCoMo yesterday launched a new on-line shopping and payments service. “DoCommerce” will enable users of “i-mode” phones to conduct mobile shopping and pay online with their VISA, MasterCard or JCB credit cards. NTT DoCoMo has more than 46 million customers, with 38 million e-mail and Internet subscribers. The company says it hopes to sign up nearly one million “DoCommerce” subscribers in the first year. Initially, 10 virtual shops, including three malls and ten boutiques will be on the “DoCommerce” dedicated site. NTT DoCoMo is also offering an account aggregation feature that enables “DoCommerce” users to check simultaneously, and on one single screen, the balances of their various financial accounts with banks and credit card companies.

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EMEA POS

A new study shows the installed base of POS terminals in the EMEA region increased 6% last year. The research by TN-based IHL Consulting Group found nearly 1.6 million POS terminals are still running DOS as the primary operating system, which creates a major opportunity for replacement systems. IHL says that Linux is getting more and more interest as these retailers look to replace aging terminals. However, new releases of the “XP Embedded” operating system with a lower cost license fee for the retail market may slow that interest and sway that business towards Microsoft. The study was conducted in association with the Association for Retail Technology Standards of the National Retail Federation.

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Incard Acquisition

Italy’s Incard SpA, the sixth largest card manufacturer worldwide, has been acquired by Geneva-based STMicroelectronics. STM purchased the assets and business of Incard from IPM Group in a deal valued at US$88 million. Incard has 290 employees, a large part of which are technical experts working in R&D, product development and application support. Incard has a wide product range of cards, software and development kits covering several smart card applications, with a special emphasis on telecom prepaid cards and SIM modules. STM and IPM will also enter into a long term agreement to working together on smart cards, including terminals, security, WLAN, mobile business and telecom applications. The IPM Group’s activities span all aspects of the fixed network market from products – including payphones, multimedia kiosks, Internet appliances, smart cards, and network access systems – up to advanced global engineering solutions.

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