Charge-Off Outlook

The regulatory scrutiny of credit card issuers this year along with the continued malaise of the U.S. economy are seen as key factors indicating that bankcard charge-offs will not begin to show sustainable improvement until the economy gets better traction during the second half of 2003. That conclusion was drawn yesterday by Standard & Poor’s Ratings Services. S&P says the weak consumer is likely to raise the losses for the credit card industry going forward. While the worst may be over, (charge-offs have declined from a record 7.6% in March to 6.5% in October), the unemployment rate is still creeping higher, and charge-offs are likely to rise further before finally falling later next year. Charge-offs are likely to move back above 7% in the first quarter 2003. S&P notes the two bright spots for the credit card industry are the relatively high levels of excess spread and stable payment rates.

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ContactMail v2.1

Experian has released the v2.1 of its “ContactMail” e-mail delivery and management solution that now offers increased reporting features and improved campaign management solutions. To complete the package, ContactMail’s conversion tracking features and web-based activity reports offer marketers the most efficient means to monitor and evaluate the success of their e-mail marketing efforts.

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Discover 4Q/02

Morgan Stanley reported this morning that profits for its Credit Services or Discover card division grew 9% during fiscal 2002 to $767 million, while profits for the fourth quarter, ending November 30th, were up 1% to $194 million. Discover card portfolio receivables increased a modest 3.7% during the year to $51.1 billion; however, fourth quarter transaction volume soared 14.5% to a record $25.3 billion, as a result of higher balance transfers and an increase in sales volume, presumably driven by Discover’s aggressive 0% APR offers. The 4Q/02 credit card net charge-off rate was 5.96%, 6 basis points lower than the third quarter, but 11 basis points higher than a year ago. Morgan Stanley says the increase in the charge-off rate from fourth quarter 2001 was largely the result of an increase in bankruptcy losses. During the fourth quarter, Discover added 300,000 net new accounts, but active accounts continued to decline. Discover active accounts are down 13% from one year ago. The interest rate spread on Discover’s credit card portfolio contracted by 20 basis points compared to last year’s fourth quarter, driven by a lower finance charge yield which more than offset a decline in the cost of funds. For complete details on Morgan Stanley/Discover’s fourth quarter performance visit CardData ([www.carddata.com][1]).

DISCOVER CARD PORTFOLIO SNAPSHOT
4Q/01* 1Q/02* 2Q/02* 3Q/02* 4Q/02* Y/Y CHNG
Receivables: $49.3b $49.6b $49.4b $49.7b $51.1b +3.7%
Volume: $22.1b $24.1b $23.5b $24.3b $25.3b +14.5%
Accounts: 45.7m 46.0m 46.2m 46.2m 46.5m +1.8%
Actives: 24.0m 23.8m 23.4m 22.8m 22.6m -5.8%
Chargeoffs: 5.85% 6.49% 6.30% 6.27% 5.96% +1.9%
Delinquency: 6.85% 6.75% 5.63% 5.72% 5.96% -13.0%
Yield: 13.48% 12.63% 12.64% 12.71% 12.45% -7.6%

4Q/01 fiscal quarter ended 11/30/01; 1Q/02 ended 2/28/02; 2Q/02 ended
5/31/02; 3Q/02 ended 8/31/02; 4Q/02 ended 11/30/02.
Source: CardData (www.carddata.com)

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

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Card Outlook

The growth in the U.S. card manufacturing market may be flat in 2003 as many issuers postpone smart card deployments for at least another year. Oberthur Card Systemsâ¤_ North American division says banks will opt for translucent plastics and imaginative shapes and forms instead of advanced chip cards. However, identification and security applications will be the growth opportunity for the smart card industry, with the U.S. Government leading the way in the adoption of advanced logical and physical access systems.

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USWD & Pepsi

U.S. Wireless Data has received trademark authorization from Pepsi-Cola North America for its wireless credit card processing solution for vending machines. The trademark authorizes USWD’s “Synapse Enabler” for deployment by Pepsi’s bottling partners in their vending machines. USWD says the solution earned authorization after nearly two years of development and testing in various locations.

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DIRECT ENERGY AIR MILES

Centrica plc’s Direct Energy unit has signed a multi-year agreement to
participate as a “Sponsor” in the Canadian “AIR MILES Reward Program”
offering households in Ontario and Manitoba the opportunity to earn reward
miles for their natural gas usage. The “AIR MILES” program was created and
is operated by The Loyalty Group, an Alliance Data Systems subsidiary. More
than 12.5 million Canadians actively collect “AIR MILES” at more than 100
brand-name sponsors representing over 12,000 retail and service locations
across Canada.

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CTFS RENEWS TSYS

Canadian Tire Financial Services has signed a seven-year renewal agreement
with processor TSYS. Under terms of the contract, TSYS will process
Canadian Tire’s retail, MasterCard and gift card portfolios. Canadian
Tire has worked with TSYS since 1998, when Canadian Tire Financial Services
converted its private-label and MasterCard accounts from an in-house system
to the “TS2” processing system by TSYS. Canadian Tire has more than 1,000
stores and gas bars across the country. More than half of Canadians shop at
Canadian Tire on a monthly basis, and nearly 80% have been in a Canadian
Tire store in the past six months. TSYS has processed card accounts in
Canada since 1989 and is currently capturing 33% of the Canadian market.

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