Providian’s 3Q/01 Woes

As expected, Providian reported a huge decline in profits for the third quarter, from $200 million for 3Q/00, to $57 million for 3Q/01. As a result, Providian’s top executive is stepping down, and the issuer is launching an action plan that includes a shift away from sub-prime cards. The company’s stock sank to a new 52-week low of $12.30 per share ahead of the earnings release and was trading around $8.50 per share in pre-market trading this morning. In response to the financial challenges ahead, Shailesh Mehta announced Thursday afternoon he is stepping down as Chairman and CEO. David Grissom, a current member of Providian’s Board, has been named the new Chairman and the Company has launched a search for a new CEO. The managed net credit loss rate for the third quarter was 10.33%, versus 7.61% for the third quarter of 2000. The 30+ day delinquency rate increased to 8.66% from 6.71% one year ago. The Company added more than 800,000 net new accounts during 3Q, bringing total accounts to 18.5 million, a 23% increase over the end of the third quarter of 2000. Managed loans increased by $1.8 billion during the quarter bringing total managed credit card loans to $32.2 billion, a 31% increase over 3Q/00. The managed net interest margin on loans was 12.94% in the third quarter, compared to 13.13% in the prior quarter. Providian’s action plan includes the suspension of lending to the highest risk segments and selectively re-pricing loans that exhibit increased risk levels. The Company has reduced line of credit increase programs in higher loss segments by tightening eligibility criteria. Providian will also focus marketing dollars toward the middle market segment of 60 million consumers and will initiate an expense reduction review program. For complete details on Providian’s current and prior quarterly performance visit CardData ([www.carddata.com][1]).

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

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Deluxe 3Q/01

Deluxe Corporation (NYSE: DLX), the nation’s leading check printing company, reported record third quarter net income and diluted earnings per share today that exceeded consensus estimates.

Compared to 2000, net income for the quarter increased 8.7 percent and earnings per share increased 15.4 percent, on a revenue increase of 2.3 percent.

“Our third quarter results were very strong,” said Lawrence J. Mosner, Chairman and CEO of Deluxe Corporation. “All three of our business units performed well and were very successful with a number of cost management initiatives.”

Third Quarter Performance

Deluxe’s third quarter 2001 net income was $51.1 million, or $.75 diluted per share, compared with income from continuing operations of $47.0 million, or $.65 diluted per share in 2000.

Revenue was $323.5 million in the third quarter, compared to $316.1 million during the same quarter a year ago. The 2.3 percent increase in revenue was due to an increase in units of 3.9 percent. Partially offsetting this volume increase was a 1.5 percent decrease in revenue per unit. While revenue in the Financial Services segment declined 1.1 percent, the Direct Checks and Business Services segments recorded revenue growth of 8.4 percent and 7.8 percent, respectively.

Gross margin was 65.7 percent of revenue for the quarter, compared to 64.2 percent in 2000. The improvement was due primarily to productivity improvements and other cost management efforts.

Selling, general and administrative expense (SG&A) was 39.9 percent of revenue, compared to 41.1 percent in 2000. The improvement was due primarily to cost management efforts and moving projects and their expenses from the third to the fourth quarter.

As a result, operating margin improved in the third quarter to 25.8 percent of revenue, compared to 23.1 percent of revenue in the year-earlier period.

Nine-month Performance

Through nine months, diluted earnings per share were up 8.2 percent. Deluxe’s net income was $137.9 million, or $1.97 diluted per share in 2001, compared with net income from continuing operations of $131.6 million, or $1.82 diluted per share in 2000.

Revenue was $957.1 million for the first nine months of the year, compared to $959.9 million for the same period a year ago. The 0.3 percent decline in revenue was due to a decline in units of 1.0 percent, partially offset by an increase in revenue per unit of 0.7 percent. For the nine-month period, Financial Services’ revenue declined 5.4 percent and was partially offset by revenue growth of 9.3 percent in Direct Checks and 7.7 percent in Business Services.

Gross margin was 64.5 percent of revenue for the first nine months of 2001, compared to 64.4 percent in 2000. The productivity improvements seen in the third quarter were offset by lower volume and pricing pressures on a year-to-date basis.

SG&A expense for the first nine months of 2001 was 41.1 percent of revenue, compared to 42.1 percent in 2000. The improvement primarily reflects cost management efforts.

As a result, operating margin was 23.4 percent of revenue in the first nine months of 2001, compared to 22.3 percent a year ago.

Business Outlook

“Although we had an excellent third quarter, we are cautious about being overly optimistic about the fourth quarter and 2002,” said Mosner. “It is still too early to predict how last month’s terrorist attacks will impact Deluxe.”

Mosner added, “Given what we know about today’s economic conditions, we’re holding to the fourth quarter diluted earnings per share target, which is in the range of $.65 to $.68 that we established last July. Before making any projections about the Company’s performance in 2002, we want to see how consumer confidence translates to spending in the fourth quarter. Regardless of what develops in the U.S. and world economies, our plan is to manage expenses, continue to invest in our business and make capital expenditures that increase productivity or profitably increase revenue.”

Share Repurchase Program

On January 29, 2001, Deluxe announced that its board of directors had authorized a 14 million share repurchase program. Through September 30, 2001, approximately 8.3 million shares had been repurchased. Repurchase activity resulted in a $.07 increase in diluted earnings per share for the third quarter and a $.10 increase for the first nine months of 2001.

Segment Reporting

Deluxe operates three business segments: Financial Services, which sells checks and related products and services through financial institutions; Direct Checks, which sells checks and related products directly to consumers through direct mail and the Internet; and Business Services, which sells checks, forms and related products to small businesses through financial institutions and directly to customers via direct mail and the Internet. Financial Services’ revenue was down 1.1 percent to $197.3 million in the third quarter of 2001, compared to $199.4 million in 2000. Operating income increased 20.3 percent to $48.5 million from $40.3 million in 2000. Unit volume for this business increased in the third quarter, although the segment continued to realize the effects of pricing pressures. Cost management efforts and productivity improvements contributed to the increase in operating income.

Direct Checks’ revenue was up 8.4 percent to $74.8 million in the third quarter of 2001, compared to $69.0 million in 2000. Operating income was up 2.3 percent to $17.5 million, from $17.1 million in the third quarter of 2000.

Increased unit volume, partially offset by higher new customer acquisition costs, contributed to these results.

Business Services’ revenue was up 7.8 percent to $51.4 million in the third quarter of 2001, from $47.7 million in 2000. Operating income was up 12.9 percent to $17.5 million, from $15.5 million in the third quarter of 2000. An increase in revenue per unit and success in acquiring new customers were the primary factors contributing to these results.

About Deluxe

Deluxe Corporation’s business units provide personal and business checks, business forms, labels, self-inking stamps, fraud prevention services and customer retention programs to banks, credit unions, financial services companies, consumers and small businesses. The Deluxe group of businesses reaches clients and customers through a number of distribution channels — the Internet, direct mail, the telephone, and a nationwide sales force. Since its beginning in 1915, Deluxe Corporation has been instrumental in shaping the U.S. payments industry.

More information about Deluxe 3Q/01 results can be found at CardData ([www.carddata.com][1]).

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

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Class Action Upheld

As reported in yesterday’s issue, the Second Circuit Court of Appeals in New York has rejected an appeal to drop the class action status of a lawsuit against VISA and MasterCard. The 2-to-1 decision opens the way for as many as four million merchants to join the lawsuit brought by major retailers. The lawsuit, originally filed by Wal-Mart, Sears and eleven other retailers, contends retailers are victims of an illegal tying arrangement, under which merchants are forced to accept ‘VISA Check’ and ‘MasterMoney’ off-line debit cards under the associations’ “Honor All Cards” rule. No trial date has been set but it is expected to get underway in 2002.

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Gasper Gets Major Client

Gasper Corporation, a leading provider of Self-service terminal management software, announced that one of North America’s top 10 ATM deployers and one of the world’s leading financial services companies, will employ Gasper’s Transaction Monitor to examine transaction levels at its ATMs.

“This is just one of a growing number of our customers that are adding Transaction Monitor to its Gasper solution in order to maximize its return on ATM transactions,” said David Gasper, President and CEO of Gasper Corporation. “Financial institutions are becoming more cognizant of the impact of proactive ATM management on the bottom line; Transaction Monitor helps increase uptime and therefore profitability.”

ATM availability has long been the measure of the success in self-service management, but financial institutions and Independent Service Organizations (ISOs) are looking for deeper levels of efficiency in their networks.

“Our customers are always looking for ways to optimize their networks and protect their investment. Gasper’s solutions have long provided superior management of ATMs through automated monitoring and dispatching. But we have been encouraging our customers to look at ATM availability as part of the bigger picture of transaction availability,” said Gasper.

According to Gasper, successful transactions are the key to customer satisfaction.

“The machine may be working, but as a customer, if I can’t withdraw my money because of a failure in transaction processing on the back end, my perception is that the ATM, or worse, the ATM deployer, failed me. So not only has the ATM deployer lost the revenue associated with the transaction, they’ve lost face with the customer too.”

“Clearly, if there is a problem authorizing transactions, I don’t want to find out from my customers. With Transaction Monitor, I can identify problems before they reach critical mass and I can take action to fix them. It helps me protect both my transaction revenue and, more importantly, my customer relationship,” Gasper added.

Gasper sees his company’s latest deal as a bellwether in the industry.

“Where the leaders go, others will follow. When the top institutions in the world acknowledge the importance of transaction availability with their pocket book, it is an indication that the stakes have been raised in the increasingly competitive arena of acquiring transactions.”

About Gasper Corporation

Gasper Corporation, a leading provider of Self-service terminal (SST) management software, offers comprehensive solutions that are specifically tailored to solve SST management problems. The company’s solutions monitor SSTs and manage the entire SST support process to maximize SST availability, profitability and customer satisfaction for SST networks worldwide. Headquartered in Dayton, Ohio, the company’s solutions are used to manage 50 percent of the ATMs in the United States, and more than 170,000 SSTs worldwide.

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Exclusionary Stay

Also as reported yesterday, the appeal process will be getting underway in the Government’s antitrust lawsuit over VISA’s and MasterCard’s exclusionary rules which prohibit members from issuing American Express or Discover cards. Both card associations have both asked Judge Barbara S. Jones to stay the implementation of her ruling last week that would require them to rescind exclusionary rules. VISA and MasterCard have also asked for some modifications in her ruling to prevent chaos in the market. Last Tuesday, Judge Jones of the U.S. District Court for the Southern District of New York, in a 157-page ruling, said VISA’s bylaw ‘210(e)’ and MasterCard’s ‘Competitive Programs Policy’ weaken competition and harm consumers. The appeal process could run from two to three years. The full text of the court ruling is available on CardFlash Online ([VISA/MC Court Ruling (PDF) ][1]).

[1]: http://www.cardweb.com/cardflash/2001/october/amex-crt-dec100901.pdf

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TRADECARD

TradeCard,
Inc., the financial supply chain services provider, is launching operations in
Brazil, marking its official expansion into the Latin America region. The
company, which introduced an online alternative to Letters of Credit in the
Spring of 2000, has both expanded its product types and its geographic reach
since then. TradeCard provides service to hundreds of companies throughout
North America and Asia and has processed over $50 million in trade
transactions
between businesses worldwide since its launch last year.

Making TradeCard’s Brazil launch announcement at the annual World Trade
Centers
Association General Assembly in Sao Paulo, TradeCard Chairman and CEO Kurt
Cavano said: “Establishing operations in Brazil has been a TradeCard goal from
the start because of the leadership role Brazil commands in Latin American
trade. We will provide Brazilian exporters a powerful set of trading tools
that
will enable them to process their trades more efficiently and for less
cost. In
the process, TradeCard will have a solid base from which to further launch
services in Latin America.”

TradeCard provides an alternative to traditional paper-based, expensive and
labor-intensive trade settlement methods. The web-based system enables buyers
and sellers to initiate, conduct and settle trade transactions online through
TradeCard’s secure network. The system has proven beneficial for companies of
all sizes. Smaller companies can access the TradeCard system through a simple
browser, and larger companies can access TradeCard through their existing
Enterprise Resource Planning (ERP) systems.

Carlos Aldan De Araujo, Executive Vice President of the World Trade Centers
Assessoria International Ltda. of Sao Paulo, said: “TradeCard is exactly what
Brazil needs – for its exporters, and for its economy. In tough economic
times,
saving time and money on trade transactions is more important than ever.”

Some of TradeCard’s milestones to date include:

— The development and commercial launch of TradeCard’s initial web-based
transaction management and financial settlement offering in April 2000

— Partnerships with over a dozen banks that include Comerica, Fleet, Bank of
East Asia and Bank SinoPac. These banks provide TradeCard either product sales
and service support and financing to TradeCard members

— A network with over 50 logistics companies including Fritz & Co., Jardine,
and Kuehne & Nagel; 80% of the industry’s inspection providers; Coface, the
leading provider of export credit insurance; Marsh, the largest broker of
cargo
insurance; and Thomas Cook, a leading money movement provider

— A partnership with MasterCard International to provide
businesses-to-business
payment capabilities for small as well as large dollar purchases

— An alliance with Cap Gemini Ernst & Young to provide financial supply chain
tools to CGE&Y clients and prospects

— The Spring 2001 launch of TradeCard’s enhanced platform. The platform hosts
a
full suite of financial settlement products that enable buyers and sellers to
track and settle virtually any type of domestic or cross-border financial
transaction

— Over 600 active users of the TradeCard system, including RadioShack,
Wolverine World Wide, SK Global and International Playthings

— Acknowledgment by Global Finance magazine as “Best Online Trade Finance
Service Provider” for 2001

— Technologic Partners’ recognition of TradeCard at their Financial Services
Outlook conference in August 2001 as one of the top ten privately held
e-finance companies voted most likely to succeed

— The launch of TradeCard Japan K.K., a joint venture backed by Mitsui & Co,
Ltd, Mitsubishi Corporation and Warburg Pincus

— The September, 2001 completion of a $25.5 million equity round led by
TradeCard majority shareholder, Warburg Pincus

About TradeCard, Inc.

TradeCard is a financial supply chain service provider. TradeCard’s secure
transaction infrastructure greatly reduces the inefficiencies and
uncertainties
found in traditional domestic and cross-border trade transaction processes. By
streamlining and enhancing the steps necessary for purchase order approvals,
payment decisions and settlement, TradeCard provides a cost-effective,
practical and patented service for financial supply chain management.
TradeCard, Inc. is headquartered in New York City with offices in San
Francisco, Seattle, Chicago, Hong Kong, Taipei, Seoul, Tokyo and London.
TradeCard can be found on the World Wide Web at
http://www.tradecard.com

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Omni 3210 Certified

VeriFone announced that Concord EFS, Inc., a leading electronic payments processor, is the first processor to certify and install VeriFone’s Omni 3210 terminal, the new and improved version of VeriFone’s best-selling e-payment terminal — the Omni 3200. The terminal features an internal PINpad that easily facilitates the acceptance of debit and electronic benefits transfer (EBT) transactions. Hundreds of merchants have already installed the Omni 3210 using Concord for debit processing services. Concord plans to offer the easy-to-use Omni 3210 terminal to its small merchant, quick service restaurant, and convenience store customers, providing them with the ability to add debit and EBT acceptance easily at any time. Concord, the largest acquirer of PIN-secured debit transactions in the U.S., recommends debit to help merchants lower transaction costs.

“Our merchants want to extend the convenience of debit and EBT to their customers,” said Edward A. Labry III, Concord president. “The Omni 3210 with its all-in-one functionality and attractive design offers merchants convenience and ease of use without compromising on performance and reliability. It is quite simply good for business.”

The Omni 3210’s key features include an internal PINpad to support debit, EBT and other PIN-based transactions, offering everything a merchant needs in a compact countertop device. Installation is a breeze; merchants simply plug in the power cord, connect the phone line and begin doing business. A swivel stand allows the terminal to act as both a clerk-facing and customer-input device. The high-speed integrated thermal printer, which operates at 12.5 lines per second, features a built-in paper cover and ribbonless output to eliminate most of the moving parts that cause paper jams and other breakdowns.

“What really sold me on the Omni 3210 was the ease of installation and ease of use. The swivel stand allows my customers to easily enter PINs and the all-in-one design results in less clutter on my countertop,” said Susan Young, owner of Antiques and Art, Somerset, Ohio. “Plus, the ATM-style display really simplifies clerk training.”

The Omni 3210 runs with VeriFone’s SoftPay e-payment software, making it easy for merchants to process payments quickly and customize payment requirements to their needs. Merchants can choose from more than 100 configurable software options.

About Concord EFS, Inc.

Concord (Nasdaq:CEFT) is a leading, vertically-integrated electronic transaction processor, providing transaction authorization, data capture, settlement and funds transfer services to financial institutions, supermarkets, petroleum retailers, convenience stores, and other independent retailers. Concord’s primary activities include Network Services, providing ATM driving, online and signature debit card processing, and STAR(sm) network access to the financial services industry; and Payment Services, providing credit, debit, check authorization, and electronic benefits transfer (EBT) processing services to selected retail segments.

About VeriFone, Inc.

VeriFone, Inc., ([http://www.verifone.com][1]) is the leading global provider of secure electronic-payment solutions for financial institutions, merchants and consumers. VeriFone has shipped more than nine million electronic-payment systems, which are used in more than 100 countries. VeriFone, Inc. is held by Gores Technology Group, an international acquisition and management company.

About Gores Technology Group

With headquarters in Los Angeles, Gores Technology Group (GTG) is a privately held international acquisition and management firm that pursues an aggressive strategy of acquiring promising high-technology organizations and managing them for growth and profitability. GTG has made a name for itself by acquiring and successfully managing companies — including many divisions acquired from large publicly traded companies — through its commitment to customers, employees and continued development of intellectual property. GTG has acquired and managed approximately 35 interrelated but autonomous technology-oriented companies with locations throughout the world. Those companies provide a broad range of technology-based products and services to a substantial customer base representing millions of active users worldwide. Visit the company’s Web site at [www.gores.com][2].

For further information on Gores Technology Group please contact Michael Sitrick, mike_sitrick@sitrick.com, or Terry Fahn, terry_fahn@sitrick.com, both of Sitrick and Company, 310/788-2850.

[1]: http://www.verifone.com/
[2]: http://www.gores.com/

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CARD MANAGEMENT

Euronet Worldwide, a leading provider of secure electronic
financial transaction solutions, announced an agreement to implement its
Euronet Integrated Card Management System for Union banka a.s., a premiere
retail bank in the Czech Republic.
Euronet’s card system provides online ATM card authorization and settlement
processing.
Union banka, with more than 200,000 customers and 100 branches across the
Czech
Republic, selected Euronet’s card management software as a quick-to-market
solution that provides the first step towards integrated transactions. The
card
system enables Union banka to quickly and easily deploy ATM cards, to manage
the cards and to provide customer assistance, online transaction authorization
and offline posting. Additionally, the system facilitates hold processing,
settlement processing, charge backs and representment.

“We are excited about Euronet’s card solution,” said Alena Pejcochova, Senior
Director of Information Systems. “This is a major step toward merging all
payment systems under one integrated transaction management umbrella. We
selected Euronet Worldwide because of the quality of their products as well as
their commitment to customers.”

“Union banka is a progressive bank that understands the importance of
integrated transactions,” said Michael Brown, Euronet Worldwide CEO and
Chairman. “Not only does our card system provide a greater service for Union
banka’s extensive customer base, it creates an excellent benchmark for other
banks in the region to invest in integrated systems.”

About Euronet Worldwide

Euronet Worldwide is an industry leader in providing secure electronic
financial transaction solutions. The company offers financial payment
middleware, financial network gateways, outsourcing and consulting services to
financial institutions and mobile operators. These solutions enable their
customers to access personal financial information and perform secure
financial
transactions — any time, any place. The company has processing centers
located
in the United States, Europe and Asia, and owns and operates the largest
independent ATM network in Europe. Visit our website at
http://www.euronetworldwide.com.

About Union banka, a.s.

Union banka, a.s. is a universal banking institution with full foreign
exchange
license granted by CNB (The Czech National Bank), with products including
complex banking services, such as telephone banking, consumers’ loans and
investment banking. Union banka, a.s., with 200,000 clients and over 100
business outlets in the Czech Republic, is designed for retail clientele. The
majority of outlets are in on-line systems that enable clients to bank all
over
the Czech Republic.

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EPN Pricing

The Electronic Payments Network announced Wednesday a series of price reductions across its full range of ACH services. Members participating in the private sector payments channel will save anywhere from 35% to 40% on fees for electronic payment executed over EPN. Charges for receiving federal government payments have been eliminated entirely. There are additional savings for participating financial institutions on interregional payments exchanged with Federal Reserve customers. EPN’s pricing structure is especially beneficial to smaller banks that pay no file deposit fees. Mellon Bank, BB&T, and Wachovia have recently joined EPN. Bank of America, Bank One, Comerica, Key Bank, PNC Bank, U.S. Bancorp and Wells Fargo are expected to join EPN over the next year.

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NEXT GEN CARDS

Philips Semiconductors, a
division of Royal Philips Electronics, launches HiPerSmart, the first 32-bit
smart computing platform to be manufactured using
an advanced 0.18um CMOS process. Based on SmartMIPS architecture from MIPS
Technology International, the HiPerSmart platform offers enhanced memory and
security features for high volume multi-application cards for banking, e-
business and 3G wireless applications. It is particularly well suited for UMTS
Integrated Circuit Cards, including USIM and RUIM applications.

The introduction of HiPerSmart extends Philips Semiconductors’ portfolio
of smart card ICs and fulfills the requirements of the next generation of
smart cards. By combining its advanced 0.18 um process technology with a 32-
bit SmartMIPS Core, Philips Semiconductors now enables smart card
manufacturers to create 32-bit products for leading-edge, high volume
applications in a reliable and cost efficient manner.

“HiPerSmart affirms Philips Semiconductors’ continued dedication to the
development, expansion and improvement of its smart card IC-based
identification products,” said Reinhard Kalla, business line manager for Chip
Cards in the Business Unit Identification at Philips Semiconductors. “With the
introduction of HiPerSmart, we are addressing future market demands for
leading edge, high performance smart cards for a range of low power
applications including 3G wireless communications, corresponding UICC cards,
banking and e-business.”

The HiPerSmart platform optimises the path to secure, high performance
UICCs and is the best in its class in low power design. It enables the
straightforward implementation of key competitive features for Java
applications, such as personalization and customization, using low power
technology as required by the multi-applications markets.

The HiPerSmart platform offers additional security features including
cryptography co-processors for DES/AES and PKI and supports the easy
implementation of virtual machines such as Java. It also contains a highly
efficient Memory Management Unit (MMU) suitable for multi-applications and,
in accordance with the move towards low voltage operations in GSM handsets,
supports operating voltages from 1.6V to 5.5V. In addition, the advanced
0.18um technology enables Philips Semiconductors to provide 32-bit products
with Flash in different configurations in a cost-efficient manner.

About Philips Semiconductors

Philips Semiconductors, with revenues of US $6.3 billion in 2000, is
aworld
leader in silicon systems and standard products for wireless
communications, digital entertainment, computing and automotive applications.
The organization designs, develops and manufactures silicon solutions based on
its innovative Nexperia(TM) architecture to create living technology for its
customers building products, service providers using the products, and
consumers enjoying the resulting products and services. For more information:
http://www.semiconductors.philips.com.

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Chase 3Q/01

J.P. Morgan Chase reported a 15.8% increase in receivables and a 17% jump in card volume for the third quarter. Non-interest card revenue increased 16.3%, from $471 million for 3Q/00 to $548 million for 3Q/01. On a managed basis, the credit card net charge-off ratio was 5.64%, an increase from 5.54% in the second quarter and 4.99% in the third quarter of 2000. For complete details on Chase’s third quarter results and past performance visit CardData ([www.carddata.com][1]).

CHASE U.S. SNAPSHOT
3Q/01 2Q/01 3Q/00 Ann Chng
Recv: $38.2b $37.4b $33.0b +15.8%
Q Vol: $17.9b $17.7b $15.3b +17.0%
Accts: 23.0m 22.0m 19.7m +16.8%
Actives: 14.0m 13.8m 12.5m +12.0%
Cards: 32.1m 30.8m 27.6m +16.3%
b-billion m-million
Source: CardData (www.carddata.com)

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

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