New Brittain Studies

American consumers spent over $6.5 billion on-line during the 1998 holiday season, with over 90% of it charged on credit cards. With this rapid growth of the internet as an enormous “Mall of the World”, credit card issuers are scrambling to make their card the on-line shopper’s favorite. The primary tactic in this effort is to give consumers immediate benefits for using a particular credit card when buying on-line. These benefits include merchandise discounts, money safety guarantees, air miles and credit against outstanding card balances. Specific data regarding this new credit card battleground emerged from a just completed consumer-based study conducted by Atlanta-based, Brittain Associates. The study is being released to subscribers today.

“About one half of all on-line shoppers who use a credit card claim that they always use just one card on-line,” says Bruce Brittain, president. “I think that on-line card usage perks to encourage such behavior will become a hotter competitive area as issuers try to make their card the on-line favorite.”

Among the issuers who currently have cards that are frequently mentioned as favorites for on-line purchases are First USA, American Express, Citibank, Discover and MBNA.

Some issuers are also providing on-line customer service capabilities such as bill review and bill payment. Consumers overwhelmingly say that this gives these cards a competitive advantage.

“The data clearly show,” says Brittain, “that card owners who can review their statements or pay their bills on-line favor that card over other cards they own.”

According to Brittain, as the number of households in the U.S. who regularly use the internet climbs beyond the 34.7 million identified in this study, carving out a competitive advantage based on internet related issues will become am important strategy for issuers.

The study, the second in a planned series, indicates that the growth rate in the number of internet active adults in the U.S. is currently at 26% per year, up from 51.3 million measured last September to 57.9 million measured in March, 1999.

A full description of the study methodology, lines of inquiry and examples of selected results can be found at the research firm’s website: [www.brittainassociates.com][1].

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

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Nacha 25

The National Automated Clearing House Association’s ‘Payments ’99’ annual conference attracted more than 1,400 payments professionals in Atlanta Monday. The conference marked NACHA’s 25th anniversary. NACHA says 25 years ago hardly anyone used ACH for direct deposit, now the ACH network is used by more than 20,000 financial institutions, 2 million businesses and 100 million consumers for direct deposit of payroll and Social Security benefits. NACHA emphasized that the ACH Network is the lowest cost interbank electronic payment network in the U.S.

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Interchange Slammed

Discover Financial Services President David Nelms said yesterday that VISA’s recent interchange rate increases in the U.S. have alienated its merchant base. Nelms based his assertion on a survey of 500 merchants conducted by C & R Research Services, Inc. in March. The survey revealed that 63% of merchants nationwide are frustrated by the increase in credit card processing fees. Most of those merchants also said that they would encourage customers to use a particular credit card brand if that brand charged lower processing fees. Nelms said Discover estimates that U.S. merchants will pay more than $500 million annually in incremental fees due to this recent increase. Nelms urged merchants to shift their business away from VISA, MasterCard, and American Express and to encourage the use of Discover Card at the point of sale. He said consumers will also benefit from using Discover Cards more because a large portion of what merchants pay is directly returned to consumers in the form of Discover’s ‘Cashback Bonus’ award.

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CU 1Q/99

More first quarter results show some of the mid-level credit unions weathered the seasonal contraction with modest gains in their account base. According to CardData’s (www.carddata.com) ‘First Quarter 1999 Portfolio Survey’, AZ-based Desert Schools FCU picked up 1,500 accounts while MD-based Aberdeen Proving Ground FCU and CA-based Travis FCU added a few hundred accounts.

1Q/99 PORTFOLIO STATS
ISSUER OUTSTANDINGS VOLUME ACCOUNTS ACTIVES CARDS
Travis FCU $93,149,371 $30,899,928 46,603 36,714 65,982
Security Srvc FCU $80,368,779 $26,978,517 42,462 32,102 64,079
Desert Schools FCU $60,968,234 $33,306,490 61,907 45,039 78,341
Visions CU $54,901,861 $10,428,321 36,973 31,435 47,635
Aberdeen Prov FCU $41,186,252 $13,546,670 19,263 16,079 25,651
Source: CardData (www.carddata.com)

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ACH Soars

Automated clearing house payments totaled more that 5.3 billion in 1998, a 17.5% increase over 1997, according to statistics released by the National Automated Clearing House Association at its PAYMENTS 99 conference. The total dollar amount of the transactions for 1998 was $16.4 trillion, up 17% from $14 trillion in 1997. These figures include government, and inter-bank and “on-us” commercial transactions. The number of direct deposits in 1998 increased by 16.1% over 1997, from 1.9 billion to 2.2 billion. The dollar amount increased from $1.85 trillion to $2.17 trillion, a 15.1% increase. The number of bill and other consumer debit payments made over the ACH Network in 1998 totaled 1.2 billion, a 16.9% increase over 1997. The dollar amount was $678 billion, a 17.7% increase. The number of bill and other consumer debit payments made over the ACH Network in 1998 totaled 1.2 billion, a 16.9% increase over 1997. The dollar amount was $678 billion, a 17.7% increase. Use of the ACH Network for business payments, which include business-to-business payments and intra-business cash concentration and cash management transfers, increased from 644 million payments in 1997 to 757 million in 1998, an 17.5% increase. The dollar amount of these payments exceeded $11 trillion. NACHA says this is the highest growth rate since 1991.

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MemberWorks Acquisition

MemberWorks Incorporated, a leading provider of innovative membership programs, announced Monday that it has acquired Quota-Phone, Inc., a privately-held wholesale provider of nationwide discount shopping services.

Quota-Phone, Inc. adds a broad portfolio of wholesale consumer products and services and a nationwide membership base of over three million members to MemberWorks. In addition, Quota-Phone brings established relationships with financial institutions and affinity groups, among others, to MemberWorks growing roster of client partners. The acquisition will expand MemberWorks current wholesale and MemberLink offerings.

“Quota-Phone fits perfectly with our strategy of delivering high-value membership-based direct marketing solutions,” said Gary Johnson, President and CEO of MemberWorks. “Quota-Phone broadens our product reach and provides a cost-effective means of delivering a wide variety of products and services. Their 17-year history of offering successful marketing solutions is a strong addition to the MemberWorks family.”

Barry Lewisohn, President of Quota-Phone, Inc. added, “I believe that Quota-Phone’s synergy with MemberWorks and the ability to tap into their well-developed infrastructure will allow Quota-Phone to significantly expand its client and customer base as well as add to our already broad product line.”

MemberWorks paid $9.25 million in cash and MemberWorks stock for all of the equity of Quota-Phone. The transaction will be accounted for as a purchase. Quota-Phone, located in White Plains, New York, will operate as an independent, wholly owned subsidiary of MemberWorks.

MemberWorks reported on October 8, 1998, that the SEC staff’s review of its revenue recognition practices was completed in connection with the reporting of its operations for fiscal 1998 and the SEC staff had not objected to the Company’s decision to presently continue to follow the revenue recognition practices consistently followed since its initial public offering in 1996. As the Company reported in its Annual Report for 1998, the SEC issued a press release on September 28, 1998 stating that the “SEC will formulate and augment new and existing accounting rules and interpretations covering revenue recognition, restructuring reserves, materiality, and disclosure;” for all publicly-traded companies. Until such time as the SEC staff issues such interpretative guidelines, it is unclear what, if any, impact such interpretative guidance will have on the Company’s current accounting practices. However, the potential changes in accounting practice being considered by the SEC staff could have a material impact on the manner in which the Company recognizes revenue. Any such changes would have no effect on reported cash flow or the economic value of the Company’s memberships.

Certain matters discussed in the news release are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements include statements regarding intent, belief or current expectations of the Company and its management. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company’s actual results to differ materially from the results discussed in the forward-looking statements. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: uncertainty as to new and existing accounting rules and interpretations; uncertainty as to the Company’s future profitability; the Company’s ability to develop and implement operational and financial systems to manage rapidly growing operations; competition in the Company’s existing and potential future lines of business; the Company’s ability to integrate and operate successfully acquired businesses and the risks associated with such businesses; the Company’s ability to obtain financing on acceptable terms to finance the Company’s growth strategy and for the Company to operate within the limitation imposed by financial arrangements; uncertainty as to the future profitability of acquired businesses; the ability of the Company and its vendors to complete the necessary actions to achieve a Year 2000 conversion for its computer systems and applications; and other factors. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Headquartered in Stamford, Connecticut, MemberWorks Incorporated is a leading provider of innovative membership programs.

MemberWorks offers its programs to increasingly sophisticated consumers seeking economy, efficiency and convenience in their purchase of products and services. As of March 31, 1999, there were approximately five million members enrolled in the Company’s programs.

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Corporate Platinum

American Express Corporate Services unveiled yesterday the ‘Corporate Platinum Card’ for executives at large and mid-sized companies. The program has been widely available for small businesses. Since Nov. 1997, more than 75 companies have enrolled 500 executives in a pilot program for the new ‘Corporate Platinum Card’. Participants surveyed during the pilot identified the “International Airline Program” and free enrollment in “Membership Rewards” as the most beneficial features of the new ‘Corporate Platinum Card’. While the annual fee for the card is $300, AmEx says that if a ‘Corporate Platinum Card’ member used each benefit just once, the total value of the services, if purchased separately, would be more than $5,000. The “International Airline Program” offers cardholders traveling overseas, who have booked a full-fare first class or business class ticket on participating airlines, a complimentary companion ticket with the same itinerary. However companion tickets may not be used for business travel.

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IVI Acquisition

Datacard Corp. said Monday that it has agreed to sell its Financial Systems POS subsidiary to IVI Checkmate. IVI says the strategic decision was driven by Datacard’s Financial Systems strong presence in the petroleum industry. Datacard’s Financial System subsidiary introduced its ‘Jigsaw’ terminal product line three years ago. The ‘Jigsaw’ system has received ‘Class A’ certification on several financial service networks, including Vital Processing Services.

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Bylaws Slammed

American Express CEO Harvey Golub predicted Monday that the U.S. Department of Justice will either overturn VISA and MasterCard’s bylaws prohibiting members from issuing card products offered by American Express and Discover or reach a settlement with VISA and MasterCard. Golub points out that similar bylaws have been pre-emptively struck down around the world enabling AmEx to establish partnerships with more than 40 foreign financial institutions. AmEx also announced yesterday a renewal of its efforts in the USA to reach out to banks to do co-branding relationships or buy existing portfolios. Golub originally invited VISA and MasterCard members, three years ago, to do business with AmEx, in violation of the card associations’ bylaws. Golub’s comments were made, yesterday and three years ago, at a Faulkner & Gray conference and reported on by American Banker. Faulkner & Gray and American Banker are both units of Thomson Financial Services.

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Wiz Picks GERS

GERS Retail Systems announced that The Wiz, New York area’s largest consumer electronics retailer, has chosen the GERS Retail Suite of products to facilitate its day-to-day operations.

“We’re pleased to welcome The Wiz to our family of clients and are happy they chose our system to handle their operational needs,” said Jim Henderson, GERS’ President and CEO. “The agreement with The Wiz marks GERS’ largest online POS installation to date, making this opportunity extremely important to us.”

Along with GERS Base Package, The Wiz will purchase the Radio Frequency Warehousing, Bar Coding, POS, Customer Service, Credit Card Interface, Third Party Credit Card Authorization, and EDI Interface modules. The Wiz is scheduled to begin using GERS’ system in July.

Headquartered in Edison, New Jersey, The Wiz will utilize 1,000 user licenses in its 40 New York City area stores. The retailer sells a broad assortment of electronics and music, including stereos, CD players, DVD, computers and TVs. Future services planned for The Wiz include store ticket sales for events at Madison Square Garden and Radio City Music Hall and payment centers for Cablevision customers.

Built within an Oracle relational database to facilitate optimal growth, the GERS Retail Suite of products is a comprehensive management tool that alleviates retailers of manual tasks by providing real-time automation of integral daily tasks such as sales, inventory, merchandising, and accounting, with the flexibility to shape the system to their individual needs. The GERS system features clear menus with friendly pop-up windows to guide users through each procedure to save time and increase employee productivity.

Commenting on the agreement with GERS, Thomas Dolan, Senior Vice President and Chief Information Officer of Cablevision, said, “As Cablevision grows to become the New York area’s leader in entertainment and telecommunications services, customer retention is increasingly important. The integration of key technical systems with our current systems will assure our ability to further strengthen customer service and satisfaction.”

Bill Marginson, President of The Wiz, added, “Our significant investment in technology is an acknowledgement of how important excellent systems are to The Wiz’s mission and the success of our long-term strategies.”

San Diego-based GERS Retail Systems provides fully-integrated, Open Systems computer solutions software, hardware, and comprehensive training for retailers of softlines, hardlines, department stores, home furnishings retailers, and consumer electronics/wireless retail operations.

Cablevision Systems Corporation is one of the nation’s leading telecommunications and entertainment companies. The Company’s cable television operations serve more than 3.4 million customers located primarily in the New York, Boston and Cleveland Metropolitan areas. Rainbow Media Holdings, Inc., a 75% owned subsidiary of Cablevision, manages entertainment, news and sports programming services. Rainbow Media’s assets include ownership interests in American Movie Classics, Bravo, Madison Square Garden, L.P., Radio City Entertainment and FOX Sports Net. The Company also owns and operates The Wiz consumer electronics stores at 40 locations in the New York Metropolitan area as well as Clearview Cinemas, operators and consolidators of community-based movie theatres.

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First Quarter 1999

The seasonal contraction in credit card outstandings has been verified again as portfolio results for the first quarter begin to trickle in. According to CardData’s ‘1Q/99 Portfolio Survey’ (www.carddata.com) the first quarter contraction appears to be somewhat modest this year. CT-based People’s Bank added more than 60,000 accounts during the first quarter despite a $100 million+ drop in outstandings. Likewise First Virginia, which recently sold its portfolio to MBNA, posted a slight gain in gross accounts, active accounts and cards-in-force despite a decline in first quarter outstandings. First Virginia reported Friday that its sale of $101.8 million in card loans to MBNA was completed last month and resulted in a one-time gain of $10.7 million. First Virginia also sold $51.5 million of its portfolio late last year.

1Q/99 PORTFOLIO STATS

ISSUER OUTSTANDINGS VOLUME ACCOUNTS ACTIVES CARDS

People’s Bank $3,633,404,606 $1,730,588,253 2,767,657 1,766,538 3,492,742
KeyCorp $1,338,322,657 $ 508,133,842 1,087,488 622,992 1,418,802
First Virginia $ 104,231,000 54,453,000 202,000 110,000 233,000
FirstMerit $ 98,598,309 59,425,798 100,273 61,815 123,152
Calif. Commerce $ 61,680,179 29,515,056 45,923 27,617 66,675

Source: CardData (www.carddata.com)

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