FTC Mails 400K Card Scam Redress Checks

The Federal Trade Commission’s claims administrator mailed more than 400,000
checks on June 12, 2009 to consumers identified as victims of
an illegal credit card billing scam operated by J.K. Publications and
other defendants.T he redress checks are the result of a lawsuit the FTC filed in 1999. The defendants made unauthorized charges on consumers’
credit and debit cards for purported Internet services. The defendants’ records obtained during litigation contained only credit
and debit card numbers. Under instructions from the court, Credit
Reporting Agencies and banks provided the FTC with the names and
addresses associated with the card numbers as of the date of the
charges. Information about the case can be found at
http://www.ftc.gov/os/caselist/9823616.shtm.

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Q1 VOLUME

The first prepaid debit card on the Romanian market issued by a banking institution has been introduced. The new “Raiffeisen Bank Visa” prepaid card is also the only prepaid card that enables Romanians to send money domestically from their mobile phones. Customers who buy and load cash on the card can shop online, make purchases anywhere Visa debit cards are accepted, withdraw cash from ATMs worldwide and use the integrated YAP mobile service to send money domestically to friends and family or check balances from their mobile phones with a simple text
message. They can also manage their accounts online. Customers with proper identification can purchase a the new card “off the rack” for 18 RON. Raiffeisen Bank offers the “Raiffeisen Bank Visa Prepaid Card” through a partnership with RevEurope.

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Credit Unions Card Portfolios Remain Solid

While the nation’s top issuers posted double digit declines in credit card volume and about a 5% decline in outstandings for the first quarter compared to 1Q/08, credit unions have weathered the storm well. Based on Q1 results from credit union card portfolios with $150 million to $200 million in outstandings, credit card volume declined 2% as credit card outstandings were flat during the same period. According to CardData (www.carddata.com), credit card outstandings among this peer group only declined 4% from the fourth quarter, in line with historical seasonal patterns. According to OR-based AssetExchange, overall credit card balances among credit union issuers increased 5.9% during the first quarter, compared to a growth rate of 16% for 1Q/08. The percentage of portfolios that grew more than the rate of inflation during the previous 12 months decreased to 66% in 1Q/09 from 75% in the year ago quarter.

$150MM-$200MM PEER GROUP
1Q/09 vs 1Q/08
($ millions)
Credit Union Outstandings Volume
Baxter (IL) $152/$143 $98/$112
Michigan State (MI) $154/$140 $51/$49
Virginia (CU) $155/$150 $39/$42
GTE (FL) $163/$160 $56/$55
Redstone (AL) $165/$155 $105/$95
State Employees (NC) $120/$168 $107/$107
Security Service (TX) $173/$165 $43/$48
Source: CardData (www.carddata.com)

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V/MC Credit + Debit GDV to Top $4T in 2012

Based on current growth rates, inflation rates and the impact of new regulations, it is likely that gross dollar volume for Visa and MasterCard debit cards will surpass credit cards in 2009. Also, the combined GDV for U.S. credit and debit cards will likely exceed $4 trillion in 2012 after recently passing the $3 trillion milestone in 2008. According to CardData (www.carddata.com), Visa and MasterCard posted $1.58 trillion in credit card GDV in 2008 and $1.51 trillion in debit card GDV. Debit card GDV grew 12% last year and will likely maintain its momentum as credit cards fall out of favor with consumers. Credit card GDV was flat in 2008 and will likely rise in tandem with a projected inflation rate of about 3%. Due to the overall economy and new credit card rules to be implemented over the next two years, issuers will continue to pull back on new account acquisitions, reduce operating costs and focus on credit quality, thereby reducing the capacity for consumers to fuel credit card charge volume. Furthermore, Americans are likely to emerge from the current recession as “credit averse,” as the increase in the savings rate is currently indicating.

CREDIT vs DEBIT
(Visa & Mastercard)
($ billions)
Credit Debit Total
2008: $1583 $1514 $3097
2009: $1630 $1696 $3326
2010: $1679 $1899 $3578
2011: $1729 $2127 $3919
2012: $1781 $2382 $4163
Source: CardData (www.carddata.com)

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Many Card Issuers Escape the 09 Toilet Market

Analysts agree that the credit card industry goes through a
flushing-out period every ten years or so and this time it is really in
the toilet. However, card industry analyst/investment bankers R.K.
Hammer sees three survivors in the current turmoil, namely “True
Pioneers,” “Swift-Adapters,” and “Late-Learners.” “True Pioneers,” are
issuers that never got into high-risk lending and who did not give up on
their solid credit models. Hammer says many of these are smaller
Regionals and Super Regional Banks who “stuck to their knitting.”
“Swift-Adapters” are card issuers with old fashioned business models
that may have briefly experimented. When they did deviate from their
risk norm they quickly realized the need to get back on the trail and
take few big risks. The “Late-Learners” are those issuers who are
returning to those more secure risk models, whether by design or by
simply survival to better, tighter criteria and to less exception
processing. That is taking place right now; less credit being extended,
and when it is, being done more wisely.

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Processor and FTC Settle a Pharmacy Card Case

A federal court has ordered payment processor InterBill to pay $1.8
million in consumer redress for debiting consumers’ bank
accounts without their authorization. In 2006, the FTC charged InterBill
with unfairly debiting thousands of consumer accounts for a merchant’s
nonexistent discount pharmacy cards. The complaint alleged that more
than 70% of the merchant’s transactions were returned or refused by the
consumers’ banks, and more than $2.38 million was debited from
consumers’ accounts, some of which was later refunded or reversed. The
FTC alleged that InterBill did not follow its own guidelines for new
merchants and did not check addresses, phone numbers, or references the
bogus merchant provided. InterBill processed payments for a fraudulent
enterprise known as Pharmacycards.com. The FTC sued the Pharmacycards
perpetrators in 2004 and obtained a default judgment against them. In
2005, the Commission sued another company that processed unauthorized
charges for Pharmacycards, Universal Processing, and obtained a settlement.

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Consumers – New Card Rules Do Not Lower Costs

In a recent poll asking consumers if they think the new credit card
laws recently signed by President Obama will reduce their future credit
costs (fees + interest), the overwhelming majority voted “No.” The
CardTrak poll found that 71.4% voted “No” and 28.6% voted “Yes.”
Obama signed the “Credit CARD Act” over the Memorial Day weekend. It
goes into effect in nine months. Under the regulations practices such as
“universal default,” fees for delayed posting of payments, early-morning
deadlines for credit-card payments are banned. Card issuers will be
prohibited from charging over-limit fees unless the cardholder agrees to
permit over-limit transactions. Interest rates cannot be raised in the
first year and promotional rates must last at least six billing cycles.
Card issuers will also be required to apply payments over the minimum to
the portion of the balance that carries the higher interest rate. The
legislation also requires consumers under 21 to have a co-signer.
Additionally, statements must be mailed 21 days before the bill is due
and a 45 day notice is required for any fee, rate, or penalty increases.

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FIS Pulls Down Three Major Industry Awards

Financial technology provider Fidelity National Information Services was
ranked by Bank Technology News as the number-one technology company to watch in 2009.
BusinessWeek magazine recently named FIS to its
“InfoTech 100” which ranked the top technology
companies that have managed to thrive even in the face of a global recession and B2B media researcher
FSO Knowledge Exchange named FIS one of the top five leading organizations in the “Technology Innovation”
category for FIS’ Credit Union Fraud Claim Automation solution. This solution
provides complete automation of credit and debit card fraud case management for the credit
union industry, including fraud detection, notification and validation with the
cardholder; automated creation of an image-based fraud claim, and
recovery and chargeback functionality; as well as secure transmission of fraud claim
information to CUNA Mutual Group.

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Top Merchant Warehouse Executive Honored

Henry Helgeson, president and co-CEO of card
processing solution provider Merchant Warehouse has received the “Ernst & Young
Entrepreneur of the Year” 2009 Award in the financial services category
in New England. Under Helgeson’s guidance, Merchant Warehouse has created new and
innovative products and solutions. The company launched “BINsmart”, a patent-pending and
revolutionary technology that identifies, once a card is swiped, whether
it is a debit, credit or corporate card; calculates the estimated lowest
cost processing option; and then prompts for the best method to run that
sale. It also developed and launched its first iPhone and Blackberry
applications, “MerchantWARE Mobile”, which allow mobile workers the
convenience of accepting payments while on the road. The Ernst & Young Entrepreneur of the Year awards celebrate their 23rd
anniversary this year. The program honors entrepreneurs who have
demonstrated exceptionality in such areas as innovation, financial
performance and personal commitment to their businesses and communities.

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Insiders are the Biggest Security Threat

Aite Group has published its findings on key trends in information
security, identifying areas of strength and weaknesses in the financial
services industry. Based on interviews with 22 information security
professionals, conducted in April 2009, the Aite research shows the
general consensus among information security vendors are confident in
perimeter defenses and tools for defense from malware currently
suffice. Additional information, however, shows breaches are becoming
more egregious and nearly 50% of those interviewed determined the
insider threat is the most significant security vulnerability. Aite
Group independent research and advisory firm focuses on business,
technology and regulatory issues’ impact on the financial services
industry.

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Heartland and Voltage Security Team for Encryption

Heartland Payment Systems has partnered with Voltage Security to develop
end-to-end encryption payment processing software.
Heartland’s new “E3” solution will significantly enhance the security of
payment card information throughout the processing lifecycle. The
Voltage “SecureData” product line, based on its “Format-Preserving
Encryption” and “Identity-Based Encryption” approaches, will power the
software component of Heartland’s E3 solution.
Heartland also employs “Voltage “SecureMail” and Voltage “SecureFile” to protect personal
information throughout its corporate and extended business network.

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Veritec to Power Security First Gift/Debit Cards

Mobile banking solution provider Veritec has signed a license and
maintenance agreement for its mobile banking platform with CA-based
Security First Bank to issue debit and prepaid gift cards
The cards will be issued on Veritec Financial Systems mobile
banking platform and VTFS will provide back-end card processing
services to the Bank for all cardholder transactions. Veritec is a pioneer and developer of proprietary two-dimensional
matrix technology whose portfolio of products includes the
“VeriCode” and “VSCode” 2D matrix symbology solutions, “BioID – VSCode”
multi-purpose card solutions, and suite of products known as
“PhoneCodes” for delivering electronic tickets, coupons and gift cards to
mobile devices.

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