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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Metavante Technologies to Implement MC rePower

Metavante Technologies has made the first live implementation of the MasterCard “rePower” POS prepaid card reload service. Available to MasterCard and Maestro prepaid cardholders across Europe, “rePower” makes available its network of top-up locations. Utilizing the combination of the MasterCard merchant infrastructure through acquiring partners and its existing POS infrastructure, Metavante will process the new implementation for Advanced Payment Solutions’ prepaid card programs. Advanced Payment Solutions European prepaid card provider offers cardholders its personalized, embossed, Chip and PIN prepaid MasterCard cards.

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Big Gap in Parent-Child Financial Awareness

A new survey shows that only 41% of the children know what a credit score is vs. 75% of parents; 28% understand how APRs accrue vs 73% of parents; 22% are concerned about having enough money to finish college vs 46% of parents; 38% are concerned about a career path vs 52% of their parents; and 21% are concerned about the U.S. stock market vs 41% of parents. However, the Wells Fargo research also showed that 95% of parents are confident their children will attain their financial goals while 5% of the children feel the same, 92% of parents feel budgets are effective while 95% of their children feel otherwise and parents are more likely to maintain a hard copy budget versus online while only 50% of youth would maintain a hardcopy. Wells surveyed more than 1,000 parents and 600 young adults.

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Travelex Signs U.S. Bank for its Cash Passport

Foreign exchange Travelex has signed a new agreement with U.S. Bank that allows the Bank’s branch network
to offer Travelex’s “Cash Passport” and banknotes.
After an initial contract between the two companies was signed in 2003,
Travelex entered an onsite agreement with U.S. Bank in January of 2005. The two
companies signed an amendment to their agreement to allow Cash Passport, a prepaid
card denominated in Euro and British Pound Sterling to be sold in U.S. Bank
branches in August of 2008. Travelex is the world’s foreign exchange, business payments specialist
and leading provider of travel insurance, operating through subsidiaries and
branches in these regions: the Americas, United Kingdom; Europe, Asia Pacific; and Middle
East and Africa (EMEA).

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