Card Profits Get the Seven-Year Itch

Credit card profits slipped during 2005 for the first time in seven years, driven down by fierce competition, soaring charge-offs and escalating cost of funds. The average pre-tax, return-on-assets for credit card portfolios last year is projected to decline to 4.3%, compared 4.5% for 2004, and 4.4% for 2003. CA-based R.K. Hammer Investment Bankers says its data show that charge-offs rose 10 basis points last year due to cardholder reaction to new bankruptcy legislation. Operating expense decreased 20 basis points in 2005 to 4.7%, due to the seasoning of earlier technology investments. However, the maturity blended cost-of-funds moved upward during 2005 by 20 basis points to 2.7%. Hammer says some major issuers increased dollar profits even though ROA percentages declined by growing their receivables much faster than the impact of a declining ROA percentage factor.

U.S. Bank Credit Card Profitability Historical
(VISA, MasterCard, and Discover)
YEAR INC OX CO COF ROA
1989 21.3% 5.5% 3.8% 7.9% 4.1%
1990 20.9% 5.1% 4.3% 7.8% 3.7%
1991 20.5% 4.8% 4.7% 7.6% 3.4%
1992 19.4% 4.9% 4.9% 6.5% 3.1%
1993 18.6% 4.7% 4.6% 6.0% 3.3%
1994 18.5% 4.5% 4.4% 5.7% 3.9%
1995 18.0% 4.2% 4.1% 6.1% 3.6%
1996 17.9% 4.3% 4.2% 6.1% 3.3%
1997 17.4% 4.3% 4.6% 5.9% 2.6%
1998 17.3% 4.4% 4.7% 5.7% 2.5%
1999 17.9% 4.5% 4.4% 5.9% 3.1%
2000 18.4% 4.5% 4.3% 6.0% 3.6%
2001 18.8% 4.7% 5.1% 5.0% 4.0%
2002 18.5% 4.9% 5.4% 4.0% 4.2%
2003 17.6% 5.0% 5.8% 2.4% 4.4%
2004 17.5% 4.9% 5.6% 2.5% 4.5%
2005 17.4% 4.7% 5.7% 2.7% 4.3%
INC-total income; OX-operating expense; CO-charge-offs;
COF-cost-of-funds; ROA-net pre-tax return-on-assets
Source: R.K. Hammer Investment Bankers

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CHIP & PIN 4Q/05

At year-end, more than 127 million “chip and PIN” cards have been issued
in the UK including 64 million debit cards and 63 million credit cards.
Over 80% of tills in the UK or 770,000 have upgraded to “chip and PIN”
acceptance. During 2005 more than 2.85 billion PIN verified transactions
were made in the UK. In fact, during December 98% of all “chip and PIN”
debit card transactions and 92% of “chip and PIN” credit card
transactions were made using a PIN. According to APACS, 99% of
cardholders in the UK or 41.5 million had at least one “chip and PIN”
card in their wallet. After February 14th all “chip and PIN” cardholders
must use their PIN to be sure they can pay with their “chip and PIN” card.

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Reward Cards Hit Saturation in the US

A new report concludes that the loyalty market is nearly saturated in the U.S. credit card industry. More than 80% of the credit cards marketed online by the U.S. top 50 credit card issuers offer some type of reward for the users. The study by Mercator Advisory Group also found that there is very little or no differentiation among reward programs, and “giving more” seems to be the only way to compete. Mercator says introducing successful loyalty programs that help differentiate credit cards from the competition has become very challenging given the market conditions. However, change can be created by focusing on segmentation, targeting, communications, and reward redemption process.

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GCA Wins the Hooters Casino Hotel Contract

The soon-to-open Hooters Casino Hotel has signed a multi-year agreement to use the products and services of Global Cash Access. The Casino Hotel will use a variety of GCA products and services, including Casino Cash Plus(R) 3-in-1 ATM, QuikCash(TM) cash advance terminals, QuikCash Plus(TM) (QCP) Web, 3-in-1 Enabled QuickJack Plus(TM), Central Credit and Central Credit check warranty service. Hooters Casino Hotel features 696 rooms and suites. It is located one block from the famous Las Vegas Strip. Global Cash Access, Inc. is a provider of cash access products and related services to approximately 960 gaming properties and other clients in the United States, the United Kingdom, Switzerland, Canada and the Caribbean.

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ClickPay Solutions Looking for Acquisitions

ClickPay Solutions announced it is aggressively seeking acquisition candidates in gift card, payroll card, payday loans, gateway services and verification services. Over the next several months, ClickPay Solutions will target key processing and gateway companies having built superior systems in business lines complementary to ClickPay’s established check cashing services. ClickPay Solutions is a premier sales and marketing organization that provides ‘Cashless-Check-Cashing’ services to retail locations nationwide.

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Peppercoin Lands Five Top Industry Advisers

MA-based Peppercoin has added five industry veterans to its Advisory Board including Robert Buoniconti, Robert Kiburz, Bernard Morvant, Steve Mott and David Douglas Stone. Buoniconti has been a senior executive in the financial services industry with companies such as Chase Paymentech Solutions and First Data Merchant Services. Kiburz has more than 30 years of experience. Previously at Lucent he lead its Billing and Customer Care unit and has served as Peppercoin’s president and CEO. Morvant has served as a vice president for Ingenico where he led business development. Mott is a 20-year veteran of the electronic payments industry with specialization in online transactions. Stone is President of Smart Payment Systems.

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Brown Shoe to Use NCR Windows POS Software

Brown Shoe Company (Famous Footwear and Naturalizer Stores) has signed an order to equip all of its 1,300 stores with NCR POS systems running on “Windows Embedded for Point of Service” software platform. The NCR RealPOS terminals utilize the retail-optimized Microsoft software platform which facilitates implementation and integration with existing systems. Brown Shoe is a $2.3 billion footwear company with worldwide operations.

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Nationwide Payment to Offer POSLynx 400/220

Nationwide Payment Solutions has agreed to market Precidia Technologies’ “POSLynx 400/220” devices, which convert a merchant’s existing equipment from dial-up to Internet, under a no upfront cost rental program. The POSLynx product integrates easily with NPS’ high speed authorization network, and are simply installed and is ideal for merchants with 2 or more locations who have existing DSL/high speed internet and wish to move to IP-based processing to save money and improve authorization speed. Precidia designs and manufactures IP access devices. Nationwide manages all aspects of electronic payment processing.

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State Bank of India Joins Western Union

The State Bank of India has entered into an agreement with Western Union
to provide inbound money transfer services. Through this agreement,
Western Union Money Transfer Services now will be available at more than
200 branches of State Bank of India, with more to be added during 2006.
According to the World Bank’s report on Global Economic Prospects
2006, India receives the highest amount of remittances, with US$21.7
billion sent to the country last year. State Bank of India is the
largest bank in India and one of the top 100 banks in the world with
more than 9,000 branches in India and has a presence in more than 32
countries worldwide.

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