04 Fee Income Hits 37% of Total Revenue

More than $136 billion in revenue flowed in to U.S. bank credit card issuers last year producing pre-tax net income of nearly $33 billion. Of the total revenue, more than $50 billion, or 37%, was generated with merchant and cardholder fees. In 2003, fee income represented 33% of total revenue. Ten years ago the figure stood at 17%. According to R.K. Hammer Investment Bankers, card issuers spent $38 billion in operating expense, paid $22 billion for funding costs, and lost $43.5 billion in charge-offs during 2004.

CREDIT CARD P/L
Interest Income: +$85.5 billion
Fee Income: +$50.8 billion
Charge-Offs: -$43.5 billion
Operating Expense: -$38.3 billion
Cost of Funds: -$21.7 billion
Pre-Tax ROA $32.8 billion
Source: R.K. Hammer Investment Bankers

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Card Delinquency Remains Stable in 3Q

Credit card delinquencies, based on total dollars outstanding, leveled off during the third quarter, inching up only 3 basis points over the prior quarter while the number of past-due credit card accounts edged down slightly from the second quarter. Based on total dollars outstanding, credit card delinquencies are now hovering at a two-year low. According to the American Bankers Association’s “Consumer Credit Delinquency Bulletin,” delinquencies, based on total dollars outstanding, for 3Q/04 were 4.36%, compared to 4.33% in the second quarter, and 4.66% for 3Q/03. Based on the number of accounts past-due the figures were 4.26% for 3Q/04, 4.28% for 2Q/04, and 4.09% one-year ago. While credit card delinquency has stabilized, the ABA noted that delinquency on home equity and auto loans increased sharply.

3Q CREDIT CARD DELINQUENCY HISTORY
(based on total dollars outstanding)
2003: 4.66% 1999: 4.25% 1995: 4.21% 1991: 4.54% 1987: 3.72% 1983: 2.75%
2002: 4.45% 1998: 4.63% 1994: 2.90% 1990: 4.01% 1986: 4.90% 1982: 3.92%
2001: 4.45% 1997: 5.31% 1993: 3.83% 1989: 3.45% 1985: 3.15% 1981: 2.37%
2000: 3.93% 1996: 5.03% 1992: 4.27% 1988: 3.40% 1984: 3.30% 1980: 3.40%
Source: American Bankers Association Delinquency Bulletin

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AmEx Incents SkyMiles Cardholders

American Express rolled-out two nationwide promotions for “Delta SkyMiles” credit cardholders. “Classic,” “Gold” and “Platinum Delta SkyMiles” credit cardholders can earn a 20.05% “SkyMiles” bonus on all eligible purchases made through January 31st. Additionally, from February 15th through March 15th, all “Delta SkyMiles” credit cardholders can earn triple miles on Delta purchases of $265 or more. Cardholders must register to receive the bonus miles.

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VeriFone’s SC5000 Gets a Chip & PIN Upgrade

Carphone Warehouse Group has selected VeriFone to deliver a custom “Chip and PIN” upgrade solution based on the “SC 5000” programmable smart card device. The Carphone Warehouse required a dual function secure customer-facing device that, in addition to handling EMV-compliant card transactions, would facilitate the SIM card back-up application that all of its stores offer to customers. The “SC
5000” is protected by a comprehensive array of hardware and software-based security features and adheres to “3DES” encryption standards. Carphone Warehouse Group is rolling-out a total of 3,000 “Chip and PIN” “SC 5000s.”

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AmEx’s Alesio to Head D&B

D&B announced this week that Steven Alesio, a 19-year veteran of American Express, has been named its CEO. Steven W. Alesio, 50, joined D&B in January 2001 as senior vice president. He was named president and chief operating officer of D&B in May 2002, at which time he was also elected to D&B’s board of directors. Before joining D&B, Alesio spent 19 years in marketing and general management with the American Express Company, serving in executive positions in the Business Services group and the Consumer Travel group. D&B (NYSE: DNB), the leading provider of global business information, tools and insight, has enabled customers to Decide with Confidence for over 160 years.

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Lipman NURIT 8100 gets Class B Approval

Lipman announced that its “NURIT 8100” multifunctional POS terminals received “Visa PED Class B” PIN entry security approval for online debit and offline smart card transactions. The “NURIT 8100” is the only fully programmable all-in-one terminal listed by VISA International as meeting the Class B requirements. Additionally, the Company’s “NURIT 8000” and “NURIT 8320” POS terminals and “NURIT 292” PIN Pad have received “Visa PED” offline approval. These new approvals complement existing “Visa PED Online” approvals for these devices and for the “NURIT 222 Online” PIN Pad.

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Canada’s Interac Sets a December Record

Canada’s Interac Direct Payment set a new record for transactions on December 23rd, with 13.1 million transactions in a single day, a 5% increase over the previous record set in 2003. This is the second time the 2003 record was broken this holiday season, with 12.4 million transactions recorded on December 18th. In 2003, Canadians logged 2.6 billion Interac Direct Payment transaction valued at more than $116 billion.

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ABS Charge-Offs Return to the 2001 Level

After rising for more than two years, charge-offs, among credit card-backed securities, have settled back to their 2001 level. However, delinquency, among credit card ABS, has dropped significantly compared to 2001. According to Moody’s Investors Service, charge-offs for November (or the October collection period) registered 6.11%, the exact figure for November 2001. Compared to one-year ago, charge-offs have dropped 65 basis points. Delinquency hit 4.5% in November, or 82 basis points lower than November 2001. Compared to November 2003, delinquency declined 70 basis points. The improvement in both metrics, coupled with an improving economy, point to more improvement in 2005. However, the gains will be partially offset by the rising cost-of-funds.

ABS HISTORICAL
Charge-Offs Delinquency
Nov 01: 6.11% 5.32%
Nov 02: 6.36% 5.45%
Nov 03: 6.76% 5.20%
Nov 04: 6.11% 4.50%
Source: Moody’s Credit Card Index

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U.K’s Chip and PIN Off to a Flying Start

The U.K.’s “Chip and PIN” program declared its first weekend a success. More than 12 million transactions over the bank holiday weekend were verified with a PIN. Eight out of ten retailers have now upgraded their tills to accept both “Chip and PIN” and existing signature cards. Around 50 million cards have yet to be upgraded so retailers are continuing to accept signature for those customers that have yet to receive a new “Chip and PIN” card or who do not yet know their PIN. The UK’s first “Chip and PIN” transaction took place during 2003 at thousands of retailers.

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Ritz Interactive Adds Bill Me Later

Ritz Interactive has added I4 Commerce’s “Bill Me Later” payment option. The Bill Me Later payment solution provides a convenient and secure method of paying for purchases online or via the telephone for those customers who prefer an alternative to credit cards. By only providing basic, top-of-mind information such as the birth date and the last four digits of the social security number, qualified customers gain online credit for their purchase instantaneously. Ritz Interactive is an e-commerce network of interactive Web sites dedicated to providing a wide selection of leisure-time products at the most competitive prices for online shoppers. Bill Me Later(R), developed by I4 Commerce, is a credit-based payment solution designed to meet the needs of today’s multi-channel retailers.

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ACE Cash Express Network Tops 1,300

ACE Cash Express reported that its network has grown to 1,327 stores in 38 states following new store openings in the fourth quarter. The 43 acquired stores were purchased for an aggregate investment of approximately $11.7 million and include stores located in Pennsylvania, Ohio, Wisconsin, and California. ACE Cash Express, Inc. is a leading retailer of financial services, including check cashing, short-term consumer loans and bill payment services, and the largest owner, operator and franchisor of check cashing stores in the United States.

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