Circuit City Exits Bankcard Business

Circuit City Stores confirmed this morning it is exiting the bank credit card business and will take an after-tax charge of up to $200 million during the current quarter, which ends this month. The electronic retailer projects it will generate $190 million from the sale, reflecting the credit quality of the portfolio. Circuit City said getting out of the bankcards business would enable the company to avoid the large cyclical profit swings that are inherent in finance operations serving primarily non-prime accounts, which have been recently been brutal. The company has engaged Banc of America Securities to assist with the disposal of the bankcard operation. Circuit City’s finance operation manages approximately $1.5 billion in bankcard receivables and $1.5 billion in private-label and co-branded VISA credit card outstandings. In mid-June, the Board of Directors gave the green light to management to unload the credit card portfolio after its First North American National Bank produced a pretax loss of $22.1 million for the first quarter. The retailer says the loss was the result of higher costs associated with two securitizations, a $500 million deal for private-label credit card receivables, including receivables related to the co-branded VISA credit card it launched last year; and, a separate securitization of $550 million in bankcard receivables. In June 2002, the company launched the co-branded “Circuit City Plus VISA” card to replace its private-label credit card program. (CF Library 6/18/03)

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EVERBRIGHT BANK & FDC

China’s first full bankcard outsourcing agreement has been signed between China Everbright Bank and First Data. China
Everbright Bank already has issued more than 10 million debit cards and has total assets of more than $39.8 billion. The bank plans to launch a credit card product later this year. The bank has a branch network in 23 of China’s provinces and 36 cities, including Shanghai, where First Data opened an operations center for north Asia last October. Under terms of the multi-year agreement, First Data will provide business consulting and transaction processing services, including authorizations, account management, backroom services, and merchant account processing. First Data’s “VisionPLUS” software will be used as the processing platform.

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Rates to Remain Unchanged for a Considerable Period

The Federal Open Market Committee decided yesterday not to change the federal funds rate, and indicated it may not change rates rate for a “considerable period,” citing deflation as a major concern. The evidence accumulated over the intermeeting period shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted. The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.

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BANORTE & ELIX IVR

Banco Mercantil del Norte has selected Montreal-based Elix as its preferred interactive voice response platform for telephone banking services. The IVR platform will help Banorte to handle the more than 20 million calls its contact center receives per year; 80% of these calls, on average, are now handled automatically. Part of Banorte’s strategy is to promote the use of this channel to their customers by offering more self-service options such as payment of utility and credit card bills, transfers between accounts, product sales, and loyalty programs. Banorte has 1,069 branches and 2,508 ATMs. Elix’s IVR expertise is used by VISA, ABN-AMRO, and Air Canada.

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ABNH Revenues Slip as MasterCard Orders Decline

Citing a decline in MasterCard orders, American Bank Note Holographics reported that second quarter revenues were $4.3 million, compared with $4.8 million for the second quarter of last year, however, profits remained flat at $100,000. The results for the first six months of 2003 were impacted by a significant temporary decline in orders from MasterCard. Sales to MasterCard in the first six months of 2003 were $1.9 million less than the comparable period of 2002. Sales to all customers other than MasterCard increased from $6.0 million in the first six months of 2002 to $7.2 million in the first six months of 2003.

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CyberSource Reconciliation Solution Launched

CyberSource has released “CyberSource Reconciliation Solution” to enable online merchants to eliminate up to 90% of the manual processing required to reconcile orders with receipts and to manage chargebacks and rejected payment requests. Reconciliation Solution compares order data recorded by the merchant with payment activity data automatically downloaded from the merchant’s payment processor. It takes automated action to resolve discrepancies and chargebacks, based on business rules established by the merchant. It generates exception reports to enable targeted, efficient staff action. An administration interface provides consolidated access to reports, case status and administration, and all associated order information.

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FDC Lands First-of-a-Kind Agreement in China

China’s first full bankcard outsourcing agreement has been signed between China Everbright Bank and First Data. China Everbright Bank already has issued more than 10 million debit cards and has total assets of more than $39.8 billion. The bank plans to launch a credit card product later this year. The bank has a branch network in 23 of China’s provinces and 36 cities, including Shanghai, where First Data opened an operations center for north Asia last October. Under terms of the multi-year agreement, First Data will provide business consulting and transaction processing services, including authorizations, account management, backroom services, and merchant account processing. First Data’s “VisionPLUS” software will be used as the processing platform.

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California Couple Sues Card Companies for Gambling Losses

A California couple has filed a lawsuit against VISA, MasterCard, Discover, and the banks that issued their credit cards, over losses they sustained by gambling online. Lisa and Andrew Harding filed the lawsuit in Alameda County in response to a lawsuit filed against them by Retailers National Bank. The Hardings claim they lost more than $100,000 gambling online with their credit cards. The lawsuit charges the card networks and the issuers with violating the California “Unfair Business Practices Act” and a California prohibition against providing credit for gambling, as well as violating the USA Patriot Act. VISA and MasterCard have rules to enable member banks to prevent the use of their cards in connection with Internet gambling transactions. The rules require that, in order for a merchant to seek payment authorization in connection with an Internet gambling transaction, the merchant must code the authorization request to indicate that the transaction is an Internet gambling transaction. Merchants who will not abide by these rules are not permitted to accept cards.

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VISA’s Streamlined Charge-Back Process Pays Off

VISA USA’s “Re-Engineering Disputes” initiative, introduced three years ago, has produced a 21% decline of charge-backs last year, resulting in approximately $238 million in fewer losses for members. VISA’s upgraded dispute resolution process is aiming to resolve most cardholder disputes in one billing cycle. A key component of the VISA initiative to speed and simplify the dispute resolution process is “VISA Resolve Online,” which enables disputes to be handled through the Internet. VISA previously eliminated the requirement for formal written disputes and copies of credit receipts. VISA also reduced dispute categories to 24.

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Voice Authentication Study Released

TouchPoint Consulting and FSTC have completed the industry’s first in-depth and independent study of consumer views on voice authentication and have found that financial services consumers react positively to voice authentication. Leading financial institutions, including Charles Schwab, The Dreyfus Corporation, Visa, and Wells Fargo, were among the study’s primary sponsors. FSTC and TouchPoint Consulting partnered to develop the study for the sponsor group. The study, the first of its type, comprised qualitative and quantitative research as well as hands-on testing of several voice authentication applications in a lab setting.

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Catuity Edges Closer to Profitability

Loyalty system specialist Catuity reported second quarter revenue of $1.7 million, compared to second quarter 2002 revenue of $918,000. The company reported a net loss of $15,000, compared to a second quarter net loss one year ago of $987,000. The company noted that for the first six months of this year revenue of $3.1 million, is already higher than it was for the full calendar year 2002. Catuity is a provider of application software that allows merchants, transaction processors and card issuers to establish and administer customer loyalty programs integrated to the payment system at the point of sale. For complete details on Catuity’s 2Q/03 performance visit CardData (www.carddata.com).

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