Thin Excess Spreads in ABS Raises Investor Concern

Among credit card asset-backed securities, recently reported excess spread levels on several fixed-rate, high-coupon transactions are now thin, and could trigger early amortization. At the end of May, six credit card ABS fixed-rate series reported three-month average excess spread below 2.00%. Fitch Ratings says this noncredit-related early amortization risk has also caused investors to gain a greater appreciation for trust structural nuances, particularly the prepayment protection offered by the various socialist, semisocialist, and nonsocialist structures. Fitch says that although limited, issuers maintain some flexibility in managing performance and prepayment risk. However, these options are broader portfolio management initiatives that would likely boost performance over time, including re-pricing accounts to boost portfolio yield, accelerating receivable growth in an attempt to dilute reported losses, and adding newly originated or better performing accounts to the trust. Fitch says that a relatively simple way to protect against the excess spread margin compression in these fixed-rate deals is to incorporate interest rate swaps into the transactions. A good example is MBNA Master “Credit Card Trust II,” which has several high-coupon, fixed-rate deals but has effectively hedged against the falling rate environment by employing interest rate swaps and their payments within the trust. As such, excess spread for MBNA fixed-rate transactions has remained relatively strong.

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iBIZ Software Inks Authentication Deal with UK’s Kwikpay

Kwikpay Technologies Limited of London has selected iBIZ Software of Texas to supply its cardholder authentication program. Under the deal, iBIZ will supply its “CommerSafe MPI” to provide Kwikpay merchants payment authentication services under the “Verified by Visa” and “MasterCard SecureCode” programs. Kwikpay’s online service reaches into the UK, EU, USA, Asia and Africa. Founded in 2000, iBIZ is a pioneer in online payment card security and offers robust authentication solutions for the entire e-payments industry.

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Fifth Third Signs GNC for Back Office PIN Debit Operations

Pittsburgh-based General Nutrition Centers has chosen Fifth Third Bank Processing Solutions to fully automate their back office PIN-based debit card operations for 5,300 retail outlets. Fifth Third Direct enables retailers to scan receipts, handwritten notes, or other documents into the system for responding to inquiries from customers or financial institutions. Fifth Third Bank processes 8.2 billion ATM and POS transactions per year for more than 185,000 retail locations and financial institutions worldwide. Pittsburgh, Pennsylvania based GNC, is the largest nationwide specialty retailer of vitamin, mineral and herbal supplements and sports nutrition products.

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Card Payments Drive Consumer Spending

A research report has found that the growth in card payments in the USA has added an additional $6.5 trillion to real consumer spending between 1980 and 2000. The study says electronic payments, including card-based payments, has also driven international economic growth, as well as economic efficiency, and capital accumulation. The white paper by Global Insight, and sponsored by VISA International, says that without the growth in domestic card spending, the cumulative loss to U.S. GDP would have been nearly $10 trillion, reducing GDP growth by 0.5% per year. Global estimates this loss could have cost 1.3 million new jobs. Furthermore, an analysis of 50 countries worldwide, ranging from Egypt to Canada, found that on average, an increase of just 10% in the existing share of card payments in a country would stimulate an increase of 0.5% in consumer spending. The study says electronic payment networks, by increasing the efficiency and velocity of payments, have the potential to create cost savings of at least 1% of GDP annually over paper-based systems in any given economy. In a simulation of the U.S. economy by Global Insight, it was found that a 10% shift of currency into deposits or other reserves that can be used for lending has the potential to increase the level of GDP by more than 1% annually.

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Diners Launches Refurbished Restaurant Savings Program

Citicorp’s Diners Club this week officially launched its new “Restaurant Savings Program” In April, Diners signed an agreement with FL-based iDine Rewards Network to make-over the program for Diners Club personal and participating corporate cardholders in the USA. The program offers up to 20% off the entire bill at 4,000 participating restaurants and applies to the “Personal Diners Club Charge,” “Carte Blanche.” or “Montage Card.” In November, Diners Club announced it was discontinuing its “Restaurant Savings Program” after terminating its relationship with Chicago-based Clever Ideas. Clever Ideas launched a charge-card-based dining savings program in 1990 under the “LeCard” name. The “LeCard” program replaced Clever’s paper-based “Dining Dollars” program launched in 1977. Miami-based iDine Rewards Network offers its members a variety of dining savings and rewards programs at more than 10,300 restaurants throughout the USA. The Company currently has 17.9 million credit cards registered through 13.3 million enrolled accounts. (CF Library 11/6/02; 4/11/03)

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FDIC Issues Payday Loan Guidance

The FDIC yesterday issued examination guidance for FDIC-supervised institutions that offer payday loans. Payday loans are small-dollar, unsecured, short-term advances offered at high annual percentage rates. Banks that participate in payday lending frequently do so through a third-party vendor. The guidance also focuses on concentrations of credit, capital adequacy, the allowance for loan and lease losses, and policies towards rollovers or renewals of credit.

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Best Western Joins Weekends Matter Promotion

Best Western has joined the “MasterCard Weekends Matter Sweepstakes” promotion, which runs through August 31st. Cardholders will automatically be entered in the MasterCard Weekends Matter Sweepstakes. The Grand Prize is a weekend home for one year to be shared with anyone in any location. There will also be 200 First Prize winners who will receive a $500 MasterCard Gift Card to plan their own one-time weekend getaway.

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CSC to Offer US Dataworks’ ARC Products

Computer Sciences Corporation has signed an agreement to resell US Dataworks, Inc.’s “Accounts Receivable Conversion” suite of software products. CSC will integrate US Dataworks’ products with its Remittance Processing System, which payment processors use for image-based capture, processing and archiving of account payments. Integrating CSC’s RPS-NT with US Dataworks’ ARC software suite provides an end-to-end solution that allows corporate and retail lockbox remittance service providers to convert and process checks as ACH transactions.

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Verizon Wireless Launches Phone Top-Off Service

Verizon Wireless has launched its “[FREEUP] Prepay” service enabling customers to replenish their prepaid wireless service in any amount using rechargeable and re-usable “PreCash” cards. A leading provider of electronic replenishment solutions for prepaid and postpaid products, PreCash lets customers add any amount between $15-$600 to their account. Customers simply stop in at any participating location displaying the PreCash logo, add the desired amount, and the free PreCash card will be active in less than 15 minutes. PreCash cards do not have a currency value, which make it a secure service should the card be lost or stolen.

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Internet Usage Rebounds as it Becomes Part of Daily Life

Three years after the collapse of the Internet bubble, overall levels of usage are beginning to grow significantly as some credit card issuers are also experiencing higher quality response rates. Now, 39% of users say they log on daily, up from 36% a year ago, according to a quarterly survey of 10,000 households. The survey by NFO WorldGroup, Forrester Research, and The Conference Board also found that more than 71% of users who primarily log on to conduct work-related activities do so daily. Close to 64% of consumers engaged primarily in personal communication go online every day, while only 49% of those using the Internet primarily for personal research log on with the same frequency. While satisfaction is down moderately, the overall rate of satisfaction remains above 40%. The fluctuation was primarily due to a dip in satisfaction with email and other kinds of personal communication, which fell to 37% from 42% last year. The “Consumer Internet Barometer” found that online retail sales were weaker in the second quarter than in the first quarter, but remained relatively in-line with year-ago levels. Among recent buyers, young consumers (those under 35) and the affluent (those with earnings in excess of $85,000) had the highest purchasing incidences, each at 58%.

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Consumers are Demanding Self Check-Out in Stores

Consumer demand for self-checkout is growing as consumers become comfortable with other popular self-service technologies such as pay-at-the-pump. A new study by IDC for NCR has found that 78% of U.S. consumers said they would be likely or very likely to use the technology, citing potential for faster checkout, shorter lines and greater privacy. More than 40% of U.S. consumers, and a slightly higher average percentage among consumers in all countries queried, said they would be more likely to shop in a store that offered self-checkout than one that did not. Supermarkets, hypermarkets and department stores ranked in the top three formats where consumers would like to see self-checkout available.

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QANTAS FEES

Qantas has become the first major merchant to implement a surcharge on customers using credit cards. The airline began yesterday assessing a 1% surcharge for tickets booked with a VISA or MasterCard payment card. Qantas hinted in February that it was ready to levy the surcharge but held off pending the Federal Court hearing wherein VISA and MasterCard sought to overturn the Reserve Bank’s credit card reforms. The battle between VISA/MasterCard and the RBA ended last week in Federal Court. Justice Brian Tamberlin is expected to issue a ruling within the next two months. In 2002, the RBA issued new reforms on the credit card business permitting merchants to recover from cardholders the costs of accepting credit cards. The new standard went into effect January 1st. Also under the new RBA rules, interchange fees will decrease from around 95 basis points to approximately 55-60 basis points by October 1st.

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