Another Doubler

For the six months ending Dec 31, Paymentech realized net income of $10.8 million versus $5.1 million for same period in 1996. For the December 97 quarter (2Q fiscal 98) Paymentech processed 476 million transactions representing $13.6 billion in bankcard sales. Paymentech’s sales volume is growing 22% annually and its transaction volume is growing about 39% a year. During the quarter Paymentech sold its share of the PHH/Paymentech joint venture to PHH’s new parent company but remains the exclusive provider of MasterCard corporate fleet cards for PHH.

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AmEx Nagano Support

[Click here for a page by page look at the complimentary Nagano City Guide][1]

American Express announced Tuesday the availability of complimentary Nagano City Guides at its offices in Japan and through merchants in Nagano, the site of the 1998 Winter Games.  The user- friendly guide provides a comprehensive introduction to Nagano and highlights the array of services American Express provides its Cardmembers and merchants at Nagano.

The bilingual Guide was produced by American Express in English and Japanese as a part of its local merchant network enhancement program.  The easy-to-carry, concise guide contains maps of suburban and downtown Nagano and highlights American Express merchants in Nagano.  The restaurant and hotel listings also include helpful information such as reservation necessity, price ranges, parking availability, and entertainment offerings.  The guide also provides Cardmembers with information on American Express services, including

— Banks and ATMs where the American Express(R) Card is welcome;

— Banks offering Cardmembers over-the-counter cash and foreign exchange         services;

— Locations for quick and easy encashment of American Express Travelers         Cheque;

— Toll-free telephone numbers for Travelers Cheques and travel         arrangements; and

— Emergency Card replacement services and general Cardmember inquiries.

In Nagano, the Guide is available at hotels, restaurants and department stores.  The guide is also available to American Express Cardmembers through Membership Service Centers in Japan.  Cardmembers in Japan may call American Express’s toll-free number (0120-020120) for copies of the guide or for assistance during their stay in Nagano during the Winter Games.

American Express has long developed and managed merchant relationship in Nagano the area.  Cardmembers can enjoy use of their cards throughout Nagano, including 95% of all lodging establishments, 95% of all restaurants and bars, and 92% of all retail outlets.  As part of American Express’s efforts to service its Cardmembers, specially designed point-of-sale materials have been designed, including window, door and counter decals that state “Cards Welcome”, “Thank You” and “Welcome” in eight different languages.

American Express Travel Related Services Company, Inc., is a wholly owned subsidiary of the American Express Company — a diversified worldwide travel and financial services company founded in 1850.  It provides card, Travelers Cheque, travel and financial services in over 160 countries.

[1]: /cardflash/secure/oldstatic/1998/january/nag.html

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Drexler Doubles Last Year

Drexler Technology Corp. reported profits for the fiscal 1998 third quarter and nine months ended Dec. 31, 1997, with revenues rising more than 200% over the year-ago quarter and nine months.

For the three months ended Dec. 31, 1997, the company had net income of $676,000, or a profit of 7 cents per share, compared with a net loss of $694,000, or a loss of 8 cents per share, for last year’s third quarter. Revenues for the fiscal 1998 third quarter were $3,229,000 vs. $815,000 for the same quarter a year ago.

For the nine months ended Dec. 31, 1997, net income was $978,000, or a profit of 10 cents per share, vs. a net loss of $1,777,000, or a loss of 20 cents per share, for the nine months ended Dec. 31, 1996. Revenues for the recent nine months were $7,620,000 vs. $2,451,000 for the year-earlier period.

For the fiscal 1998 third quarter, LaserCard(R) optical memory card shipments rose to 732,000 cards compared with 123,000 cards for the year-earlier quarter. For the first nine months of fiscal 1998, LaserCard shipments reached 1,582,000 optical cards vs. 305,000 optical cards for last year’s first nine months.

At Dec. 31, 1997, the company’s cash and cash equivalents totalled approximately $4,191,000 compared with $2,916,000 at March 31, 1997. The company has no debt.

On Dec. 17, 1997, the company announced receipt of a $6.4 million purchase order for LaserCard optical memory cards for a U.S. government application. The award more than doubled the company’s backlog for LaserCard products, to $10.2 million from $3.8 million.

On Jan. 5, 1998, the company announced receipt of a $900,000 purchase order for LaserCard optical memory cards, the company’s largest non-government order for optical cards.

During the quarter ended Dec. 31, 1997, the company shipped over 90 percent of its products to U.S. customers, but there were also overseas sales to Argentina, Belgium, China, Kuwait, the Philippines, Portugal, Russia, and Turkey. LaserCard applications include immigration cards, cargo manifests, access control cards, healthcare records, high security/interactive ID cards, automotive records, medical image storage, portable records with audit trails, and consumer transaction systems.

Drexler Technology is based in Mountain View, Calif., where it manufactures LaserCard(R) optical memory cards and “microchip ready” Smart/Optical(TM) cards. The company’s wholly owned subsidiary, LaserCard Systems Corp., develops system software for PC-based optical memory card systems. At Dec. 31, 1997, Drexler Technology had 9,530,551 shares of common stock outstanding.

              Drexler Technology Corp. and Subsidiaries
            Summary Consolidated Statements of Operations
                             (Unaudited)
                (In Thousands, Except Per Share Data)

                               Three Months Ended    Nine Months Ended
                               12/31/97  12/31/96   12/31/97  12/31/96 
                                                                         
Revenues                       $ 3,229   $   815    $ 7,620   $ 2,451
Cost of sales                    1,709       558      4,214     1,656
Operating expenses                 893       962      2,508     2,621
Other income, net                   72        11        115        49
Income tax expense                  23      —           35      —  
Net income (loss)              $   676   $  (694)   $   978   $(1,777)
Net income (loss) per share
(basic and diluted)           $   .07   $  (.08)   $   .10   $  (.20)
Shares used in computing net
income (loss) per share
Basic number of shares          9,525     9,109      9,324     8,967
Diluted number of shares        9,780     9,109      9,579     8,967

Forward-Looking Statements Certain statements made in this report relating to plans, objectives, and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and each is subject to factors that could cause actual results to differ from those in the forward-looking statement. Such factors are described in the company’s Report on Form 10-K and other documents filed by the company from time to time with the Securities and Exchange Commission.

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Citi Card Income Declines

Citibank reported Tuesday that net income from cards worldwide declined 26% during the fourth quarter compared to the same quarter a year ago. About 36% of the decline was attributed to the U.S. market with the remainder coming from emerging markets. Citi says its number of U.S. card accounts dropped 2% last year. However, compared to the year-ago quarter, U.S. card volume increased 4% to $27.9 billion and U.S. receivables increased 2.5% to $48.2 billion. Chargeoffs, as a percentage of average loans, increased from 5.45% last year to 5.64% but inched down slightly from the third quarter. Delinquency (90+ day) declined from 1.90% to 1.80% at year’s end. For Citibank the percentage of bankruptcy related chargeoffs hit 40.8% during the fourth quarter compared to 38.0% last year. Citibank ended the year with 65 million cards-in-force worldwide representing 36 million accounts.

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CTST Sells Out to F&G

Faulkner & Gray announced the acquisition of CTST, Inc., the world’s leading organizer of card technology conferences, known globally under the name CardTech/SecurTech. Terms of the deal were not disclosed.

“The smart card is the next platform of information technology, and CardTech/SecurTech is the leading source of professional and trade information to the industry that develops and uses this technology,” said Jack Love, President of Faulkner & Gray. “With this acquisition, we bring together the largest card technology conference and the number one card technology magazine to create an indispensable trade information resource for a burgeoning industry.”

A unit of Thomson Corp., Faulkner & Gray is the publisher of 18 specialty business magazines, including Credit Card Management, Card Technology, and Card Marketing–the principal products it markets to the global card industry, along with related newsletters, directories and conferences. Card Technology, a monthly magazine introduced in early 1996, is F&G’s primary publication in the advanced card field with 25,000 subscribers throughout the world. In addition, the company publishes Smart Card Alert newsletter, Card Technology Directory and Smart Card Sourcebook Series.

“We are tremendously excited about the opportunities that our new relationship generates,” said Miller. “The card technology and security industries have entered a period of rapid growth that will be further fueled by the combination of the premier providers of information resources”.

Miller, the entrepreneur who co-founded the CardTech/SecurTech Conference, will join Faulkner & Gray as Senior Vice President in charge of the company’s new CTST Division headquartered in Bethesda, Md. He will continue to serve as Chairman of all CTST events, reporting directly to Love. The existing CTST staff will become full-time employees of Faulkner & Gray.

The CardTech/SecurTech main conference, which this year is scheduled for April 27-30 at the Washington, D.C., Convention Center, is the card industry’s largest gathering. The 1998 show will feature presentations by 180 expert speakers and is expected to attract 8,500 visitors and 320 exhibiting companies displaying innovative card and security solutions in a sprawling six acres of exhibit space.

With its three annual shows, CardTech/SecurTech is the premier conference and exhibition company in the rapidly growing smart card industry. Smart cards–plastic cards with built-in microprocessors–are the enabling technology for a wide variety of application solutions, including use in banking, telecommunications, transportation, government, health care and retailing. The cards, when used in conjunction with biometric and cryptographic technologies, which are covered at CTST shows as well, also provide the basis for enhanced security in internet commerce, intranets, traditional identification programs and systems for physical access control.

CTST’s long-term sponsorship agreement with the Smart Card Industry Association will be assumed by Faulkner & Gray, which intends to expand the relationship between the organizations. Under that agreement, SCIA will remain the exclusive industry sponsor of all CardTech/SecurTech conferences. SCIA, a trade association comprised of 45 major smart card industry vendor companies, helped form CTST along with Miller in 1991. It has been expanding rapidly in the last two years under an aggressive membership drive designed to capitalize on the growing application of smart card systems and solutions. F&G is in discussions with SCIA to greatly expand its CTST relationship through a variety of programs.

Based in New York, Faulkner & Gray is one of the nation’s leading publishers of specialty magazines, newsletters and directories for a wide array of other financial service industry segments, including accounting, banking, credit collections, credit unions, mortgage banking, managed care, and insurance. In addition to its new CTST conferences, F&G organizes two dozen annual conferences serving its card and various financial markets.

Faulkner & Gray is a division of Thomson Financial Services, a leading provider of quality financial information, research, analysis, and software products to the global investment and corporate communities. Part of The Thomson Corporation (TTC), TFS employs more than 5,500 people in nearly 40 offices around the world.

The principal activity of TTC is specialized information and publishing worldwide. In addition, TTC has important interests in newspaper publishing in North America and in leisure travel in the United Kingdom and Sweden. TTC had sales of US$7.7 billion in 1996 and has some 50,000 staff members. TTC’s common shares are traded on the Toronto, Montreal and London stock exchanges. For more information, visit TTC’s Internet address at [www.thomcorp.com][1]

[1]: http://www.thomcorp.com

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A-Net Card Endorsed in Asia

Orion Technologies, Inc. announced Tuesday that its debit and credit card program, called A-Net, has been officially accepted and endorsed by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), which has 79 bank members in 33 Asian Pacific countries.

“This is a major milestone in our efforts to launch a new worldwide debit and credit card,” said Keith Cowan, president of Orion Technologies.

Orlando Pena, Secretary General of ADFIAP said, “This is a welcome development which is a step forward to eventually having a global card facility for the use of ADFIAP member banks and their clients in 33 countries of the region.”

Today’s announcement follows approval by the Secretariat of the American National Standards Institute to confirm Orion Technologies as a blockholder of 94 IINs (Issuer Identification numbers) for Orion’s A-Net credit and debit cards.

Cowan said, “Any one of our planned debit and credit cards will be recognized worldwide just like VISA or MasterCard cards are known. Furthermore, we are now officially recognized as a bona fide card scheme by the International Organization for Standardization (ISO), which is administered by the American Bankers Association. All of our cards’ BINs (Bank Identification Numbers) will begin with a prefix which is our exclusive number worldwide.”

In 1995 ADFIAP entered into a strategic alliance with Orion to build A-Net, an intranet designed to provide electronic services to its member banks and their clients.

Orion Technologies Inc. develops and manages secure, global electronic networks. Through these networks, Orion provides a range of secure, integrated services, including electronic commerce, transaction processing and card services, EDI, electronic trading, and electronic mail communications.

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Cashing In On Notices

Change notices for cardholder agreements have marketing value says Moore’s Response Marketing Services. Moore’s introduced yesterday a new service called ‘Strategic Alert’ that adds value to credit card repricing messages by tailoring them by product line, customer type and using them to promote related products/services/benefits. RMS says card issuers can reposition their card’s value, reinforce brand identity, acknowledge top customers, survey customer opinion, or spark an increase in overall card usage-all while delivering basic information about account term changes.

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Gambling ATM Card

Tom Hughes, Chairman and CEO, announced Tuesday that Betting, Inc. has joined with GameWay Technologies to develop and market applications for its ATM card with PIN payment processing technologies into the public gaming sector.  The initial project of the joint-venture, to be known as “WinLink,” is to provide self service instant-payment capabilities for account wagering from public locations such as Sports bars, airport lounges and hotel lobbies.

State Off-Track Betting (OTB) phone account holders will soon be able to use their ATM card and PIN to replenish available balances in their accounts immediately with instant and non reversible cash, and without the exorbitant surcharges connected with credit-card cash advances currently in use.  Players will use Betting Inc.’s PayMaster device (with exclusive patents licensed to it by ET&T) to assist in adding non reversible ATM card with PIN cash to their accounts with OTB’s, casinos, lotteries, etc., wherever such account wagering is legal.  In-state account wagering is approved and in operation in eight states (including New York, Connecticut, Pennsylvania, Kentucky, Ohio and Nevada).

WinLink will pursue global home usage wagering applications, such as in Australia and Great Britain.

The WinLink joint venture will be managed by GameWay President Scott Jacobs.  Mr. Jacobs was the founding V.P. Marketing of SportXction in Las Vegas, and is known for introducing innovations into legal lottery and gaming, such as telephone and PC playability.

Betting, Inc. looks forward to a very profitable relationship with GameWay and will process all of WinLinks’s transactions.

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NYT Card

A private label discount charge card for The New York Times will launch in May according to Toronto-based Advantex Marketing International, the firm  responsible for the overall management of the program. Dining card developer IGT Services will handle the merchant participation. ‘The New York Times TimesCard’ will be available to seven day, full price subscribers in the NY metro area who pay their subscriptions six months in advance.

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Banc One, Chase & BONY

Banc One reported yesterday that First USA card losses declined from 5.61% to 5.37% last year. First USA’s receivables grew 17% and cardholders grew 12% during 1997. For all of last year First USA opened a record 8.1 million new accounts including 2.4 million in the fourth quarter. Managed credit card assets totaled $40.8 billion and cardholders totaled 40.5 million at year’s end.

Meanwhile Chase Manhattan indicated yesterday that net chargeoffs for the full year were 5.66% compared with 4.87% for 1996. However Chase says card revenue increased 15% last year to $3.35 billion.

Bank of New York reported a pre-tax gain of $177 million from the sale of its $4.4 billion credit card portfolio that closed on November 24.

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Web Buyers Unconcerned About Card Security

A comprehensive, three-part Ernst & Young study reveals that while industry experts continue to focus on sales predictions as the key indicator of Internet commerce, they are overlooking the Web’s unmatched power in driving consumer purchases to other channels of distribution.  The study also highlights the Internet’s potent ability to influence sales of a wide growing range of products and services.

“Internet Shopping,” a special report produced by Ernst & Young and the National Retail Federation, reveals that nearly one-third of consumers (32 percent) with online access have purchased products or services on the Internet.  Yet, only four percent make more than 10 purchases a year. Sixty-four percent of those with Internet access research products online and later buy them through traditional channels — double the percentage of consumers who research and buy the same products online.  Overall, 90 percent of consumer respondents said their online research is valuable to future purchasing decisions.

“The Internet is much more than a passive advertising vehicle,” said Stephanie Shern, Vice Chairman, Industry Services of Ernst & Young.  “Our research shows that the Internet appears to be accelerating purchase decisions.  Retailers and manufacturers must understand this to unlock the incredible value of the Internet.”

Try It… You’ll Like It

Findings suggest that Internet shopping satisfaction continues to grow among a majority of Web purchasers.  Fifty-six percent said they like the Internet’s ability to offer comparison shopping, 52 percent are happy with online merchandising, and 50 percent enjoy the ease of navigation and the overall speed of process on the Web.

Clearly, the main reason consumers shop on the Internet is the convenience (53 percent) it provides.  At the same time, a large percentage of Web purchasers said that variety (46 percent) and cost savings (45 percent) were key factors in buying on the Internet.  Internet security remains the biggest hurdle to prospective Web purchasers, with almost 70 percent reporting that they are uncomfortable sending their credit card number through cyberspace. Yet, satisfaction appears to grow with experience, as 52 percent of current Web buyers said they are happy with credit card security.

“As retailers search for new and innovative ways to expand their markets and keep their customers happy, they will look increasingly to cyberspace for ideas and answers,” said National Retail Federation President Tracey Mullin. “As the Ernst & Young study indicates the sky’s the limit for this exciting channel.”

Neither Nerd Nor Neophyte

Dispelling a popular myth, the cyber-shopper profile is neither a teenager nor a computer “nerd.”  Instead, findings indicate that Web buyers are well-educated, well-paid, and in their prime earning years; 64 percent of online shoppers are between 40 and 64 years of age.  Sixty-eight percent of online shoppers are male.  “Many retailers should take keen notice of these findings as these demographics represent their ideal online customer,” added Shern.

Cyber-shoppers also have active lifestyles with numerous hobbies. Fifty-one percent are avid moviegoers, 48 percent are gardeners, 36 percent do some kind of charity and volunteer work, and 32 percent attend concerts, plays and museums.  On the whole, Web shoppers engage in these activities more frequently than consumers.

The Internet is having its most profound impact upon men, who seem to have found a shopping channel uniquely suited to their needs.  Men outnumber women as primary PC users by a five-to-three margin and spend more time online than women.  Eighty-three percent of men with Internet access go on-line on a regular basis, compared with 64 percent of women.  “Most women still prefer more traditional shopping channels,” continued Shern.  “But because they are often loyal to both brand and style, a clear opportunity exists in such brand-driven areas as apparel and consumer electronics.  Web sellers need to heighten their marketing and sales efforts towards women.”

The New Millennium  Great Expectations Among Retailers & Manufacturers

Both retailers and manufacturers are extremely optimistic about the growing importance of the Internet as a future sales channel.  By the year 2000, half of online sellers expect to generate at least 20 percent of their total sales on the Web.

Retailers are extremely optimistic on the profitability of their Web sites, with more than two-thirds (67 percent) predicting profitability in the first year of operation.  A staggering 81 percent of retailers project profitable Web sites within two years.  Manufacturers are more cautious than retailers with only 40 percent expecting profitability on their sites within a year of operation.

Fifty-four percent of retailers have established an online presence for marketing and image development but have no plans to utilize the Internet as a sales medium citing the unsuitability of their products for Web sales.

Sixty-nine percent of retail respondents viewed market expansion and 61 percent believed customer retention are the two primary goals of having an online presence.  Fifty-eight percent said the Internet has allowed them to differentiate themselves from their competition and to expand their market. “Retailers should use the Internet to drive sales, reduce costs and bolster marketing efforts,” stated Shern.  “Our study shows that brand names and retailer familiarity exert the most impact on Web buying decisions.  Retailers need to be well positioned for the time when the Internet becomes a mature sales opportunity.”

Judging by manufacturers’ plans, direct-to-consumer online sales do not pose an immediate threat to retailers.  Only nine percent are currently selling products on the Web and 12 percent more have plans to begin to sell. The majority (71 percent) have no intention of selling online.

What’s Hot & What’s Not

Some products may be better suited for online sales than others. Information intensive items such as computers, software, books, travel, music, and magazine subscriptions are the most popular online products at present. Apparel is emerging as a viable online category.

The study conducted comprehensive interviews with 850 consumers, 150 retailers and 150 consumer products manufacturers about their current and future Internet buying and selling activities.

Ernst & Young LLP provides assurance and advisory business services, tax services and consulting solutions for domestic and global clients.  The firm has 27,000 people in 89 U.S. cities.  Visit the Ernst & Young Web site at .

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ATM Backlash

A new study released this morning shows 78% of ATM consumers actively avoid ATMs with fees. The Opinion Research Corporation study also revealed that 67% of ATM customers say ATM fees discourage them from considering the fee-charging bank for other products and services. Of consumers using ATMs outside their own bank’s branch system and incurring surcharges, 47% say it “makes them mad” while 38% say it “bothers them somewhat”. Other ORC findings 57% have used an ATM at a non-bank location, 48% have used ATMs at the branch of another bank and 44% have used their ATM cards for retail purchases.

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