IntelliTrust Formed

APPRO Systems, Inc. announced last week at the BAI Retail Delivery ’97 the formation of IntelliTrust, a consulting division specializing in helping companies which use risk management and decision systems. The group headed by Sam Khoroba, Vice President, was formed to provide lending institutions with support services to maximize the benefits of in-house technologies, allowing them to better serve their clients.

“It is of vital importance for lenders to succeed in integrating risk technologies that will distinguish the leaders in the financial services industry,” said Kharoba.

IntelliTrust will assist lending institutions realize the maximum benefits from technology investments. A preliminary list of services was developed based on current APPRO client input and industry trend predictions. IntelliTrust anticipates the following services to be most popular: credit risk management, automated credit decisions, data mining and product development.

“As electronic delivery channels become more popular, credit risk management and automated credit decisions are crucial to lenders,” said Kharoba. “A technology strategy for managing credit decisions must be in place to achieve success in the intensely competitive industry.”

Data mining and decision support systems are becoming more prevalent in the financial industry. According to Kharoba, information should be viewed as a product with value, making it an investment for future development. These resources will aid institutions in understanding and projecting customers’ current and future trends, patterns and needs, enabling them to develop products to market to those clients. “Customers have many choices, and whoever can utilize technologies effectively to quickly deliver a good, low-cost product will win,” said Kharoba.

“What sets IntelliTrust apart from other consulting groups is their unique approach to helping clients use their existing technology to improve performance,” said Craig Uffman, president of APPRO Systems, Inc. According to Uffman, a business case is developed which clearly defines the business benefits resulting from a company’s investment in technology. Financial benefits are also measured. Through business case analysis, IntelliTrust works with their clients to determine which areas (i.e., operations organization or systems architecture) will generate the highest ROI for the client. IntelliTrust provides pertinent technical alternatives and “best use” suggestions throughout the process to help achieve and maximize client objectives.

Since joining APPRO in 1990, Mr. Kharoba has held positions in the company’s Production, Information Systems, Support and Quality Service Departments. He possesses understanding of clients’ business needs and knowledge of the tools required to implement successful, strategic solutions. Before joining APPRO Systems, Kharoba attended Louisiana State University, earning both a Bachelor’s Degree in Computer Engineering and a Master’s Degree in Mathematica.

IntelliTrust is a division of APPRO Systems, Inc., a privately held and managed company founded in 1979. The company’s family of credit assessment products is installed in more than 90 financial institutions in North America. Along with the consumer lending systems, APPRO’s products include the 20/20 Small Business Lending System, a complete assessment package for commercial lending that evaluates multiple applicants and products.

IntelliTrust is located at 9489 Interline Avenue, Baton Rouge, LA 70809. For more information contact Sam Kharoba at (504) 922-4773.


Canadian Pilot Update

Giesecke & Devrient’s Canadian subsidiary, Security Card Systems, VISA Canada and Scotiabank are teaming up for Canada’s first reloadable ‘VISA Cash’ pilot. The pilot, set for the first quarter, will encompass more than 5,000 cardholders and about 500 merchants in Barrie, Ontario. The ‘Scotiabank VISA Cash’ card pilot will also include soldiers at the Canadian Forces Base Borden and students at Georgian College.



Nestor will announce next week from Atlanta an early warning system for bankruptcies and credit card delinquencies enabling issuers to combat the “bankruptcy out-of-the-blue” dilemma. ‘BankruptcyAlert’ will become an addition to Nestor’s ‘PRISM’ neural network-based risk management products. ‘BankruptcyAlert’ evaluates accounts on a transaction-by-transaction basis rather than utilizing traditional behavior or bureau score cards. The Nestor system detects spending patterns that deviate from the accounts established patterns, analyzing the number of transactions, payment/posting data and merchant codes and comparing these data with known cases of bankruptcy in the institution’s portfolio or other databases. The company says neural networks are especially suited to this type of non-linear modeling.


One Strike

While many major issuers allow cardholders two defaults before assessing punitive interest rates the Discover card is hitting cardholders with its 22.40% punitive rate for one late payment, in addition to a $20 late fee. CardTrak says new cardholders signing up for Discover’s nine-month, 6.9% intro rate will see their rate more than triple if they miss a payment and do not make the minimum payment by the next due date. Existing cardholders face the 22.40% rate for the same scenario. Industry-wide late payment fees have climbed more than 50% this year to an average of slightly less than $20 with most issuers abolishing the grace period for late payments. Punitive interest rates are now employed by most major issuers and range from 21.40% to 32.60%.



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Norwest Changes

Brian O’Hare announced yesterday he will retire as president of Norwest Card Services effective Dec 31 but will continue to serve as a consultant. Operations chief Bill Branigan will serve as interim president until Norwest finds a permanent successor. Norwest’s portfolio has been flat for the past two years with quarterly receivables varying from $1.1 billion to $1.2 billion. At the end of the third quarter Norwest had $1,174,004,082 in receivables; $530,039,350 in quarterly volume; 1,323,395 gross accounts; 729,027 active accounts and 1,580,224 cards according to Bankcard Update/CardData.


Honolulu School Card Pilot

The Pathways Group, Incorporated announced that it has signed a pilot agreement to provide a Smart Card based system for handling school lunch and bus transportation for students at the school.

The system, exclusively developed by Pathways, is designed to accommodate Point-of-Sale transactions in the school cafeteria, and transactions involving student travel on school buses. The system automatically captures all Point of Sale transactions, characterizing them by payment nature or electronic benefit transfer status for meals and services. The resulting database allows for full FDA reporting of benefits provided. The system also accommodates movement of money through the national banking ACH system.

The anonymity afforded to the welfare recipient, due to the universal use of the card by the student population at the school, complies with all federal guidelines for such a program, including reporting requirements. The systems automated reporting and “back room” functions allow the school administration to enjoy the benefits of full Point of Sale automation. The use of Smart Card technology in the system provide all of these benefits without having to rewire their campus to facilitate the system as would be the case with competing “Mag Stripe” applications.

The Pathways Group, Inc., provides clients with innovative and unique solutions for securely creating, capturing and processing data and electronic transactions using custom application software and hardware systems. The company was established in 1987 by Carey Daly and has evolved into a leader in the development of custom software and hardware for electronic banking, data and transaction processing, and smart card applications. Pathways creation of proprietary “back room” systems allows for the capture and processing of data and transfer of funds via “ACH” protocol, the standard used in the banking industry for transfer of funds in retail, medical and institutional environments.

Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. Actual results may differ materially from those projected in any forward-looking statement. Investors are cautioned that such forward-looking statements involve risk and uncertainties, including, but not limited to, dependence on the developing smart card marketplace; market acceptance of the company’s products; the rate at which the company’s customers deploy smart card solutions; and dependence on third party marketing arrangements. A description of the risks and uncertainties attendant to The Pathways Group, Inc. and other factors that could affect the company’s financial results are included in the company’s Securities and Exchange Commission filing on Form I-A.


ATMs Explode

Lured by the chance to charge new fees, leading banks have sharply boosted their arsenals of automated teller machines, a new survey shows.

The top 50 banks in ATMs were deploying 60,778 machines at midyear, up more than 17% from the holdings of the top 50 a year earlier, according to a survey by American Banker.

The daily newspaper, which unveiled the survey today, said bankers and others attributed the leap to surcharging — the practice of charging customers for using ATMs at banks other than their own. Two major ATM networks — MasterCard International’s Cirrus and Visa U.S.A.’s Plus — changed their operating rules in April 1996 to allow surcharging nationwide.

Banks took the move as a green light to impose fees and put new machines in nonbank locations, American Banker reported. By putting more machines off-premises, banks hope to offer convenience to consumers and to reap more fees.

ATMs at locations beyond branches — at supermarkets, gas stations, and other sites — have been increasing rapidly for several years. More than one-third of the machines of the top 50 banks are at off-site locations, up from about 20% five years ago, the survey shows.

The sharp runup in total ATMs at the top 50 banks also reflected the consolidation of the banking industry, lower telecommunications costs and cheaper ATMs, American Banker said.

The newspaper said the top five banks in ATMs at midyear were:

1) BankAmerica Corp., San Francisco — 6,900 machines.

2) NationsBank Corp., Charlotte — 5,931.

3) Wells Fargo & Co., San Francisco — 4,265.

4) Banc One Corp., Columbus, Ohio — 4,014.

5) U.S. Bancorp, Minneapolis — 3,235.

Total of top 50 banks in ATMs

— 1997 — 60,778

— 1996 — 51,824

— 1995 — 43,680

— 1994 — 38,660

— 1993 — 35,403

American Banker, based in New York, is the top daily newspaper on financial services. Founded in 1836, it is read by senior executives at banks and other financial services companies across the country.


High Volume Mail Tools

“Welcome to the end of obsolescence in the mail processing industry.” That was the theme for Bell & Howell Mail Processing Systems Co., a business unit of Bell & Howell Company , at a recent trade show for information technology professionals, as the leader in high-volume mail processing solutions unveiled its full portfolio of business messaging solutions.

Through its IMPACT (Integrated Message Processing and Communications Technology) suite of customer-driven solutions, Bell & Howell is helping customers in the financial, insurance, utilities, telecommunications, governmental, credit card and other service sector industries achieve full- circle customer communications and response management.

Born out of the company’s vision to help these customers embrace change in their communications operations while maximizing their current equipment investment, company executives say IMPACT represents a new way of thinking about how businesses communicate with their customers.

“Where our business was once mail, today we see it in the broader sense of communication,” said Ben McSwiney, president of Bell & Howell Mail Processing Systems Co. “Technology has forced us to think beyond traditional paper-based mail communications. Our customers’ communications needs are evolving rapidly. To stay ahead of their needs and help them adapt to the future, we needed to change our focus from machines to solutions, from tasks to processes, from predictable to adaptable.

“Historically, businesses have worried about stranded investments and dead-end technologies. With IMPACT, we’re showing them how to maximize their legacy systems through technology. It’s this focus and our 60-plus years’ experience that allow us to end obsolescence in the mail processing industry,” McSwiney said.

IMPACT represents Bell & Howell’s solution to strengthen every link along the communication chain between businesses and their customers. For example:

Customer Information Management – These processes and technologies manage both the format of customer messages and the information contained in the underlying customer databases.

Media Selection and Message Format – These technologies match and format customer messages to the most appropriate medium in terms of customer preference, cost, speed, and integrity.

Message Finishing – These systems package messages for delivery and prepare it for distribution as a mailpiece, e-mail, CD-ROM, or some other form of digital communication.

Message Distribution – These processes improve the speed, efficiency and accuracy with which messages reach their recipient. Also they help businesses track and trace the progress of outgoing and incoming messages.

Response Management – These systems make sure customer responses and remittances, whether paper or electronic, are processed in a timely and cost- effective way, expediting the flow of information to individuals, application processing systems and/or databases.

Process Management – These technologies expand the control and efficiency of the entire customer messaging cycle.

Customer Care – These services, everything from field service and remanufacture to financial services, training, consulting and disaster recovery are available to ensure complete customer satisfaction.

Under the IMPACT umbrella, Bell & Howell offers the most complete line of solutions, including integrated message composition, input, finishing, output processing, operations management and total service and support. In addition, Bell & Howell is working with entrepreneurial software companies to explore new opportunities to enhance its current software/hardware module platforms.

From its headquarters in Research Triangle Park, N.C., and from offices around the world, Bell & Howell Mail Processing Systems Co. is focused on helping businesses communicate more effectively and efficiently with their customers today and well into the future. Backed by more than 60 years of mail processing experience and in-depth business messaging knowledge, Bell & Howell integrates hardware and software solutions into an unbroken circle of communication and response management. The company provides complete customer care, including service, customer education and training, integration services and disaster recovery services, as well as finance and leasing programs. For more information call 1-800-220-3030 or visit .

Bell & Howell Company, headquartered in Skokie, Ill., is a leading worldwide provider of solutions for information access and high-volume mail processing. Revenues in 1996 totaled $903 million. Additional information about Bell & Howell is available on the Internet at .


Fair,Isaac to Enhance RiskManager

Fair, Isaac and Company, through its recent acquisition of Risk Management Technologies (RMT), today announced its commitment to further enhance RMT’s RADAR(TM) RiskManager enterprise-wide credit risk management model to fully meet regulatory norms for safety and effectiveness. More sophisticated models will help financial institutions make better use of capital and increase their risk-adjusted return.

The new initiative combines Fair, Isaac’s industry leading experience in data analysis and predictive modeling with RMT’s proven enterprise risk analysis framework and its forward-looking bank simulation model. RADAR RiskManager application environment models the effects of interest rate changes on credit portfolio behavior. RADAR RiskManager will fully integrate credit and market risk management enterprise-wide.

RMT CEO David LaCross said, “Only Fair, Isaac’s ‘gold standard’ approach to discrete credit risk management provides the rich, multidimensional framework needed to accurately model most of the firmwide credit risk in an integrated bank. Fair, Isaac is now uniquely positioned to merge the best retail and wholesale risk evaluation methodologies into a single, effective view.”

The initiatives in development have the potential to improve the internal credit risk management process and allow a less restrictive regulatory regime for capital allocation. Fair, Isaac Executive Vice President Robert Heller said, “With more precise forecasts of credit losses, financial institutions will be able to reduce the risk premiums they apply to the prices of products. This will produce several improvements: Banks will price more competitively, enjoy better profit margins, and may reduce hedging activities used to mitigate risk. They also may be able to reduce the amount of capital they must allocate to most credit portfolios.”

The solution will encompass two analytical approaches for different parts of the balance sheet. For wholesale credit — investments and relationships involving large, publicly held companies — Fair, Isaac is adopting an extended implementation of JP Morgan’s CreditMetrics(TM) analytical framework. Fair, Isaac’s 40 years of experience with consumer and small business credit risk management will provide the remaining domain expertise and analytical technology needed to provide a comprehensive enterprise-wide solution.

Information and analysis from both Fair, Isaac and CreditMetrics are based on analyzing historical behaviors of customers and counterparties. The resulting analytical understanding is being incorporated into ongoing improvements to the dynamic credit risk submodel already running within RADAR RiskManager application. This enhanced functionality will be released progressively beginning in 1998. RMT clients can already take advantage of externally provided Fair, Isaac credit scores to differentiate market risk results according to customer credit quality.

These ongoing initiatives are being announced now to support recent calls by the Federal Reserve Board for improvements in the credit risk area. At the BAI Asset-Liability and Treasury Management Conference, November 3, Federal Reserve Governor Susan Phillips noted “the inadequacy of the existing risk-based capital regime, where such assets as loans are all treated as having the same risk.” She went on, “We are actively encouraging the development of more effective approaches to credit risk management” at the enterprise level.

Since 1956, Fair, Isaac has helped businesses maximize the value of data for strategic decision making. The company pioneered the commercial development of empirically derived predictive models for the credit industry and popularized their use in lending decisions. Today, Fair, Isaac and its subsidiaries provide data-driven decision making solutions such as customer and operational data management and modeling, information analysis, strategy design, and software to a variety of industries worldwide. Its subsidiary, Risk Management Technologies (RMT), provides complete asset-liability management solutions to large financial institutions. Headquartered in San Rafael, California, Fair, Isaac employs over 1,200 people and has offices throughout the United States and Europe as well as in Canada, Mexico, South Africa, and Japan. For the fiscal year ended September 30, 1997, the company reported revenues of $199.0 million, a 28 percent increase over the prior year.


Platinum Cards Drive Mail Volume

Propelled by the continued rise of platinum credit card offers, overall volume of direct mail solicitations from issuers during 1997’s second quarter reached a record high of 881 million pieces, according to Mail MonitorR, the direct mail credit card acquisition tracking service managed by BAIGlobal Inc., the market research firm headquartered in Tarrytown, N.Y.

According to Mail Monitor, volume in this year’s second quarter increased 39 percent over the first quarter and 34 percent over figures a year ago during the same period. The rise was driven by platinum card offers which jumped to 41 percent of the total mail volume in the second quarter, up from 21 percent in the first quarter and five percent a year ago.

Platinum offers continued to fuel mail volume during the first two months of the third quarter as well, according to Mail Monitor.

“The blitz of platinum card offers might be viewed as a way of trying to wake up consumer interest,” said Lisa Itzkowitz, director of marketing for BAIGlobal. “The platinum card is positioned as a premium product with a potentially very high credit line and some enhanced services. It is filling the position historically held by gold cards — which in recent years has deteriorated to a commodity product.”

The huge second quarter volume was also driven largely by a single issuer which accounted for nearly one third of the solicitations mailed and a majority of the platinum offers. Eight other issuers were tracked also offering platinum cards.

While second quarter mail volume was huge, overall response to offerings for the quarter was a low 1.2 percent. Product-wise, response to platinum offers generated the weakest response — 1.0 percent.

“The poor response to platinum solicitations may be due to consumers not seeing the difference between them and gold card offers,” observed Itzkowitz. “Or perhaps, some consumers find the potential for a very large credit line — the one differentiating feature of the platinum offers — to be daunting rather than enticing. Additionally, the intense clutter of similar looking platinum card offers was a likely contributor to the poor response.”

Nevertheless, the prominence of platinum mail offers has spilled over into this year’s third quarter. The trend continued to drive total mail volume in all product categories to reach 494 million pieces during July and August. This number represents an increase of 23 percent over the same period a year ago. If volume continues at this level, third quarter mail offers may exceed 700 million pieces, according to Mail Monitor.

Mail Monitor is a competitive tracking service available to all credit card issuers.

Founded in 1969, BAIGlobal is a full-service, international market research and consulting firm. Its clients include a broad list of major companies and financial institutions in the United States and around the world. The firm is an independent subsidiary of Market Facts, Arlington Heights, I11., the nation’s 11th largest market research and information company.


DataCard Art Cards

When Jane Anfinson attended the National Art Museum Membership Conference this summer, her new Walker Art Center membership card drew rave reviews from other attendees.

Anfinson is the Membership Director for the Walker Art Center in Minneapolis, one of the country’s leading contemporary venues for visual arts, performing arts, film/video and educational programs. In January 1997, she began providing her members with high-quality plastic membership cards that feature a full-color image of one of the Walker’s most famous works of art, the Spoonbridge and Cherry, the fountain-sculpture by Claes Oldenburg and Coosje von Bruggen on view in the Minneapolis Sculpture Garden.

In addition to the full-color Spoonbridge and Cherry, the card also features the Walker’s logo, important phone numbers and hours for the galleries, restaurant, gift shop and ticket office.

“The image quality on the personalized membership cards is superb,” Anfinson said. “Clearly that’s important to us, because everything we produce must reflect the quality of the Walker Art Center.”

The Walker Art Center currently boasts 9,000 members and enjoys strong support from the community. “This card certainly strengthens the relationship we have with our members,” Anfinson said. “It tells them that we value their support and that they’re important to our success.”

The high-resolution printing technology used to create the full-color cards was initially developed by DataCard Corporation for financial card issuers. Many of the world’s leading card issuers use DataCard systems to print cardholders’ images or cardholders’ favorite photos on credit and debit cards.

“The image quality and flexibility of our desktop plastic card printers have created a tremendous demand for full-color plastic cards outside the financial market,” said Dave Gilbert, director of marketing for DataCard’s instant issuance business unit. “Applications include membership cards, affinity cards, driver’s licenses, national IDs and health care cards.”

“Designing and printing the membership card for the Walker Art Center has certainly been a lot of fun,” Gilbert added. “We look forward to other interesting applications as the world learns about the full-color printing capabilities of our systems.”

DataCard Corporation, a privately held company based in Minneapolis, Minn., is a world leader in innovative plastic card solutions. The company offers a spectrum of card-related products and services, including digital photo ID systems, badging services, card personalization systems, systems integration services and transaction terminals.