The Massachusetts Joint Committee on Banks and Banking continued hearings on a proposed legislative ban on ATM surcharges. BankBoston testified yesterday that it has invested $100 million over 10 years in its ATM system and spends about $10 million per year to operate its 1,000 ATMs. The bank said ATM use by non-customers now represents about 25% of total usage and is growing. Nevertheless BankBoston pledged yesterday to delay initiating ATM surcharges for nine months, to provide clear disclosure of fees, to charge reasonable fees, to continue serving underserved markets and to pass on most of the revenues generated by non-customers to actual customers by reducing other account fees.



Despite efforts by VISA and MasterCard to unilaterally bring consumer debit card liability in-line with consumer credit card liability, Senate Republican Banking Chairman Alfonse D’Amato introduced legislation yesterday aimed at making debit card protections a law.. D’Amato’s proposal calls for a $50 cap on liability, issuance of provisional credits for fraudulent transactions within five business days and a prohibition on the mailing of unsolicited live cards. VISA announced Aug 12 it will waive all debit cardholder liability if reported within two days and require issuers to provide provisional credits within five days starting next year. D’Amato says VISA and MasterCard could change their debit card rules and he believes consumers need a higher level of protection. Democrat Christopher Dodd said he will support the measure.


Rapid Rewards Good Deal

Southwest Airlines today announced it will offer an Internet sale on fares to and from Phoenix exclusively, for those Customers who make their reservations and purchase travel through Southwest’s World Wide Web site. These special Internet fares are good on nonstop flights only and will be available for sale through midnight (PDT) on Sept. 28, 1997, for travel from Oct. 6 through Dec. 18, 1997. (Unfortunately, these fares will not be available for travel on Nov. 25, 26, 29, or 30.)

For as little as $30* each way, based on roundtrip purchase, Customers can travel between Phoenix and Albuquerque, Burbank, El Paso, Las Vegas, Los Angeles, Ontario, or San Diego. For just $50* each way, based on roundtrip purchase, Customers may travel between Phoenix and Oakland, San Francisco, San Jose, or Salt Lake City. Between Phoenix and Reno or Sacramento it’s just $60* each way, based on roundtrip purchase. From Phoenix to Kansas City, Oklahoma City, or Tulsa it’s just $70* each way, based on roundtrip purchase. For $80* each way, based on roundtrip purchase, you can go from Phoenix to Austin, Omaha, or San Antonio. For $100* each way, based on roundtrip purchase, you can go from Phoenix to Houston, Little Rock, New Orleans, Louisville, or St. Louis. And for $130* each way, based on roundtrip purchase, Customers may travel between Phoenix and Nashville.

“Southwest Airlines Customers know a good deal when they see one,” said Dave Ridley, Southwest’s vice president of marketing and sales. “People flying to and from Phoenix this fall will like what they see when they visit our Home Gate!”

Visitors can access the Southwest Airlines Home Gate, , using any Internet access provider and popular browsers such as Netscape 1.22, Microsoft Explorer 3.0, or greater. These browsers provide the necessary security for Internet purchases.

Customers who wish to purchase these discounted fares may simply click “Internet Specials” on the Home Gate’s opening page to be transferred to more information. Purchases of Ticketless Travel are made with a credit card. The passenger simply uses the confirmation number given at the end of the transaction, instead of a paper ticket, to travel.

Rapid Rewards members taking advantage of these great savings also will benefit as double flight credits will be earned on any Ticketless Travel purchased through the Southwest Airlines Home Gate through Dec. 31, 1997. All Rapid Rewards Members who book their reservations and purchase travel on the Internet, and who fly before Dec. 31, 1997, will receive double flight credit in Southwest’s frequent flyer program. To receive a free ticket through Rapid Rewards, Members need only accumulate a total of 16 flight credits (or eight roundtrips).

Southwest Airlines (), the first major U.S. airline to have its own home page on the Internet, was recognized as having the “best airline Web home page,” according to Air Transport World. For the latest news about the airline, schedules, and fare information, visit the Southwest Airlines Home Gate. Through its continuing innovations, Southwest Airlines is making travel easier than ever. With Ticketless Travel, Customers using any major credit card can experience the ease of traveling without a ticket.

*These special fares require roundtrip purchase, with at least one night’s stayover. They are available on nonstop flights only. Seats are limited and will not be available on some flights that operate during very busy travel times and holiday periods. Tickets are nonrefundable, but may be applied toward the purchase of future travel on Southwest Airlines. Any change in itinerary may result in an increase in fare. Fares do not include airport- assessed passenger facility charges of $3 to $6 roundtrip.


New Signature and Pix Verification System

FiTECH Systems announced today the release of Signature and Picture Verification, a module to help reduce fraud at the branch level.

The system captures, stores and retrieves images of driver’s licenses, photos, and signatures. Tellers or other member services personnel can easily access these images as verification tools before a transaction takes place.

Signature and Picture Verification uses digital images of traditional identification tools. Credit Unions can capture photographs and signatures using low cost digital devices or scan existing identification tools such as driver’s licenses or signature cards. These digital images are then stored on a local server and quickly and easily retrieved using a PC.

Identification information is now more readily accessible to credit union employees helping to reduce fraud at the teller line and providing better service for members.

According to William Rogers, president of the credit union technology consulting firm, William Rogers & Associates, “Identification fraud is very common and very costly. Credit card and check fraud alone cost credit unions millions of dollars each year-not only in fraud losses but in insurance premiums as well.” Another benefit mentioned by Rogers is that “computerized member identification at the teller work station will also enhance service to the members.”

Along with FiTECH’s MANAGER GOLD and a low-cost investment in hardware-digital camera, electronic signature pad, and scanner-the Signature and Picture Verification module enables credit unions to realize this extra security and service.

Sandy N. Greer, president of FiTECH Systems said, “With credit union growth comes broader membership and recognizing every member becomes increasingly difficult. Our Windows-based software allows tellers to quickly verify member identification using point-and-click technology which helps to eliminate the feel of interrogation during transactions.”

Mark Roberson, FiTECH’s senior vice president of sales and marketing added, “Our customers really need to retain the ability to identify individual members in their ever-increasing membership base. They mentioned a business need and we are confident the Signature and Picture Verification module will deliver additional security and member service.”

MANAGER GOLD software features include: client/server architecture; multi-tasking and multiple document viewing capabilities; graphical representation of member, employee and product information; on-line help from any data field; automatic laser forms printing; real-time member account information; cross-selling and sales tracking capabilities. Other capabilities include complete loan origination, general ledger accounting, custom report writing, Internet banking, cash dispensing and kiosks.

FiTECH’s MANAGER System is widely used throughout the United States. The company has specialized in providing data processing solutions for credit unions since its beginning in 1977. FiTECH offers full range, on-line and in-house processing and consulting services for MANAGER and MANAGER GOLD.

For more information on FiTECH Systems (FiTECH) contact Mark Roberson, Senior Vice President of Sales and Marketing, at 1-800-275-4374. Or write FiTECH Systems Inc., 3098 Piedmont Road, Suite 200, Atlanta, GA 30305. The FAX number is (404) 233-4815.


Processor Sold

Columbia Capital Corp. announced today the acquisition of 100 percent of the stock of First Independent Computers Inc. (OTC Bulletin Board: FICI).

FICI, located in Abilene, Texas, is comprised of three primary businesses: (a). credit card service support and transaction processing, (b). banking/financial services and data processing, and (c). document management and distribution services. FICI currently processes for approximately 100,000 credit card accounts.

Effective at the opening of trading today, the shares of Columbia Capital Corp. will trade on a post 2-1 reverse split basis.


MedPlus Rolls On

MedPlus Corp. (OTC BB:MDPL) has amplified its marketing development with the announcement of four new alliances.

The first alliance will be with the Employee Benefit Administrators and Benefit Management Administrators of San Antonio, Texas. These “third party administrators” currently provide services to over 100,000 insurance policy holders and they have advised MedPlus that this number is expected to grow to over 200,000 by the end of next year.

“These figures are further swelled when one adds the 100,000 insured of Houston’s Vanguard Healthcare of Texas,” said Ron Thomas, Vice President of Marketing at MedPlus. Vanguard Healthcare is a statewide health care agency specializing in home infusion therapy.

Another Houston firm, Preferred Access Ltd., has signed and could bring a further 30,000 credit card holders to the MedPlus customer base this year with a potential of 200,000 by the end of 1998.

“We’ve also signed with Vencor Hospital Management Corporation of Costa Mesa, California,” continued DeHerrera. “Vencor manages 210 hospitals across the country but our letter at first covers 27 hospitals and 14 Outpatient Surgery Centers in Texas as well as 12,800 physicians.”

Market analyst Jeffrey Stone of Stone Asset Management Inc., said, “With these four letters of intent, MedPlus Corporation is beginning a phase of its overall business plan that will orient the company toward a dramatic increase in earnings and total revenue by the end of 1997. If their strategy is brought to fruition, pro forma projections are accelerated by more than a year.”

MedPlus Corp. is a Colorado Springs health finance company known for providing financing for elective surgeries to patients at point of use through its own private label MedPlus Benefits credit card. While this service continues, MedPlus intends to market its card through providers of high deductible health insurance policies.

Corporate Advertising and Public Relations handled by Corporate Imaging.


Dense-Pac Smart Cards

Dense-Pac Microsystems Inc., Tuesday announced that Dense-Pac has formed a new division and will enter the smart card market.

Dense-Pac has begun preliminary card and systems design with OEM manufacturers. The entry into the smart card market by Dense-Pac is key to widening Dense-Pac’s exposure to proven future storage technologies and enhance the company’s future growth.

A smart card is a wallet-sized plastic card that resembles a credit card in appearance, but contains an embedded microchip which can store significantly more data than the familiar magnetic stripe. The Global Smart Card Advisory Service (GSCAS) estimates that by the end of 1997 there will be nearly 1.1 billion smart cards and 51 million smart card accepting devices (SCADs) worldwide. By the year 2000, the number of smart cards will more than double, to 2.3 billion cards. GSCAS estimates that over $8 billion will have been spent globally for cards and smart card acceptance devices in 1997.

Dense-Pac Chairman and Chief Executive Officer Uri Levy stated, “Our goal is to position Dense-Pac in growth industries through leading edge technologies. This new division will position Dense-Pac with products that are more memory application oriented. Dense-Pac is currently pursuing discussions with several OEM manufacturers for the card design.

“The smart card technology has been very successful and active in European communities for several years, and I believe that the domestic market is primed to take advantage of this unique technology. This new division will expand our product line, penetrate the commercial market, and strengthen our ability to compete domestically and internationally.”

Because of its data storage capacity, smart cards provide a host of new possibilities for information and transmission not available through other technologies. The portability of the device makes it possible for individuals to carry huge amounts of important data, such as medical history, electronic benefit transfer (EBT), personal history, or banking information in their wallets. This data can then be accessed through a small PC peripheral or a dedicated, palm-size reader. The card can then provide access to information in situations where on-line access to the same data might be impossible.

President Clinton, in a recent presidential press conference on the Budget, commented on the smart card stating, “ultimately, every government employee will be able to use one card for a wide range of purposes including travel, small purchases, and access.” Additionally, Edward DeSeve, Executive Office of the President, Office of Management and Budget, stated that “smart cards will lead to smarter government. During the next five years the government plans to convert the millions of monthly welfare payments and food stamps across the country from paper checks and coupons to EBT (electronic benefits transfer). The smart card is the vehicle for this move.” EBT is one of the target markets Dense-Pac will pursue.

Dense-Pac Microsystems designs and manufactures proprietary and patented three-dimensional high density memory products that allows the company’s commercial, industrial and military customers to pack huge amounts of memory into small spaces. Dense-Pac’s commercial products include a wide variety of products for telephony, personal computers, PDA’s, digital cameras, automotive, and military applications and a host of other applications. The company’s Web site is at .


Capital One on Track

Citing improving credit quality and successful new product generations Capital One announced Tuesday it will exceed earnings estimates made by analysts. The nation’s ninth largest issuer says 1997 earnings should be $2.65 per share or 15% higher than 1996. Cap One says it is also on track to meet its 20% earnings target for 1998 unless chargeoffs and delinquency rise. Capital One shifted its focus last year to lower-balance, revolving accounts. The issuer has not entered the platinum card market, generally staying below credit limits of $10,000.

97-2Q 97-1Q 96-4Q 96-3Q 96-2Q 96-1Q
Receivables $12.35b $12.27b $12.46b $11.88b $11.18b $10.11b
Source: CardData and Bankcard Update


Penna. Card Options

The Pennsylvania Local Government Investment Trust signed a contract with PNC Merchant Services yesterday to enable 2,200 municipal bodies to begin accepting credit cards for payment of fines, fees and taxes. PNC also recently won the bid to process cards for all agencies of the Commonwealth of Pennsylvania. PNC has been providing the Pa. Liquor Control Board with processing services since 1987.


Sub-Prime Bumps Ahead

Recently, both Aames Financial Corp. and Cityscape Financial Corp. announced write-downs to their excess servicing receivables, sometimes referred to as “interest-only strips.”

The question that Standard & Poor’s has received since then is, “Are they alone or will this happen to other lenders?” Standard & Poor’s believes that other participants in the sub-prime home equity lending industry will sustain downward adjustments to their excess servicing receivables and that it is only a question of when, not if. There are a number of assumptions home equity lenders make that can result in adjustments to capital. In general, the quality of the capital at home equity lenders is not good as the level of capital is based on assumptions about future cash flows from the companies’ securitizations. These assumptions include credit losses, prepayment speeds, and a discount rate. In Aames’ case, the company changed its prepayment assumptions. Standard & Poor’s was not surprised by this development because of the intense competition in the industry. In Cityscape’s case, the write-down related to changes in the fee income assumptions due to regulatory events affecting the company’s United Kingdom portfolio.

Some have argued that prepayments are not as big a concern in the sub-prime home equity market as they are in the conforming mortgage market (i.e. loans that conform to the lending standards of the Federal National Mortgage Association, or FNMA, and the Federal Home Loan Mortgage Corp., or FHLMC) where prepayments are highly susceptible to interest rate changes.

While it is true that in the past sub-prime home equity borrowers have often not had the opportunity to refinance when rates fell, that is no longer the case. The increased competition in the industry will provide plenty of opportunity.

In addition to the refinancing risk associated with interest rate fluctuations, sub-prime lenders also face the risk that the industry’s increased capital will cause underwriters to be more flexible with their loan-to-value ratios (LTVs). The borrowers that consolidated their credit card payments may exhibit the same tendencies, run up more credit card debt, consolidate again at a higher LTV, and continue this cycle for as long as the credit markets will allow. The increasing prevalence of 125% LTV product is only a reminder of borrowers’ abilities to leverage themselves. The immediate impact would be an increase in prepayment speed, which would result in more write-downs of the excess servicing asset. The secondary impact would be an increase in credit losses due to the increasing LTVs.

It should be noted that home equity lenders are not alone. Any company that securitizes can suffer an excess servicing receivable write-down. Some sub-prime auto lenders, such as Arcadia Financial Ltd., Ugly Duckling Corp., and First Merchant Acceptance Corp. have written down their servicing receivables in the past year, primarily as a result of increases in losses. Just last week, The Money Store also wrote down its sub-prime auto excess servicing.

What do these risks mean for the ratings of home equity lenders? The potential for some write-down of assets is already factored into the ratings and ratings for home equity lenders are already low relative to other types of financial services companies rated by Standard & Poor’s. As the table below illustrates, the majority of Standard & Poor’s home equity lender ratings are below investment grade, reflecting Standard & Poor’s concerns regarding the quality of earnings and capital at these companies. This is not to say that ratings could not go lower. If economic or business conditions intensify to the point where the value of the excess servicing receivable becomes impaired beyond a manageable level, ratings could fall. Furthermore, Standard & Poor’s believes that in the future, competition in the industry could be severe enough that even the best of companies may be impacted.

How long this cycle takes is anyone’s guess, but over the long term the industry will likely consolidate, driven by the need for greater efficiencies that come with economies of scale, and only a few companies will remain. — CreditWire

Home Equity Lenders Issuer Credit Ratings

Aames Financial Corp. BB-/Watch,Developing
AMRESCO Inc. (a) BB-/Stable
Cityscape Financial Corp. B/Negative
ContiFinancial Corp. BB+/Stable
Delta Financial Corp. B+/Stable
The Emergent Group Inc. B/Stable
The Money Store Inc. BBB/Stable
United Companies Financial Corp. BBB-/Negative

(a) Home equity lending accounted for 32% of AMRESCO Inc.’s June 30, 1997 year-to-date profit.


TSYS Renames Lincoln Marketing

Today, Lincoln Marketing, a wholly-owned subsidiary of Total System Services, Inc., (TSYS), unveils its new name, TSYS Total Solutions, Inc. at the ABA National Bank Card Conference. TSYS Total Solutions’ executives are on-site at the conference in booth #321 to showcase the company’s products and services.

Cliff Mason, TSYS Total Solutions executive vice president, said “Lincoln Marketing has evolved into a single source solutions provider for finanacial institutions, and the new company name reflects the full range of solutions we offer the marketplace. Also, the new name leverages the strong brand identity and industry awareness of our parent company, Total System Services, Inc. TSYS Total Solutions is a perfect fit.”

Based in Columbus, GA., TSYS Total Solutions specializes in inbound-outbound telemarketing, acquisition mailing, application processing, direct mail, correspondence fulfillment and other mailing services including laser printing and MICR, response processing and data entry, among others. Providing these services to banks and other financial institutions, and has been a wholly-owned subsidiary of TSYS since 1992.

Headquartered in Columbus, GA., TSYS is one of the world’s largest credit, debit, commercial and private-label card processing companies, serving card issuing institutions located throughout the United States, Puerto Rico, Canada and Mexico, representing more than 89 million cardholder accounts. TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEM. In 1996, TSYS formed a joint venture with Visa U.S.A. to create Vital Processing Services L.L.C., a leading full-services merchant services provider. TSYS’ 1996 revenues totaled $311.6 million; the company is an 80.7 percent owned subsidiary of Synovus Financial Corp., a $9.0 billion asset, multi-financial services company that also includes 34 affiliates in four Southeastern states, a full-service brokerage firm, a comprehensive trust services provider and a mortgage services company. TSYS’ Internet address is .


Equifax Falcon Online

Equifax Card Solutions and HNC Software Inc. Monday revealed the first results of their recently announced strategic alliance — availability of the HNC Falcon fraud detection service from Equifax Card Solutions (ECS).

Falcon is the flagship product of HNC’s line of intelligent, transaction-based, credit risk management systems. It is currently under contract to monitor more than 210 million payment card accounts and is generally credited with helping to slow the meteoric rise in bank card fraud losses of recent years. Falcon will go online for Equifax Card Solutions customers in November.

![][1] “This is a great opportunity for HNC to extend the reach of Falcon,” said Krishna Gopinathan, vice president of Payment Systems at HNC Software. “We’re especially excited about Equifax Card Solutions’ extensive base of community banks and credit unions, which are largely untapped markets for us. Credit unions actually get a reduction on their insurance rates when they use neural network technology to limit risk — so it’s a perfect win-win situation.”

Equifax Card Solutions will offer Falcon along with the Falcon Expert fraud detection rules subsystem that links with Falcon to streamline fraud prevention operations. Falcon Expert enables the easy development of rules for the handling of special cases. For example, Equifax Card Solutions clients will be able to apply different score thresholds to different sets of their cards. or react quickly to unusual activity such as a sudden flurry of fraudulent transactions in a particular zip code area.

Lee A. Kennedy, Equifax executive vice president and group executive, said: “Making Falcon and Falcon Expert available to the Equifax Card Solutions customers is a great example of the synergy that we expected from the Equifax/HNC alliance. With the alliance in place, we were able to move quickly to leverage the right technology to meet our customers’ needs.”

Equifax Card Solutions also is considering adding Falcon Debit to its HNC offerings, a sign of the growing market in debit cards. Equifax is a world leader in providing financial information and processing solutions, with global operations in consumer and commercial credit information services, payment services, software, modeling, analytics and consulting and direct-to-customer services. The company serves many industries including banking, finance, retail, telecommunications, utilities and health care. Equifax was founded in 1899 in Atlanta and today has 10,000 employees around the world. It operates globally in 17 countries, with sales in 40 countries. Equifax (NYSE:EFX) revenues for the 12 months ended June 30, 1997, were just less than $1.3 billion.

With headquarters in San Diego, HNC Software Inc. (NASDAQ:HNCS) is a world leader in the application of neural network technology in client/server environments. The company develops, markets, integrates, and supports advanced decision software based on computational intelligence. HNC provides practical solutions in the areas of payment systems, financial services, retail, insurance information, data mining, and Internet commerce. For more information, contact Patsy Campbell, director of marketing, HNC Software Inc., 5930 Cornerstone Court West, San Diego, CA 92121, 619/546-8877. For investor relations hotline, call 800/396-8052.

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