Smart Card Profits

While business models for smart credit cards are still being developed, a new report, released this morning, suggests the fraud fighting capabilities of smart cards could substantially boost profits for U.S. credit card issuers. The ‘Study on Financial Data Interchange’, published by MA-based Meridien Research, concludes U.S. card issuers could increase profits nearly 30%, from $3.7 billion to $4.7 billion by eliminating credit and debit card fraud through smart card technology. The Meridien report provides quantitative and qualitative analysis of CartesBancaires, Geldkarte, Proton, VISA Cash, Mondex, Clip and others. Meridien says the number of smart cards in financial services worldwide during the second quarter totalled 170 million and should reach 400 million by 1999.

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Debit Card Regs Unnecessary

Appearing before the House Banking Subcommittee on Financial Institutions and Consumer Credit, Russell Schrader, senior counsel and vice president of Visa U.S.A., today described strong new protections instituted by Visa to safeguard its debit and credit cardholders from losses due to fraud.

Visa’s consumer protections go well beyond government regulations limiting cardholder liability and are the most comprehensive in the industry. Under the recently announced policy, Visa cardholders have zero liability if they report the loss or theft of the card within two business days. After the two- day period, the cardholder is liable for a maximum of $50. In addition, Visa check cardholders will receive provisional credit within five business days of notification for lost funds due to unauthorized transactions.

The policy also requires every Visa check card issuer to include an activation feature into every unsolicited check card issued, so that the cards cannot be used without first being personally activated by the cardholder.

“Consumers have embraced debit cards for a variety of reasons,” said Russell Schrader, senior counsel and vice president of Visa U.S.A. “Convenient access to checking account funds, acceptance by merchants worldwide, security — all without hassles — are what consumers tell us they like about their debit cards. Visa has voluntarily enacted consumer protections well beyond those required by law to give our banks’ customers added security and peace-of-mind when they use a Visa check card.” “Furthermore,” added Schrader, “we have extended the zero liability protection to Visa credit cards as well, so that cardholder liability for all Visa consumer cards used at the point of sale is the same.”

Schrader testified that additional federal regulations governing cardholder liability for debit cards, such as the Visa check card, are unnecessary and could impede the development of new payment devices. “Visa’s new rules — along with existing federal and state laws — effectively address any potential problem. While Visa is certain the new rules are right for existing debit cards, we cannot say for sure what the best cardholder protections will be for the new, emerging electronic payment devices Visa is developing.”

The Visa check card is the fastest growing consumer payment device in the history of Visa. There are now 119 million Visa debit cards worldwide, forty percent more than just one year ago, including 50 million cards in the United States. In fact, one in four Visa transactions in the United States is a debit card transaction.

In early August, Visa announced an alliance with the National Consumers League to educate consumers about debit cards. As part of this effort, the National Consumers League will produce and distribute a free debit consumer education brochure that will be available this fall. Consumers can reserve a copy by calling 1-800-355-9NCL.

Visa is the preferred payment brand and the largest consumer payment system worldwide. It plays a pivotal role in advancing new payment products and technologies to benefit its 21,000 member financial institutions, their cardholders, and the global economy. Visa is the only consumer payment system to facilitate $1 trillion worth of purchases of goods and services in a fiscal year. Visa’s nearly 600 million cards are accepted at more than 14 million worldwide locations, including 370,000 ATMs in the Visa/PLUS Global ATM Network. Visa’s Internet address is .

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Paymentech Earnings Off

First USA Paymentech revised and lowered its previous quarter’s earnings by $16.4 million or $0.49 per share yesterday. The earnings reduction was due to three pre-tax charges totalling $21.5 million which includes a $12.5 million charge for employee stock option loans, a $5 million write-off for obsolete technology/equipment and a $4 million charge for the shortened useful life of certain assets. PTI also says its earnings for the quarter ending Sept 30 will not meet analysts’ estimates due to difficulty in growing its third-party processing business, delays in planned cost-savings, the repricing of several key processing relationships and the effects of the UPS strike. In other PTI developments yesterday: CFO David Truetzel resigned due to family concerns.

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People’s Typo

People’s Bank has indicated that today’s American Banker has charts listing incorrect statistical data regarding credit card asset quality. These numbers relate to People’s managed net charge-offs, noncurrent credit card loans and percentage change for both from 1Q96 to 1Q97.

The correct statistics for 1Q97 are:

managed charge-off percentage 4.01%
managed net charge-off percentage change from 1Q96 (0.31)%
percent of managed loans noncurrent 1.86%
managed noncurrent percentage change from 1Q96 (6.48)%

The American Banker has been contacted about the statistical errors and People’s Bank anticipates a correction shortly.

People’s Bank is a 154-year-old diversified financial institution offering consumer and commercial banking services as well as investment services provided by its wholly owned subsidiary, People’s Securities, Inc. People’s serves Connecticut through a network of 110 branches. By early 1998, the bank will be operating offices in 45 Super Stop & Shops throughout Connecticut providing seven-day-a-week service with extended hours. People’s is the leading mortgage originator in Connecticut and, nationally, is the 26th largest issuer of Visa and MasterCard.

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$16 Billion Smart Card Market

The worldwide market opportunity for smart card manufacturers such as Motorola, Gemplus, Schlumberger and others will grow from $1.2 billion in 1996, to $7.6 billion in 2000, a 59 percent growth rate (CAGR) typical of emerging markets, according to a new study from Killen & Associates.

From 2000 to 2005, the more mature market will grow at 16 percent CAGR, reaching $16 billion in 2005.

Michael Killen, company president, said, “In a few short years, banks and non-banks like American Express, AT&T, Novus and hundreds of others around the world will significantly step up their purchases of smart cards. They want to seize emerging opportunities to provide the wide range of applications and services enabled by multi-function smart cards.”

The Killen study, “Non-Banks’ Smart Card Strategies: New Opportunities to Increase Sales and Profits”, recommends strategies to banks and non-banks, including card associations, for protection and expansion of their brands as they enter volatile new smart card markets. The study tracks VISA, MasterCard/MONDEX and Banksys’ Proton initiatives, and projects likely winners in the smart card race.

President Michael Killen will address these issues and others at two upcoming conferences:

Oct. 8 — London — “New Revenue Sources For Phone Cards:
Opportunities Created By Advances In Technology”
For details contact:
Tel: + 44 (0) 171 915 5055
Fax: + 44 (0) 171 915 5056
Address: IIR Ltd., 6th Floor, 29 Bressenden Place, London SW1E 5DR

Oct. 27 — Madrid — “Impact of High Technologies on Banks:
Card Issuing, Merchant Acquiring, and Retail Services’ Lines of
Business”
For details contact:
Instituto Espanol de Gestion y Direccion Empresarial (IEGDE)
Spanish Business Management Institute, IEGDE,Torquemada 10 B1, E-28043
Madrid, Spain
Tel: +34 1-381 92 63
Fax: +34 1-381 92 02
Web site: http://www.IEGDE.com

Killen & Associates is a leading market research and consulting firm whose studies, seminars and television programming enable clients in the telecommunication, banking/financial services and information technology industries to identify business opportunities created by technology advances, public policy changes and market forces.

For additional information, visit Killen & Associates’ Web site: .

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FDC & Advanta Tango for 7 More

First Data Enterprises, a unit of First Data Corporation (NYSE: FDC), and Pennsylvania-based Advanta Corporation today announced that they have signed an agreement renewing the bankcard issuing giant’s processing agreement with First Data for another seven years, effective Oct. 1. Financial terms of the agreement were not disclosed.

Under the agreement, First Data will provide data processing and other card portfolio management services to Advanta.

“We are pleased to continue our relationship with First Data. The expertise and innovation they provide will help us effectively manage our credit card portfolio and achieve our goals for the future,” said Advanta senior vice president, Pamela Godwin.

Advanta, a First Data client since 1990, is ranked as one of the top 10 issuers of bankcards in the U.S. with $11.2 billion in managed credit card receivables at the close of June 1997.

“Our commitment to deliver the highest level of performance and innovative technology to our clients is reflected in Advanta’s decision to continue to partner with First Data,” said Jack McDonnell, president of First Data Enterprises. “We’re confident that this strategic decision will play a role in Advanta’s continued success as one of the leading bankcard issuers in the nation.”

With more than 6 million customers, $21 billion in managed assets and over 4,000 employees as of June 30, 1997, Advanta is a financial services enterprise that serves consumers and small businesses through innovative offerings of credit cards, mortgages, leases, insurance and deposit products.

First Data Enterprises provides comprehensive data processing and information services to national and non-traditional bankcard issuing financial institutions. Through delivery of technology and scale of resources, it helps issuers to enhance their portfolio growth, increase market share, reduce risk and improve profitability.

Hackensack, N.J.-based First Data Corporation is a global leader in payment systems, electronic commerce and information management products and services. First Data and its principal operating units process the information that allows millions of consumers to pay for goods and services by credit, debit or smart card at the point of sale or over the Internet; by check or wire money. For further information about First Data, please visit the company’s web site on the Internet at .

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New Start Talkin’ Cards

7-Eleven, known for around-the-clock convenience, is now making cellular calling a whole lot easier. The convenience store company has teamed up with Southwestern Bell Wireless to offer Start Talkin’ Prepaid Cellular Calling Cards for on-the-go customers in St. Louis and Kansas City.

“Basically, 7-Eleven and Southwestern Bell Wireless are in the business of removing hassles from people’s lives. Joining forces with Southwestern Bell to provide cellular calling without a contract, a deposit or a monthly bill is exactly the kind of convenient service our customers want from us,” said Michael Baldwin, 7-Eleven category manager, phone card services. “We’re already the nation’s largest retailer of prepaid long-distance phone cards, and that makes Start Talkin’ Prepaid Cellular Calling Cards a perfect product fit.”

7-Eleven and Southwestern Bell Wireless have made it easy to obtain Start Talkin’ Prepaid Cellular Calling Cards. There are no contracts, no credit checks and no monthly bills for customers to worry about with the pay-as-you-go service. All a customer needs to use the prepaid cellular cards is a cellular phone and activation through Southwestern Bell. Once customers have activated their Start Talkin’ cellular service, they can purchase a Prepaid Cellular Calling Card at 7-Eleven for $50 worth of cellular calling.

Prepaid calling time is debited per minute for local calls, long distance calls and calls made when “roaming” outside the customer’s Local Rate Area. Per minute rates vary depending on the market. There are no other monthly fees to pay, which means the $50 time card buys the consumer more than 80 minutes of local talk time that can be used for two months.

With approximately 16,700 convenience stores worldwide, operations of The Southland Corporations (Nasdaq:SLCM), operator and franchisor of 7-Eleven stores, include more than 5,400 7-Eleven and other convenience stores in the United States and Canada. In addition, licensees and affiliates operate about 11,300 7-Eleven stores in the U.S., its territories and 18 other countries. 7-Eleven’s home page is located at .

For more information about Southwestern Bell Wireless and Start Talkin’ call 1-800-331-0500.

Southwestern Bell Wireless, together with SBC’s other wireless affiliates, is a leading wireless provider, serving nearly 5 million customers in 78 markets nationwide. It is a subsidiary of SBC Communications Inc. SBC Communications Inc. is a global leader in the telecommunications industry, with more than 32 million access lines and nearly 5 million wireless customers across the United States, as well as investments in telecommunications businesses in 10 countries. Under the Southwestern Bell, Pacific Bell, Nevada Bell and Cellular One brands, the company, through its subsidiaries, offers a wide range of innovative services, including local and long- distance telephone service, wireless communications, paging, Internet access, cable TV and messaging, as well as telecommunications equipment, and directory advertising and publishing. SBC () has more than 114,000 employees and reported 1996 revenues of $23.5 billion. SBC’s equity market value of $56.5 billion (as of June 30, 1997) ranks it as one of the five largest telecommunications companies in the world.

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Fair,Isaac Founders Honored

Fair, Isaac and Company, Inc. founders William R. Fair and Earl J. Isaac posthumously received the American Bankers Association Bank Card Distinguished Service Award for their pioneering work in credit scoring. Patrick G. Culhane, Fair, Isaac executive vice president, Credit, presented the awards yesterday to the recipients’ family members at the ABA Bank Card Conference in Long Beach. Fair and Isaac are the second and third nonbankers to receive the award out of a total group of 10 recipients since the award’s introduction in 1995.

The Distinguished Service Award is designed to honor those individuals who have made a major contribution in establishing and building the bank card and payments system industry, especially during the period between 1960 and 1985. Larry Rosendberger, president and CEO of Fair, Isaac, selected on some of the founders’ significant contributions, and also emphasized that their innovation and drive are embodied in the company today.

“In the 1950s, at a time when the first digital computers were being applied to operations research, Bill, an electrical engineer, and Earl, a mathematician, explored the concept of applying a systematic approach to solving business problems,” Rosenberger explained. “They adapted the concept of feedback, as used in tuning electrical systems, to decision systems and process improvements.

“As a result they brought new insight into the field of data management and its application in consumer credit decisions. Their work marked the credit granting industry’s first distinction between risk preference and risk assessment, leading to fairer and less biased lending practices due to the inherent objectivity of a systematic process. Bill and Earl’s pioneering work fueled the democratization of lending and made a positive social contribution.

“The pioneering spirit and leadership with which Bill and Earl founded and shaped the company is demonstrated in Fair, Isaac’s work and values today. Although Bill and Earl are gone, the company has inherited their drive and continues to build upon their vital contributions.”

Since 1956, Fair, Isaac has helped businesses maximize the value of data for strategic decision making. The company pioneered the use of credit scoring in consumer and commercial lending. Today, Fair, Isaac provides data-driven decision making solutions such as customer and operational data management and modeling, data warehousing and information analysis, strategy design, and software to businesses in financial services, direct marketing, personal lines insurance, retail, health care and telecommunications. Headquartered in San Rafael, Calif., Fair, Isaac employs more than 1,200 people in 16 offices worldwide. For the fiscal year ended September 30, 1996, the company reported revenues of $148.7 million, a 31 percent increase over the prior fiscal year.

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BOSTON FEE PARTY

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.

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DEBIT CARD LAWS

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.

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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.

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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.

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