Credit

Concerns that payment networks will increase their fees to merchant acquirers in 2010 tops a recent survey published by Boston-based Aite Group LLC. In the survey of 45 merchant acquirers conducted between July and October, Aite found that 84% of respondents believe an increase in fees assessed by payment networks likely will happen in 2010. Concerns about increases in PIN-debit processing fees also were significant, with 78% saying that was likely. Overall interchange increases appeared likely in 2010 to 76% of the respondents. Seventy-one percent of respondents expected card networks to issue cards assessing higher interchange rates next year. A majority–64%–also maintained that rate increases for signature-debit transactions are likely. Sixty-nine percent of respondents said it is unlikely interchange will fall under government regulation in 2010. Most–82%–also doubted that card networks would begin to work directly with independent sales organizations instead of through acquirers in 2010.

The combined net income of the five largest credit card issuers in South Korea–BC Card Co. Ltd., Shinhan Card Co. Ltd., Samsung Card Co. Ltd., Hyundai Card Co. Ltd. and Lotte Card Co. Ltd.–dropped to 1.5 trillion won (US$1.27 billion or 890.8 million euros) for the nine-month period ended 30 Sept., down 6.3% from 1.6 trillion won during the same period last year, according to the Credit Finance Association of Korea. The trade group does not break out specific company earnings. Still, spending on credit cards issued by the five companies totaled 29.6 trillion won in November, up 18.4% from 25 trillion won during the same month last year. As of 30 Sept., South Korean consumers held 103.7 million credit cards, the trade group says. Immediate comment from the group was not available.

Boku Inc., which enables consumers to charge so-called micropayments to mobile-phone bills, has begun offering its services in Estonia and Venezuela, according to Ron Hirson, co-founder and senior vice president of product at the San Francisco-based firm. The company operates in 58 countries, though the United States remains among the top three markets for Boku, he says, declining to be more specific. Consumers use Boku to purchase such digital goods and services as virtual currency for online games and pay fees for online dating sites. For instance, a consumer who wants to buy virtual currency to buy extra “lives” or other goods useful in online games would, after registering for the service, make the purchase through the game provider’s Web site. The consumer would confirm the purchase through a text message, and the charge would appear on the consumer’s mobile-phone bill, eliminating the need to use a payment card, which could reduce or eliminate a merchant’s profit because of relatively high interchange fees for such small purchases. The average transaction processed by Boku is between US$8 and US$9, Hirson says. Boku serves more than 1,000 merchants and processes payments for three of the top five game applications offered on social networking site Facebook, Hirson says. A Facebook spokesperson declined to comment. Hirson would not disclose the number of transactions processed by Boku, which begun full operations during this year’s first quarter. However, he says, Boku has experienced “double-digit [transaction] growth every month since the first quarter.”

Heartland Payment Systems Inc. Thursday announced a settlement agreement with American Express Co. related to the 2008 breach of Heartland’s system, according to the Princeton, N.J.-based processor. Under the agreement, Heartland will pay American Express $3.6 million, resolving all intrusion-related issues between the two parties. The processor did not reveal additional settlement details. “This settlement marks the first agreement with a card brand related to the intrusion,” Bob Carr, Heartland chairman and CEO, said in a statement. Heartland disclosed the breach in January that affected an undetermined number of cards (CardLine, 1/20). Albert Gonzalez, the Miami man who pleaded guilty in September to charges related to the 2007 data breach at TJX Cos. Inc., pleaded guilty early this month to charges he breached the payment networks of Heartland Payment Systems Inc., Hannaford Bros. Co., 7-Eleven Inc. and two unnamed retailers (CardLine, 12/9). A Heartland representative did not return requests for comment by CardLine’s deadline. An AmEx representative declined to provide agreement details.

The eBillme online payment service has instituted a program that shares revenue with banks, bill-pay portals and walk-in bill payment networks that support the service, Samer Forzley, EBILLME’S vice president of marketing, tells CardLine. EBillme enables consumers to use their own financial institution’s online banking and bill-payment services to make purchases online. Forzley says the revenue percentage is less than 2% but ultimately depends on the volume of business the partner brings in. The program encourages bill-payment partners to promote the eBillme service to their subscriber bases, he notes.

Hypercom Corp. today announced it has signed a letter of intent to form a joint venture with The McDonnell Group LLC that will provide payment processors, financial institutions and retailers globally with data-communication services for transaction-based applications. The venture, known as Phoenix Managed Networks LLC, will acquire and operate Hypercom’s HBNet transaction-transport business, according to the Scottsdale, Ariz.-based point-of-sale terminal provider. The Marietta, Ga.-based McDonnell Group is a technology-focused investment fund managed by Jack McDonnell, who will serve as CEO of Phoenix Managed Networks. McDonnell also is the founder and former chairman and CEO of Transaction Network Services Inc., a Reston, Va.-based provider of data-communication services. “HBNet is directly competitive with TNS,” notes McDonnell. “TNS was fortunate to become a dominant player at the time, but the market is looking for an additional provider.” Customers do not want to be locked into a single vendor relationship, he adds. Phoenix Managed Networks will be operational on Jan. 1 with a staff of 20 workers, including former TNS executives Mathew Mudd and Trevor Fall. McDonnell plans to grow the company over three years to roughly 100 workers domestically and another 30 to 40 in Europe, he says. “This joint venture will not only allow us to provide the hardware but additionally the [transaction] transport to all of our key customers,” says Philippe Tartavull, Hypercom CEO and president, noting the HBNet name will disappear.

Bangkok Bank plans to issue a “platinum” credit card that carries the China UnionPay brand starting in February, a bank spokesperson tells CardLine Global. The bank says this card will be the first high-end credit card in Thailand to carry the UnionPay logo, but CardLine Global was unable to confirm the claim. The card launch coincides with the bank’s “recent receipt of a license from the Chinese government to operate Bangkok Bank China, a locally incorporated bank in China, which will open” in late December, the spokesperson adds. The cards in Thailand will have contact chips, the spokesperson says.

Consumers in New Zealand are spending more this holiday season using payment cards, suggest data from Auckland-based processor Paymark. Between 7 Dec. and 13 Dec., Paymark processed approximately 34.3 million credit and debit card transactions, up 6.5% from nearly 32.2 million during the same period last year. The value of those card transactions increased 4.2%, to NZ$1.74 billion (US$1.23 billion or 862.2 million euros) during the week from NZ$1.67 billion. The increase in spending is consistent with trends over the past few years, Paymark CEO Simon Tong tells CardLine Global. Paymark, which claims it processes more than 75% of New Zealand card transactions, says its network includes 73,000 merchants.

Citing an overall slowdown in consumer spending, Discover Financial Services today reported net income of $370.7 million for its fourth fiscal quarter ended Nov. 30, down 14.2% from $432.3 million during the same period a year ago. The results included $472 million Discover received from Visa Inc. and MasterCard Worldwide as the final payments of their $2.75 billion combined antitrust litigation settlement reached last year with Discover. Discover claimed in a 2004 civil lawsuit that the card networks’ exclusionary rules hurt its growth. Revenue during the quarter net of interest expense was $1.58 billion, down 20.2% from $1.98 billion. Discover’s U.S. Card unit posted a slight decline in sales volume during the quarter, to $21.9 billion from $22 billion, which the company attributed to the ongoing effects of the recession. Managed loans fell slightly to $50.9 billion from $50.9 billion a year earlier. Discover’s managed net charge-off rate on credit card receivables rose 295 basis points, to 8.43% from 5.48%. The delinquency rate on loans at least 30 days past due was 5.31%, up 75 basis points from 4.56%. The company’s provision for loan losses fell 10%, to $989 million from $1.1 billion a year earlier. Total third-party payments segment volume fell 1.8%, to $33.4 billion from $34 billion. Volume for Discover’s Pulse PIN-debit network dropped 1.2%, to $24.7 billion from $25 billion, while volume from third-party Discover card issuers fell 1.2%, to $1.52 billion from $1.54 billion. Total transactions processed on the Pulse network rose 5%, to 677 million from 644 million. Diners Club International volume totaled $7.1 billion, down 5.3% from $7.5 billion. During a conference call today with analysts, Discover Chairman and CEO David Nelms said Discover is “not prepared to suggest that losses have peaked,” and he expected the company to report higher charge-offs early in 2010. Discover is beginning to see the first bottom-line effects of the Credit Card Accountability, Responsibility and Disclosure Act President Obama signed into law last May, as the company resets customers’ interest rates to cope with a ban on risk-based pricing, Nelms added, and as a result he expects Discover’s portfolio-yield to decline somewhat next year. “Effectively, risk-based pricing is being unwound, with pricing being pushed more toward the middle (range) of (previously higher) interest rates for a broad group of people,” Nelms said. Discover also has bumped up its advertising and marketing efforts this quarter, while heavily pushing its cash-back rewards program in TV spots, he said. “I’ve seen significant pull-backs (of some issuers) switching (rewards programs) from cash to points, but we’ve done the opposite,” Nelms said.

Asta Funding Inc., an asset-management company that buys unpaid credit card loans and tries to collect on them, Tuesday reported a net loss of $79.2 million for its fiscal fourth quarter ended Sept. 30.

Bank of America Corp. preserved the mold–and addressed its longer-term future–by tapping Brian Moynihan late Wednesday to succeed Ken Lewis as chief executive.

Recession-battered consumers next year likely will continue their “newfound financial conservatism” with less spending and more emphasis on building their savings, Mintel Comperemedia says in a report released last week. The Chicago-based direct marketing-research company surveyed 2,000 U.S. adults online July 29 to Aug. 3, finding that 86% of respondents said they plan to be “more conservative” with their money. Some 75% of respondents said they also plan to be “more cautious” about borrowing. The survey findings parallel this week’s Federal Reserve Board of Governors Flow of Funds report showing that American are saving money and reducing their debt at levels far exceeding recent years, Mintel says. “Our recent consumer surveys point to a changed mindset for consumers,” Susan Menke, Mintel behavioral economist, said in a statement. “The recession left people feeling shaken and vulnerable, wary of previous years’ spending binges and craving a more conservative approach to money. We expect that thrifty, save-for-a-rainy-day mentality to continue next year.” The average consumer’s more-cautious mood presents opportunities for financial-services companies, Menke added. “As people look to save money and reduce debt next year, companies can benefit by gathering assets and building relationships with consumers,” she said.

Discover Financial Services’ Diners Club International operation Monday launched a global branding campaign that seeks to expand acceptance and use of Diner Club cards. Diners Club and the Draftfcb Chicago agency created the campaign in response to requests from franchisees around the world for more utility from the card brand, Janice Alfini, Diners Club senior vice president of global brand and marketing, tells CardLine. The campaign, which features a new logo, card design, Web site and television advertising, does not include the North American franchise Citigroup recently sold to Bank of Montreal (CardLine, 11/24). The company will work with BMO once the deal is completed next year, Alfini says. The campaign, which launched in such countries as Austria, Brazil, Japan and South Africa, is localized for each franchise market, says Alfini. The newest twist in Diners Club’s advertising campaign is its emphasis on everyday card use, beyond its traditional focus on travel and entertainment, in part to attract new cardholders, increase utility for existing customers and expand card acceptance. Discover, which last year purchased the Diners Club brand from Citigroup Inc. for $165 million, this year inked a series of card-acceptance agreements with regional ATM and point-of-sale networks around the world (CardLine, 9/18). The deals significantly expand acceptance of Diners Club and Discover cards in various markets, including India, Europe and Canada. Diners Club issues cards through 49 franchisees in more than 185 countries.

VeriFone Holdings Inc.’s efforts to drive payment card acceptance in taxis and at the gas pump appear to be paying off, VeriFone CEO Douglas G. Bergeron told analysts during a conference call yesterday discussing the point-of-sale terminal makers fourth quarter earnings. The San Jose, Calif.-based company reported net income of $3.7 million for the quarter ended Oct. 31, a reversal from the $366.6 million loss the company reported for the same period last year. VeriFone's fourth-quarter revenue totaled $217.8 million, down 11% from $244.7 million during the same period last year. Total annual revenue for fiscal 2009 was $844.7 million, up 8.4% from $921.9 million the previous year. Within North America, the company’s products are deployed in 13,700 cabs, twice the total from a year ago, Bergeron said, noting revenue from devices designed for taxis accounted for 5% of VeriFone’s fourth-quarter revenue. Bergeron said he expects to add 10% to 15% more POS terminals in cabs over the next year accompanied by 20% to 25% growth in annual cab transactions. VeriFone is expanding its sales staff and is turning its attention to national sales of terminals designed for cabs, he says, noting between 30% and 35% of taxi fares are paid electronically. “The consumer studies we’ve seen suggest that once a rider uses a credit card twice, he’s very unlikely ever to go back to cash,” Bergeron told analysts. VeriFone also hopes to capitalize on the video-monitor systems included with the terminals many of the taxis use by selling advertising for display on them. “There are 300,000 taxi fares a day in New York City, (each) averaging 14 minutes,” Bergeron said, making VeriFone’s POS taxi systems “most-precious media venues.” VeriFone’s efforts to update payment card readers at U.S. gasoline pumps also are driving sales growth. Sales to petroleum customers grew 10% compared with the third quarter, which saw 12% growth over second-quarter sales, Bergeron said. Helping drive that growth is Visa Inc.’s July 1 deadline for all payment software connected to its network to comply with the Payment Card Industry Security Standards Council PA-DSS standard, and interest among fuel retailers continues to grow, Bergeron said. VeriFone also picked up some customers because of a competing product had ceased production and VeriFone’s loyalty program tied to fuel and general merchandise sales. VeriFone’s overall security push, exemplified by its VeriShield Protect system for encrypting transaction data, also should secure more customers, Bergeron said. Chase Paymentech LLC, a Dallas-based processor, Atlanta-based processor RBS WorldPay support VeriShield protect and two unnamed processors also will accept VeriShield Protect-encrypted transactions, he said. Additionally, VeriFone is encrypting more than 5 million transactions per week at two national chain retailers, with “at least five other national chains in final testing and positioned to go live within a couple of months following a busy holiday shopping season,” Bergeron said. VeriFone’s dispute with Heartland Payment Systems Inc., a Princeton, N.J.-based payment processor, is having little effect on VeriFone, he said. While in development of a new Heartland payment terminal, the two companies saw the product going in different directions and ended up suing each other (CardLine, 10/22). VeriFone alleges that a new terminal that Heartland sought to develop with another manufacturer infringed on a VeriFone patent. In a separate suit, Heartland alleged VeriFone is engaging in unfair trade practices. In response to an analyst’s question, Bergeron said Heartland sales represented between 0.4% to 0.6% of VeriFone’s annual revenue. Some costs associated with providing direct support to Heartland merchants using VeriFone equipment exist, but they have been “small,” Bergeron said.

Financial regulators in China plan to crack down on credit card-related crimes, the People’s Bank of China, the country’s central bank, announced Tuesday on its Web site. The central bank plans to work with associated agencies to remove print and Web advertisements authorities judge offer false information about credit cards. The bank did not offer more details. People’s Bank also plans to work over the next year with the Ministry of Public Safety to fight card fraud, and it plans to increase efforts to educate consumers about how to use cards. People’s Bank announced its plans after China's Supreme People's Court and the Supreme People's Procuratorate, a prosecutorial and investigative agency, announced a judicial interpretation this week that clarifies several laws concerning credit card fraud. Under a legal document scheduled to go into force Wednesday, card fraudsters could face at least 10 years in prison or even life imprisonment and fines of up to 500,000 yuan (US$73,200 or 50,500 euros) in cases that involve more than 25 counterfeit credit cards. China also could press charges against cardholders who intentionally delay credit card repayments for at least three months after an issuer sends a second notice.

Consumers are initiating more transactions online this holiday season, but the average ticket size is down, according to payment processor Chase Paymentech Solutions LLC. The Chase Paymentech Pulse Index, which samples a portion of the daily settlement activity of 50 of Internet Retailer’s Top 500 online merchants, reports that total online transactions from Nov. 5 through Dec. 13 were up 25.3% compared with the same period last year, while total purchase volume was up 14.7%. But the average ticket size was down 8.3%, to $53.74 this year from $58.62 last year. “We’re encouraged to see that overall e-commerce continues to grow,” Aaron Press, director of market analysis at Dallas-based Chase Paymentech, tells CardLine, adding that “a variety of forces” helped to drive down the average ticket size. “Promotional activity was very heavy in November, with discounts, free shipping and other deals. That, combined with economic conditions and the fact that consumer confidence is still tracking fairly low, is contributing to somewhat smaller transaction amounts,” Press says. Chase Paymentech, which estimates it processes some 50% of all online transactions, bases its findings on a fraction of the total number of transactions it processes.

Two-thirds of U.S. consumers have cut their credit card spending, closed a credit card account or switched credit card brands in response to changes within the last year in their credit cards’ terms and conditions, according to a new report comScore Inc. released this week. And some 60% of respondents said they would switch cards for a better rewards deal. ComScore in October conducted an online survey of more than 2,000 U.S. Internet users, comparing some of its latest findings with a similar survey conducted a year earlier. Some 66% of respondents said that because of economic conditions they are cutting their spending back from a year ago. Some 42% said economic conditions are making them more likely to use cash this year for routine purchases compared with 50% who said so last year. Some 40% said they are more likely to use a debit card for purchases, up from 34%, while 23% said they are more likely to use a credit card this year, up from 18%. Economic pressure and new credit card-industry regulations forced changes in many cardholders’ accounts this year, ComScore notes. Among respondents who noted credit card-account changes within the past year, 54% said their terms and conditions changed; 53% said their interest rate increased, 26% said their credit limit shrank, and 21% noticed new fees. Some 17% said their rewards programs had changed, 14% were hit by higher annual fees, and 10% said issuers closed their accounts. Some 55% said they are spending less with their credit cards following recent changes, while 27% said they no longer use the affected card, 12% said they closed the account, and 9% said they applied for a new card with a different issuer. Some 60% of respondents said they would consider switching to a new credit card to get a lower interest rate, while 59% would switch to get better rewards, and 15% would switch to get better customer service elsewhere. Eighty-three percent of those seeking better rewards would switch to a new credit card to receive cash-back rewards, while 41% would switch to get merchant rewards, 33% would switch for a flexible-rewards program, 30% would switch for gasoline rewards, 20% would switch for air-travel rewards, and 4% would switch to earn charitable-donation rewards. “Card issuers that can provide additional value to consumers while complying with changing credit card regulations may encourage customers to continue spending on their credit cards,” ComScore concluded.

CUNA MutualGroup officials expressed regret yesterday at this week's Massachusetts Supreme Court ruling that the major card brands' compliance processes provided an adequate remedy for credit unions that suffered huge losses in the BJ's Wholesale Club breach, reports Credit Union Journal, a PaymentsSource sister publication. "This is an unfortunate ruling and one which we, and likely our credit-union partners in this litigation, do not agree with," says Chuck Cashman, CUNA Mutual plastic card product executive. In its decision, the state's high court affirmed a lower-court ruling dismissing the multi-million dollar lawsuit by CUNA Mutual's CUMIS Insurance Society affiliate on behalf of 130 credit unions whose credit cards were breached in the 2005 hacking of BJ's Wholesale Club. The credit-union insurer had sued BJ’s for breach of a third-party contract, based on BJ's agreement with merchant acquirer Fifth Third Bancorp not to store customers's card magnetic stripe data. The lower court sided with BJ's, and the state's high court affirmed, saying the contract was exclusively between BJ's and Fifth Third. The credit union wanted BJ's to pay compensation for the millions it cost to replace credit cards that were breached by the hackers. Meantime, Pennsylvania State Employees Credit Union, which spent almost $100,000 to replace cards breached in the BJ's case, says it has ended its legal pursuit of claims against Fifth Third. Greg Smith, president of the $3.5 billion credit union, says the institution agreed to settle the case out of court but could not discuss the terms under the settlement. A group of hackers has confessed to the 2005 BJ&'s breach and others involving TJX Cos., Barnes & Nobles, Sports Authority , Hannaford Bros. supermarkets and Heartland Payment Systems", among others.

As part of a tentative settlement agreement in a long-running lawsuit, Bank of America Corp. has agreed to drop the mandatory-arbitration clauses and class-action bans from all of its consumer and small-business credit card agreements beginning next year, Philadelphia-based law firm Berger & Montague P.C. yesterday announced. BofA in August said it was ending its mandatory-arbitration policy (CardLine, 8/14). The settlement calls for the issuer to eliminate all arbitration clauses beginning in May through at least late 2013. BofA also agreed as part of the settlement to stop enforcing its existing arbitration clauses against cardholders immediately. JPMorgan Chase & Co., which last month reached a similar agreement in the same lawsuit, also says it plans to end mandatory arbitration (CardLine, 11/24). The settlements stem from a 2005 class-action lawsuit accusing BofA, Chase, Capital One Financial Corp., Citigroup Inc., Discover Financial Services, HSBC North America Holdings Inc. and others of violating antitrust violations by conspiring to require cardholders to resolve their disputes with credit card companies through out-of-court arbitration proceedings. The recent settlements with BofA and Chase are significant because the issuers no longer have the option to enforce mandatory arbitration, Merrill G. Davidoff, a Berger & Montague attorney, tells CardLine. “Although certain issuers said they plan to end arbitration, tens of millions of customers’ credit card statements still contain these clauses requiring arbitration of disputes. But beginning next year, BofA and Chase can no longer avail themselves of those clauses,” he says. BofA and Chase deny any wrongdoing. Cap One, Citi, Discover and HSBC remain defendants in the case.

Some 75% of U.S. households said they are familiar with new credit card industry regulations President Obama signed into law earlier this year, but they are divided on the new rules’ effect, suggest the results of a recent survey from Maritz Inc.’s Maritz Research subsidiary. The firm surveyed 2,666 U.S. adults online Oct. 8 to 14 to measure awareness of the Credit Card Accountability, Responsibility and Disclosure Act, which will restrict many credit card industry practices when it goes into full effect Feb. 22. Asked to weigh the “expected impact” of the regulations, 50% said they expected to feel no impact, while 17% said they expected a negative impact and another 17% expected a positive impact. Some 6% foresaw “significant positive impact” while 4% expected a “significant negative impact.” Six percent were unsure of the new rules’ effect. Some 42% of respondents reported seeing recent interest-rate increases on their cards, while 29% reported the recent notification of higher minimum payments, 28% reported recent credit-line reductions, 22% reported the recent imposition of new or higher annual fees, and another 22% reported recent rewards-benefit reductions. Some 40% of respondents said they tended to pay their credit card bill in full each month, while 60% tended to carry a balance. “I was surprised that consumers’ familiarity with the new regulations was so high, given the fact that many credit card issuers are still contemplating changes they will make in response to the law,” Rich Brose, senior director of strategic consulting for Maritz’s financial services group, tells CardLine. “It’s too soon to tell what consumers will ultimately decide, but the early returns show contrasting viewpoints on its effect.” Among other provisions, the law requires issuers to give cardholders 60 days’ warning of any interest-rate changes and prevents issuers from raising cardholders’ interest rates on existing balances, except in certain conditions.