Credit

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.

Russia and Poland are leading Central and Eastern Europe in the number of payment cards issued, according to a report prepared by London-based Retail Banking Research Ltd. At the end of 2008, financial institutions in 14 Central and Eastern Europe nations had issued 264 million debit and credit cards, up 10.5% from 239 million a year earlier, according to the report “Payment Cards: Central and Eastern Europe 2010.” By comparison, Retail Banking Research says the growth in cards issued in Western Europe between 2008 and 2007 was 5%. Retail Banking Research says 16 million of the additional cards issued in 2008 were in Russia, where banks routinely enroll businesses in corporate accounts so companies can pay employees’ salaries through credit transfers. Employees were asked to open bank accounts with debit cards tied to them. Financial institutions in Poland issued 4 million new payment cards in 2008. Of all the cards issued in the region last year 83% were debit cards, 2% were charge cards, and 15% were credit cards, Retail Banking Research says. Debit cards are so dominate that only in four nations—Czech Republic, Poland, Slovakia and Slovenia—do credit and charge cards account for more than 30% of each nation’s total, Retail Banking Research says. Cardholders in the 14 nations initiated 2.3 billion card payments in 2008, up 21.1% from 1.9 billion in 2007. As consumers become “accustomed to using cards more frequently for payment, and as card-acceptance networks expand, transaction volumes are growing significantly faster than card numbers,” Retail Banking Research says. In related research, merchants deployed 1.1 million point-of-sale terminals in the region, a 26% increase from the previous year, the company says.

Consumers in the Australian state of Queensland now can use prepaid Go Cards for travel on the TransLink network, the Queensland state transport minister has announced. The Go Card is a contactless card consumers can use to pay for bus, train and ferry rides. Consumers can store up to AU$250 (US$230 or 156 euros) on the cards. Consumers can buy the cards at various merchant locations in Queensland, and they can choose to have automatic top-ups on the cards via credit card payments. The Queensland Government formed the TransLink Transit Authority to improve and expand public-transport services across Southeast Queensland.

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