Credit

Fifth Third Bank Processing Solutions, a transaction processor owned by Fifth Third Bancorp, says Visa Inc. has given it an award for its overall performance and noted separately that the processor had the lowest chargeback-to-sales ratio for Visa transactions for the 12th consecutive year.

Legislation recently enacted in Tennessee goes further than other state laws in restricting credit card solicitations of students on college campuses, and it could create a precedent for stricter regulation of such marketing elsewhere, bankers and observers said.

The Fed's rate-cutting strategy to counteract the credit crisis has had consequences in Net banking. The alluring five-percent-plus rates that ING Direct, Citi, Capital One and others once offered for high-yield, online savings accounts (HYSAs) have dwindled to three percent territory.

Senate Majority Whip Richard Durbin introduced companion legislation Thursday to a bill by House Judiciary Committee Chairman John Conyers that would regulate interchange fees.

Higher gasoline and food prices are continuing to drive up consumer spending for necessities and reducing both spending on discretionary items and savings, according to Discover Financial Services.

The American Bankers Association said today it "strongly opposes" the bill Sen. Richard Durbin, D-Ill., introduced yesterday to regulate interchange rates. "Just like the bill introduced in the House in March, this legislation inappropriately inserts the government in the role of setting prices in the private marketplace, undercutting a pricing system that currently benefits consumers, businesses and the broader economy," Edward L. Yingling, association president and CEO, said in a statement. According to the association, interchange revenue helps to support the infrastructure costs required to support the card-payments system and the risk nonpayment issuers routinely assume. "The result will be more federal bureaucracy, less industry competition and fewer choices—and ultimately higher prices—for consumers, as is always the case when government tries to fix prices," the statement continued.

Home Depot Inc. reports credit scores are weakening among holders of its private-label credit card and, not surprisingly, customers more often are paying late and defaulting. While the portfolio's average FICO score–the credit score developed by Fair Isaac Co.–is "actually very good" at 726, the average active FICO score is 672, down from 679 a year ago, Carol Tome, Home Depot chief financial officer, said during an analyst conference call Thursday. The active score is widely considered by risk managers to be a better gauge of existing credit quality. Rising delinquencies and higher loss rates in the private-label portfolio, which Citigroup owns through an agreement with Home Depot, are leading to higher costs for the retailer. Home Depot expects costs tied to the credit card to fall below 4% of card sales in 2008, up from an estimated 2% cited in February. The retailer also said per-share profit could drop up to 24% this year, but projected earnings per share would grow in double-digit percentages annually when the U.S. housing market rebounds. Sales at stores open at least one year, an important retail measure, will log their worse showing in the second quarter and already were down 6.5% in the first quarter. The second quarter often is one of the strongest for the home-improvement retailer as consumers spruce up homes in warmer weather. But lower housing sales, falling home values and tighter credit have curbed demand for the big-ticket renovations that powered Home Depot's growth during the housing boom.

Mobile phones are joining brick-and-mortar stores, Web sites and catalogs as an important retail channel and represent a new revenue opportunity for retailers, according to a report from San Jose-based Cisco Systems Inc. The Cisco Internet Business Solutions Group study surveyed 45 North American and European retailers and found 42% provide customers with the ability to view product information through reformatted Web pages or specific mobile pages. But only 15% of those retailers offer a way to complete transactions on a mobile phone, while 10% use text messaging to provide customers with information. Six percent have Web pages and a Web site location specifically designed for mobile use. "Multi-channel retailing has morphed into a web of shopper touchpoints across stores, catalogs, mobile devices and the Internet," Dick Cantwell, the group's vice president of retail/consumer packaged goods practice, says in statement. He suggests retailers must "start offering shoppers an 'interconnected shop' if they are to take advantage of the mobile opportunity." The survey cited Amazon.com Inc. with the top e-commerce Web site. In April, the U.S.-based company launched a service that enables customers to use text messages to find and buy products sold on its Web site.

Storis Management Systems, a provider of operations products and services to retailers, says it is using Payment Processing Inc.'s payment processing middleware, PPI PayMover.

University researchers in Belgium will work with payments companies to research Near Field Communication applications. The collaboration involves researchers from universities in Brussels, Gent and Leuven. It also involves three Belgium-based firms: Integri, a supplier of test tools and services for payments, ticketing and mobile applications; its parent, financial-technology company Clear2Pay; and Keyware, which sells electronic payment, loyalty and related services, according to a statement Integri released Tuesday. Participants plan to focus on NFC vouchers used for meals, gifts and coupons. Dozens of NFC tests have taken place around the world, but the technology, which essentially turns mobile phones into contactless payment and ticketing devices, has seen no large-scale rollouts.

GreenNote Inc., a Redwood City, Calif., company founded last year, launched a Web site Wednesday that facilitates student loans funded by the borrowers' acquaintances.

U.S. consumer bankruptcy filings jumped 30.9% in May from the same month last year, the American Bankruptcy Institute reports today, based on data from the National Bankruptcy Research Center.

French banks have expressed interest in using contactless technology, both on cards and on Near Field Communication-enabled mobile phones, to grab a larger share of cash transactions. But a major obstacle to the rollout of contactless payment in France, as in other European countries, is the almost complete lack of contactless readers at the point of sale. Among the measures banks will consider to encourage merchants to accept contactless is lowering interchange rates for low-value transactions, says Roland Entz, managing director of Visa Europe's France office. Visa banks in the United Kingdom lowered interchange for the low-value transactions for which contactless technology was designed in advance of the London launch of contactless payment last fall. MasterCard Worldwide reportedly followed suit. "It's something banks need to think about," Entz tells CardLine Global sister publication Cards&Payments. "The banks certainly need to resolve the economic model [for rolling out contactless payment]." In France, interchange remains relatively low compared with other European counties and does not vary across credit, debit or other card products. Interchange, which acquiring banks pay to issuers on card purchases, largely determines the transaction fees merchants pay. Suggesting lower interchange is a touchy subject in Europe, where the European Commission has ordered MasterCard to slash its interchange rates. Regulators also told Visa Europe it should pay heed to the MasterCard ruling. Entz says from Visa's perspective, interchange is an "indispensable" part of the card-payment system. André-Jacques Selezneff, MasterCard business leader for advanced payments in Europe, declines to say whether lowering interchange is necessary to build the infrastructure of contactless readers in France. He says, however, the opportunity for French merchants to co-brand payment cards-a relatively recent development in France-could encourage them to accept contactless payments. Banque Accord, the card-issuing arm of French hypermarket chain Auchan, is the only bank in France that has announced a rollout of contactless cards. The small rollout, which will feature MasterCard's PayPass application, is scheduled to start this year. Visa is participating in two French contactless card pilots.

The People's Bank of China is expanding the country's credit database by adding details about consumers' utility-bill payments, the central bank has announced. The database already includes information about consumers' loans and credit cards, the bank says. "The credit-record system in China is still lacking in many aspects," Fei Cao, payment analyst with Beijing-based research company Analysys International, tells CardLine Global. "Setting up a more complete credit database is something [that could] provide better card and financial services."

Consumers in the United Kingdom spent £14.7 billion (US$28.7 billion or 18.6 billion euros) on retail goods bought online in 2007, a 35% increase from the previous year, according to Verdict Research, a UK-based research firm. Online retail spending "is growing at the fastest rate" in six years, the group says in a statement released this week. Online retail spending could reach £44.9 billion by 2012 and account for nearly 14% of all spending on the Internet, the group estimates. Some 22.6 million consumers in the UK shopped online in 2007, nearly 25% more than in 2006. Those consumers shopped online an average of 19.9 times in 2007, up from 17.2 in the previous year. Verdict Research cited the spread of higher speed broadband connections and the convenience of Internet shopping as major factors for the growth.

Since 2006, the percentage of merchants switching acquirers has surged, especially among mid-size retailers, according to a report from First Annapolis Consulting, a payments consultancy based in Linthicum, Md. Historically, smaller merchants have switched merchant acquirers more often than have large-volume merchants, and that tendency continues to hold, the report notes. What has changed since 2006, the last time First Annapolis studied merchant-attrition patterns, is that more large-volume merchants are shopping around. The merchant-attrition rate among merchants with $5 million to $10 million in annual card-processing volume increased from approximately 6% in 2006 to 12% in 2008 the report states. The report does not say which months are included in the 2008 analysis. But the largest attrition-rate increase occurred among mid-volume merchants. For example, about 20% of merchants with $500,000 to $1 million in volume switched acquirers in 2008 versus about 13% that did in 2006. Other mid-size merchant categories experienced similar attrition-rate increases, First Annapolis says. More competition among merchant acquirers for accounts, fewer overall accounts because of businesses failing, or a combination of both factors may be driving the shift, First Annapolis says. "This pattern will be noteworthy if it persists because most acquirers' sweet spot–where they generate the most economic value–[falls] within these size ranges," the report states.

U.S. consumer bankruptcy filings jumped 30.9% in May from the same month last year, the American Bankruptcy Institute reports today. Using data from the National Bankruptcy Research Center, the institute says the 91,214 consumer filings in May represented a slight, 1.2% dip from the 92,291 filings recorded in April but rose from 69,684 filings in May 2007. The total number of bankruptcies filed during the first quarter increased 26.9% from the same period last year, the Administrative Office of the U.S. Courts reported earlier this week. Total filings reached 245,695 from January through March, 26.9% more than the 193,641 cases filed over the same stretch of 2007. "This ninth consecutive quarterly increase in filings since Congress attempted to restrict access to bankruptcy relief demonstrates again the influence of rising household debt," Samuel J. Giordano, the institute's executive director, said in a statement. "We expect filings to surge past 1 million cases by year-end."

CheckFreePay, a division of Fiserv Inc., announced this week that consumers can pay more than 300 bills using its next-day service, double what it previously offered. CheckFreePay enables consumers to pay utility, mobile-phone, insurance, credit card and other bills by bringing cash to a walk-in location, according to the company. CheckFreePay operates 12,000 bill-payment locations in 48 states, according to the company. Consumers pay $1.50 for two- to three-day bill processing, or $2.50 for next-day processing. CheckFreePay announced in May it began offering its bill-payment services through Ready Credit Corp.'s kiosks (CardLine 5/16). "We feel this reflects a trend toward faster payments in general," Ann Cave, a CheckFreePay spokesperson, tells CardLine. "Consumers, regardless of the channel they are paying in, have an increased expectation of speed."

Over the coming months, banking institutions will continue to face deteriorating loan quality, Federal Reserve Vice Chairman Donald L. Kohn warned the Senate Committee on Banking, Housing and Urban Affairs today during a talk on the condition of the U.S. banking system. "House prices are still declining sharply in many localities, and losses related to residential real estate, including loans to builders and developers, are bound to increase further," Kohn said. "In addition, weak economic conditions could well extend problems to other segments of lending portfolios, including consumer installment or credit card loans." Kohn emphasized that financial institutions must be prepared "for the possibility that liquidity conditions become tighter if uncertainties in the capital markets fail to subside or if credit conditions deteriorate significantly." Because of these circumstances, the Fed anticipates the number of banks with "less-than-satisfactory supervisory ratings will continue to increase from the relatively low levels that have existed in recent years."