Credit

The U.S. Labor Department said today that the nation's unemployment rate jumped to 5.5% in May from 5.0% in April, the biggest monthly increase since February 1986 and a rise that places unemployment at the highest level since October 2004.

A work group of NACHA is discussing the possibility of merging into one rule set the three ways merchants convert paper checks consumers hand to cashiers or send through the mail into electronic ACH transactions. NACHA is the organization that oversees automated clearinghouse rules in the United States. Merging the three rules would provide one standard entry-class code, which might simplify recording of transactions for banks, merchants and others who use ACH networks. "There's been a push by the banks for that to happen," says Amy Gutierrez, a member of NACHA's Electronic Check Council and vice president of strategic market development for Elavon, a payment-services division of U.S. Bancorp. Gutierrez, who also is a member of the NACHA Product Application Project work group that has been studying the possibility for several months, tells CardLine sister publication Cards&Payments discussions are very preliminary, and it is too early to know the full feasibility of combining the three codes into one. POP, which stands for point-of-purchase conversion, is the code used for transactions that occur when cashiers capture check-routing information at the point of sale and hand voided paper checks back to customers before they leave the store. BOC, for back-office conversion, allows cashiers to keep shoppers' checks so someone else can later convert them into ACH and other electronic transactions. Merchants and recurring billers use ARC, which stands for accounts-receivable conversion, to convert paper checks they receive through the mail or in unattended drop boxes into ACH transactions. Gutierrez says she believes NACHA eventually will combine the three conversion methods into one ACH code, but the possibility will take months of slow and careful consideration.

Companies that want to reach the underbanked market should understand the different market segments, Michael Hermann, research director of the Center for Financial Services Innovation, told an audience yesterday at the third annual Underbanked Financial Services Forum in Miami. The center released preliminary findings from its market-segmentation research today. It found that there are 40 million U.S. households, which means about 106 million individuals, are unbanked or underbanked. The center defines unbanked consumers as those without bank accounts and underbanked consumers as those who may have bank accounts but who still receive some financial services through alternative providers such as check cashers and payday lenders, Hermann said. A survey of 2,799 underbanked adults ages 18 and older found that respondents had a median annual household income of $26,390 and a mean annual household income of $47,500. Almost half (47%) of the respondents said they held full-time jobs, and 11% said they held part-time jobs. The survey also found that, among the unemployed respondents, 52% were retired or were homemakers, Herman said. The center received enough information to determine credit scores for 79% of the respondents. It found that 25% had a prime credit score, 42% had a thin or no credit file and 33% were considered subprime. This suggests that financial-services companies should not equate underbanked with subprime, Jennifer Tescher, director of the Chicago-based center, said during a separate forum presentation today. Unbanked consumers cited not having enough money as the main reason for not having a bank account, Hermann said during his presentation. Underbanked consumers have financial goals, with 70% saying that saving for emergencies is "extremely important" or "very important," 65% saying saving for retirement is "extremely important" or "very important" and 49% saying the same about saving for college costs. Hermann told the audience that understanding the different groups of underbanked consumers could lead to better product design, marketing and risk management. "We can't address the underbanked as a single monolith," he said.

Wal-Mart Stores Inc. has sold 1 million prepaid Visa cards since it launched the program nearly a year ago, and cardholders have loaded more than $1 billion on those cards, Jane Thompson, president of Wal-Mart Financial Services, told attendees today at the third annual Underbanked Financial Services Forum in Miami. The card sells for $8.94 in stores, has a monthly maintenance fee of $4.94 and can be reloaded for $4.64 , according to a Wal-Mart Fact sheet. Wal-Mart waives the monthly fee for the following month when consumers load at least $1,000, and it waives the reload fee if customers use direct deposit or load funds from a check cashed at Wal-Mart, according to the fact sheet. Wal-Mart uses the cards to reach underbanked or unbanked consumers, Thompson said. To continue to market to those customers, the company, which is based on Bentonville, Ark., plans to increase the number of Money Centers in its stores where consumers can buy money orders, wire funds and cash checks, Thompson said. The company operates 500 Money Centers and plans to have 780 open by yearend and 1,000 by early next year. Wal-Mart also offers online bill payment for its prepaid card customers and has started to support bill payment at its stores, said Thompson. Wal-Mart offers CheckFree Corp.'s bill-payment service in 400 stores and plans to roll out the service to 3,600 stores over the next 90 days, Thompson told CardLine after her presentation. CheckFree is based in Wallingford, Conn. Thompson says Wal-Mart does not plan to pursue a bank charter but instead will look for partners to help it offer expanded financial services, including savings products.

Consumer credit outstanding during April rose at a seasonally adjusted annual rate of 4.25%, but Americans cut back on their borrowing with revolving credit, primarily credit cards, which increased only 0.4% during April compared with 7.4% growth in March and 1.1% growth in April 2007, according to preliminary estimates in the Federal Reserve Board's monthly Consumer Credit survey, released Friday. The growth in consumer credit came from a 6.5% increase in borrowing on nonrevolving accounts, primarily consisting of closed-end loans for such items as mobile homes, tuition and vacations. The total increase in April's consumer credit outstanding compares with a 6.2% seasonally adjusted growth rate during March and a 0.2% growth rate in April 2007. Revolving credit (card borrowing) during April equaled $956.9 billion, up just 0.03% from $956.6 billion in March but rising 7.8% from $887.6 billion in April 2007. Total consumer credit outstanding in April was $2.56 trillion, rising only a fraction of a percent from March and up 5.3% from nearly $2.43 trillion in April 2007. Nonrevolving credit outstanding approached $1.61 trillion in April, up 0.62% from $1.6 trillion in March and up 4.5% from $1.54 trillion in April 2007.

Bank of America Corp. is raising its ATM surcharge in the Chicago market to $3 from $2 per transaction, bringing the city's surcharge to the same rate the bank charges nationally, according to a BofA spokesperson. The fee increase will go into effect June 23, and BofA today began alerting customers in Illinois, Michigan and Indiana about the change that affects noncustomers of the bank. The fee also will be disclosed on decals the bank is posting on its Chicago-area ATMs, says the spokesperson. BofA raised its national ATM surcharge to $3 from $2 the first week of August (CardLine, 8/2/07). At the time, BofA was working to acquire Chicago-based LaSalle Bank; it completed the transaction in October. Noncustomers complete less than 10% of BofA's ATM transactions, according to the spokesperson. "Quite frankly, we would prefer that these customers open an account with us and avoid this fee altogether," says the spokesperson with Charlotte, N.C.-based BofA.

Fair Isaac Corp. today announced a strategic partnership with Memento Inc. to provide financial services institutions and credit unions with new tools to fight internal fraud. According to Concord, Mass.-based Memento, most serious fraud threats come from internal sources, and the company's services enable institutions to detect internal fraud at an early stage, thereby reducing losses after fraud is committed. Doug Claire, Fair Isaac vice president, fraud product management, said in a statement that fraudulent activity is increasingly found to originate inside of organizations, posing a dual threat to a financial-services firm's balance sheet and its reputation. "Most internal fraud starts small, and many schemes are perpetrated by long-term employees over a period of years," Mike Williams, Memento vice president of business development, tells CardLine. "To block these fraud schemes, internal fraud-fighting tools must detect unfamiliar patterns, policy violations and code-of-conduct violations at an early stage." Memento also serves as a clearinghouse of information on thousands of fraud schemes employees attempt. "New internal fraud schemes are attempted every day, and institutions need to block them before they become entrenched," Williams says. Fair Isaac is based in Minneapolis.

Dynamic Card Solutions, which developed the CardWizard technology that enables banks to instantly issue unembossed credit and debit cards at branches, today announced it is offering Collis B.V.'s EMV Personalization Validation Tool to its international customers. The validation software analyzes and validates CardWizard software before a Dynamic Card Solutions customer uses it, the Englewood, Colo.-based company says. The validation software "goes in with the pilot to make sure [CardWizard] works and is interoperable before they do full rollout to other branches," a Dynamic Card Solutions spokesperson tells CardLine. Collis is a Dutch information-technology and consulting company with U.S. headquarters in Arden Hills, Minn.

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.