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December 31, 2002

Washington Post: As paper checks disappear, so may some Fed jobs

John Berry reports that the Federal Reserve has warned employees of its twelve regional banks that some jobs may be cut in coming months due to the decline in check volume cleared by the Fed.
In a typical letter sent this month to Fed employees, Robert D. McTeer Jr., president of the Dallas Federal Reserve Bank, said: "The Federal Reserve's national check business has experienced significant losses in volume and revenue over a period of many months. This volume loss is attributable to a number of factors including consolidations in the financial services industry and greater use of electronic payments."

WSJ: Prepaid cards find a niche

Michelle Higgins reports on the growth in prepaid cards.
The new cards are the latest indication that competition among card issuers has never been more brutal. Americans who carry plastic already have an average of nearly eight cards in their wallet. To win new customers, card companies have been competing fiercely with new offers of 0% cash advances and other deals. But with the credit-card market so saturated, they are under pressure to find new sources of growth. "They're segmenting the market into finer and finer niches in order to capture more market share and define more payment uses," says card consultant Rob Markey, of Bain & Co. in New York. What's more, prepaid cards -- which describes all the new cards except for American Express's -- are a "very low loss-rate product," he says. That's because customers must cough up the money in advance. That is an important consideration these days with credit-card companies writing off record amounts of bad debts.

Wired: I/T staffing crisis looms in India

Ashutosh Sinha reports from New Delhi on the shortage of middle and senior managers to help run India's growth as the "back office of the world."
According to consulting firm McKinsey, revenue of Indian companies in the two industries could reach $21 billion to 24 billion by 2008 -- a 1,500 percent spike from $1.4 billion in revenue this year. These segments are forecast to employ over 2 million people. But to achieve that kind of growth, Indian companies need experienced managers who can sell the country's advantages to global companies. The shortage of employees with management experience doesn't bode well.
Feels sorta like another gold rush, doesn't it? It's not just about services either. See this report about India's growing supercomputing hardware business.
The Pune-based Centre for Development of Advanced Computing (C-DAC) will be targeting some of the countries, which have already bought its earlier PARAM 10000 version with a computing power of 100 gigaflops. C-DAC has already sold about 7 PARAM 10000 supercomputers with 100-gigaflop memory to eight countries so far, including Russia, Canada, Singapore and Germany. It has so far sold over 53 supercomputers, since it started developing it in the Eighties following a technology denial regime against the country by the developed world. C-DAC will be targeting both domestic and international customers for marketing the Padma supercomputer, which can be scaled up to 16-teraflops.

December 30, 2002

New York Times: A bank for Mexico's working families

Lucy Conger writes about Elektra, a downscale household goods retailer in Mexico that is opening Banco Azteca, the first bank to aim at Mexico's middle and working classes.
Starting next year, Banco Azteca plans to introduce a range of products, including used-car and personal loans, debit cards, checking accounts and mortgages. Elektra's database of the credit payment histories of four million current and former customers will help the bank make credit decisions and cross-sell its products, analysts say.

Chicago Fed: Tapping the potential of the unbanked (PDF)

A report by Doug Tillet and Liz Handlin of the Chicago Federal Reserve Bank on the market potential for serving the over 10 million unbanked individuals on the US.

JPMorgan Chase signs with IBM for IT Infrastructure Services

IBM and JP Morgan Chase have announced a seven-year outsourcing agreement.
The agreement will enable JPMorgan Chase to transform its technology infrastructure through absolute costs savings, increased cost variability, access to the best research and innovation, and improved service levels. By moving from a traditional fixed-cost approach to one with increased capacity and cost variability, JPMorgan Chase will be able to respond more quickly to changing market conditions. JPMorgan Chase will outsource a significant portion of its data processing technology infrastructure, including data centers, help desks, distributed computing, data networks and voice networks. The agreement includes the transfer of approximately 4,000 JPMorgan Chase employees and contractors as well as selected resources and systems to IBM in the first half of 2003. Application delivery and development, desktop support and other core competencies will largely be retained inside JPMorgan Chase.

Herald Sun: Australian retailers won't surcharge credit cards - for now

Susie O'Brien reports that major retailers in Australia are not planning to impose surcharges on credit card usage -- at least not right away.
Until now, the cost of processing credit card transactions has been met by retailers and businesses, but from tomorrow this cost can be passed directly to the consumer. Many businesses were adamant yesterday that they would not take this step unless forced to do so by spiralling costs. Others said they would investigate the move if it became a norm in their industry. The Australian Retailers Association said services such as gyms, doctors and dentists, tradespeople and professional groups were the most likely to introduce the charge. Association executive officer Brian Donegan said the pressure was also great on small retailers who paid banks up to 3 per cent of their turnover on credit charges.

Bernama.com: MasterCard Malaysia determined to tackle credit card fraud

Nor Faridah Rashid reports from Kuala Lumpur on MasterCard's plans to fight counterfeiting of cards by magnetic stripe skimming from deploying Magneprint, a technology developed by MasterCard International and MagTek.
Magneprint is the first technology that proactively helps prevent card skimming by using the "intrinsic" physical properties or a magnetic stripe (which are unique to every card) to differentiate between an original and a cloned card.

New YorkTimes: Strong sales for online merchants

Bob Tedeshi reports on results from the holiday season for online merchants and, in particular, the very strong sales of gift cards.
As online merchants began tallying the results of a stronger-than-expected holiday season, they were further buoyed last week by another bit of good news: gift certificates, a favored scrip among post-holiday bargain hunters, enjoyed their best season ever online. By Dec. 20, holiday sales of gift cards and e-mail gift certificates had soared 64 percent over last year, pushing the 2002 total toward the $250 million mark, according to comScore Networks, an Internet research firm.

Boston Globe: Help yourself - customer self-service

D.C. Denison profiles SpeechWorks and edocs, two Boston-area companies providing technologies to enable customer self-service.
"Speaker verification," for example, is rapidly emerging as an important capability, allowing the system to identify a caller by his voice patterns. Verification is important not only for security, but also for enhanced convenience. "If the system recognizes you, it can immediately shift to your preferences," said Chambers. "It enables customers and companies to significantly streamline their interactions." Get ready for this: "Oh, hello Mr. Smith. Are you traveling to New York again?"

December 29, 2002

The Age: Credit cards are very popular in Australia

Sharon Kemp reports from Melbourne on the rapid growth in consumer debt in Australia.
Credit card companies such as Visa and MasterCard are as confident as ever. Visa says consumers have never been so debt-educated or diligent in clearing their card debt. Moreover, the global giant says fears of a Christmas blow-out in card debt were unfounded, based on RBA data that showed that for every $100 spent in December in three consecutive years to the end of 2001, $91 was repaid in January. "Although Australians are using their cards more, they continue to use them carefully," says Visa International executive vice president (Australia and New Zealand) Gordon Wheaton.
Separately, Bruce McDougall reports in the Herald Sun on the change taking place January 1st in Australia where retailers will be permitted to surcharge credit card transactions at the point of sale. In a similar article in the Weekend Australian, Jennifer Sexton reports:
Ms Wolthuizen said consumers were most likely to incur a credit card surcharge on airline ticketing because of the industry structure ˆ big business with low competition. Market dominator Qantas has reportedly said it wants to charge extra for credit cards that do not carry the Qantas name, but an airline spokeswoman yesterday could not confirm the domestic and international carrier's intention.

San Jose Mercury News: Law of supply and demand turned on its head

Cecil Johnson reviews Rick Kash's book The New Law of Demand and Supply.
Sears Credit supplies Kash with an example of how knowing the wishes and needs of your most profitable demand segment pays off. The author tells of the panic that hit Sears Credit when the corporation decided to begin accepting MasterCard and Visa. Thought was first given to reducing the percentage rate on the Sears Card to compete. But that approach was discarded after research revealed that the percentage rate didn't matter that much to Sears' most profitable demand group. Those customers just wanted low minimum monthly payments and Sears' commitment to stand by its products. The Sears customers in the researchers' target group said they would continue to use their Sears cards in order to leave room on their other cards, which could be used at other stores. "If they maxed out those cards and the refrigerator broke down, only the Sears card stood between them and no refrigerator," Kash writes. The Sears Credit team used its findings, Kash writes, to enable Sears Credit to give up its monopoly and still increase business performance. "It raised the Sears share of credit card transactions in its stores, and its margins actually went up," he writes. "Over three years, its profits on the card rose by 44 percent."
Looks like a most interesting book (published last September) -- it gets great reviews on Amazon -- will have to check it out! His firm's web site also has an interview with Rick Kash.

Detroit News: Gift cards gain in popularity

Chris O'Malley reports on the growth in gift cards.
Buying a gift card from a bank is more involved than merely pulling a card off a rack at the home improvement store. Both Key and National City require purchasers to fill out name, address, phone number and Social Security number. At one National City branch, an employee also asked for date of birth and even collected the buyer's driver's license, disappearing with it into a back office.

New York Times: For a banker, roots and reach

John Tagliabue profiles René Carron, new chairman of Crédit Agricole.
Most French bankers enjoy their cheese. René Carron goes one better. He owns a herd of 60 cows, producing milk for tomme de Savoie, the cheese of his native Savoy. But then Mr. Carron, 60, the new chairman of Crédit Agricole, the big French bank, is no ordinary banker. The latest proof of the difference came two weeks ago, when, in a deft negotiating strike, he reached an agreement to acquire control of Crédit Lyonnais for $16 billion, in a deal that would create France's biggest bank, second only to Deutsche Bank as the largest in Europe.

December 28, 2002

Glenbrook Research Note: Bill Me Later - I4 Commerce

Glenbrook research clients can now access a just published research note on Bill Me Later, a new consumer credit offering from I4 Commerce.

Tampa Tribune: Gift card shopping jam irks holders

Apparently American Express' processing system bogged down handling the high volume of Westfield Shoppingtown's gift card requests.
On Thursday and Friday of last week, the credit card processing system for American Express - which handles the Westfield gift cards - got so overloaded that processings were delayed, Putman said. The Westfield cards are valid at any Westfield mall store that accepts American Express. The system should work better in the coming days, he said.
Separately, here's another gift card story from the Cincinnati Enquirer.

December 27, 2002

Amazon.com's Results

Amazon.com announced that it sold more than 56 million items worldwide from November 1 to December 23, 2002.
The largest sales day occurred on Monday, December 9, with 1.7 million units ordered, or 20 items per second worldwide. The second largest sales day, with 1.6 million units ordered, occurred on Wednesday, December 11, just a day before the holiday ordering deadline for Free Super Saver Shipping on Thursday, December 12.

New York Times: Growth in sales for holiday period weakest in years

Constance Hays reports on the weak holiday shopping season this year.
The idea that even Wal-Mart, the biggest success story in retailing in recent years, was struggling was taken as a sign of wider problems. "This confirms our previous thoughts that holiday sales could be the worst in a decade," Deborah Weinswig, a retail analyst for Salomon Smith Barney, wrote in a note to investors after the Wal-Mart announcement.
Separately, a study released today by ForeSee Results shows that although more than half of online holiday shoppers were highly satisfied with their online experience this year, the still nascent e-retail industry earned an overall score of 69 out of a possible 100 points (or a grade of "C"), a strong message from consumers that retailers need to do more to keep them coming back.

December 26, 2002

Richmond (VA) Times Dispatch: Shoppers to reap rewards in credit vs. debit debate

Carol Hazard reports on the battle between online and offline debit cards at the point of sale.
Banks make four times as much money with signature-based credit purchases, according to some reports. Retailers prefer the debit PIN purchases because they are less costly for them. In essence, merchants pay as much as 3 percent of the total transaction amount on a signature-based purchase, while they are charged no more than 25 cents for a PIN-based transaction regardless of the amount.

Washington Post: Pocketful of plastic a hot holiday item

Dina ElBoghdady reports on retailers' interest in gift cards.
"Retailers are itching to see what happens with all the gift certificates out there," said C. Britt Beemer, chairman of consumer research firm America's Research Group. "There are literally billions of dollars at stake." Just how many billions is unclear. Many retailers declined to discuss numbers. But consulting firm Bain & Co. estimates that sales of gift cards could hit a record $38 billion for the year, up 15 to 20 percent from 2001.

December 25, 2002

Times of India: MasterCard has a breakthrough in the battle against fraud

MasterCard says it has made a major breakthrough in the battle against counterfeting of credit cards. Its new technology ˜ dubbed Magneprint ˜ will help tackle global losses of $4 billion annually thanks to counterfeit credit cards.

December 24, 2002

Crain's Chicago Business: Househould and HSBC - a good fit?

Part 1 of an interview with Douglas Flint, group finance director of HSBC, about the merger with Household.

Sacramento Bee: California credit card law ruled invalid

Denny Walsh reports on U.S. District Judge Frank C. Damrell Jr's decision yesterday permanently barring enforcement of a new California law forcing credit card companies to warn their customers how long it will take and how much more it will cost to pay their bills with minimum payments. The court ruled that federal laws governing the operation of financial institutions pre-empt state laws in this area.
The Legislature passed the law last year, and it was scheduled to take effect on July 1. Led by the American Bankers Association and the National Association of Federal Credit Unions, card issuers sued on May 24. In an order on June 28, Damrell temporarily put enforcement on hold. The statute required two messages be displayed on the first page of a cardholder's statement, unless the issuer required a minimum payment of at least 10 percent of the balance or did not impose finance charges. The first message would have warned that minimum payments increase interest and the time it takes to retire a debt. There were two options for a second message. One would have provided examples for three balance amounts at the interest rate and minimum payment applicable to the account. Additionally, a toll-free number would have been listed for cardholders wanting more personalized information. The second option was to provide the cardholder with written, "customized" information regarding interest and duration of debt. Along with that would have been a referral to a credit counseling service or the number for the National Foundation for Credit Counseling.

atnewyork.com: Clash of the Titans

Beth Cox writes about the Clash of the Titans, Visa vs. MasterCard.
Florida and Florida State play out their rivalry on the football field. Ford and General Motors compete for buyers both online and in showrooms across the country. And MasterCard-Visa? Their B vs. B tussle is being played out on the cutting edge of high-tech.

Independent Online: Credit card crash hits Cape stores

Even in South Africa, merchants can become very dependent upon credit cards! When the systems don't work, people get very upset.
"The problem started a couple of weeks ago, but we've been suffering of late due to the increase in customer volumes," said a visibly annoyed Grant Murie who manages the Santa Ana Spur at the V&A Waterfront. "At peak trading times, the Standard Bank system can't process any transactions. Bank officials said a statement on the matter would be issued later on Tuesday.

December 23, 2002

Alaska Journal of Commerce: Alaskans take to online bill paying services

Christina Sessions reports on Alaskans rapid adoption of online bill paying services.
Alaskans appear to be ahead of the curve when it comes to using online bill payment. Debbie Sakamoto, public relations officer for Key Bank in Portland, Ore., said Alaskans led the national average for bill pay usage by 22 percent.
Brrr. Who wants to walk to the mailbox when it's so cold outside?

eOne Global acquires BillingZone

eOne Global announced this morning that it is acquiring BillingZone from PNC Bank and Perot Systems.
According to Raj Kushwaha, managing director and CTO of eONE Global, "The planned combination of BillingZone's services and First Data's existing paper document and check handling capabilities would create the most comprehensive offering available to large companies for automating both paper and electronic financial supply chain transactions. First Data is a leader in e-commerce and payment services - its existing infrastructure routes and settles billions of transactions every year." "The BillingZone acquisition brings together the market leading customers and channels of BillingZone with the scale and processing infrastructure of our parent company, First Data," Kushwaha added.

Washington Mutual: Pushes check image capture out to branches

Washington Mutual announced late last week that it had entered into an agreement with Unisys to capture check images in its financial center stores (branches).
Making this move now positions Washington Mutual to confront such industry issues as:
  • escalating unit costs of processing paper checks;
  • the shift to electronic transactions such as electronic bill presentation and payment;
  • and the impact of the Check Clearing for the 21st Century Act, pending legislation to enhance the efficiency of the check system by allowing digital images in truncation, which can eliminate the need for a paper trail in check processing.
Speaking of WAMU, they're saving the day for Seattle landlords as they've become the biggest corporate user of office space in Seattle.

FDIC: Economic Outlook

The FDIC released its latest economic outlook. Included is a look at the risks of deflation.
Clearly, deflation would have significant adverse effects on the banking industry, depending on its severity and duration. Past episodes of asset and goods price deflation often coincided with banking crises, particularly when the banking sector was already in a weakened financial position. Given the current income and balance sheet strength of the U.S. banking industry, short and mild deflation is likely to have a limited adverse impact. However, prolonged deflation would present more serious challenges to the industry by eroding the collateral value of assets and increasing the real debt burden of borrowers. Deflation could also lead to a decline in nominal income for households and businesses, reducing their ability to repay outstanding debts. In combination, these developments likely would lead to significant credit quality deterioration, while an increase in real interest rates would weaken loan demand. Despite these dangers, there are good reasons to think that serious deflation is unlikely to occur in the United States. One reason is a well-capitalized banking sector with relatively low levels of nonperforming loans. Another is the fact that policymakers appear to be alert to the dangers of deflation and determined to take steps to prevent it from taking hold. Finally, it appears that modern financial instruments and risk management tools contribute to the financial flexibility of households and businesses, reducing the potential for a widespread liquidity crisis. One example is the use of credit derivatives by commercial lenders to off-load credit risk. Another is the benefits of loan prepayment options that allow households and businesses to reduce their interest expenses by refinancing at lower interest rates. Together, these factors limit the possibility of a prolonged deflation that could seriously harm the banking industry.

Clarion Ledger: Personalized credit cards losing punch

A report on how its becoming difficult to find new concepts for affinity and co-branded credit cards.
Last year, card issuers mailed out 5.1 billion offers, but consumers responded to only 0.6 percent of the letters. Competition for new customers has intensified as the industry has consolidated; the top five banks hold more than half of the $635 billion in outstanding loans. The competition and lower interest rates also pressure issuers' profit margins, and banks are battling higher credit losses from record bankruptcies. That's where affinity and co-branded credit cards have helped. Such cards are designed to give consumers an incentive beyond low interest rates and fees to get and use new cards. Banks like such programs because consumers who use an affinity or co-branded card spend at least 30 percent more on it than on a regular classic, gold or platinum card. They are also more likely to pay off their bills.

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