Dave Poe looks at cost reduction opportunities in the back office operations of credit card issuers.

Gartner analyst David Furlonger shares his predictions for and visions of the future of the global financial services industry.

Today, cost-cutting takes precedence over all else. Institutions consider operational efficiency is far more important than operational effectiveness and value enhancement. Rather than take a hard look at where they want to be competitively in five years, business decision makers focus on next year‚s automation projects and blame the regulators for making life harder. The return-on-investment credo is flawed, because it is used to justify short-term returns against a few selected projects, not overall long-term growth.

Amex Bank of Canada and TD Bank Financial Group announced an alliance in which TD will transfer commercial and corporate clients to the American Express credit card from Visa. Financial details of the deal weren't disclosed, but a spokesman for Amex indicated the arrangement is worth hundreds of millions of dollars. The move will involve about 300 corporate TD clients.

Michael Kanellos interviews National Semiconductor CEO Brian Halla.

What other projects is National working on? We have this vision that your smart card will have biometric information. It will have your bank account and your passport and your medical data--but only your thumbprint can activate it. So you shove it into a slot and it says, 'Yeah, this guy's passport is real. Or 'yeah, this guy's got the bank account to back this up.' Or maybe you just load it up with $50,000 and burn it off over time. But if you ever lose it, (the card) doesn't have your thumbprint so it's useless. We're working with a particular technology where you don't leave your thumbprint; you rub it. We've been working on that for around six months.

Lynn Cowan reports on successful strategies to turn call centers into profit centers through cross-sell of products.

Turning customer service centers into effective sales offices requires the kind of detailed personal data that credit card companies excel at -- past payment histories, spending habits and information about a customer's favorite stores. "Offers are individualized by looking at information like how customers are using their cards, their demographics and recent things we have offered them," said Steve Kietz, senior vice president of marketing in J.P. Morgan Chase Bank's credit-card business, which issues cards through its Chase Manhattan Bank USA subsidiary.

Drew Cullen reports on Paybox's withdrawal from its m-payment service.

In a statement on its Web site, Paybox says it can see "no possibility for a single mPayment provider to develop the industry alone in the current industry conditions, especially amidst the discord between the other important market players (banks and telecommunications companies). The necessary growth and profitability can only be reached with many active market players, which have so far failed to appear."

Brandon Mitchener reports on plans by European data-protection commissioners to seek changes by Microsoft in its Passport online authentication system.

Microsoft has insisted that Passport already complies with European data-protection rules. But European privacy authorities last year said the system raised "legal issues," including the "value and quality of the consent given" by users and the "security risks associated" with the transfer of their data to Passport's partners. By law, anyone wishing to store personal data related to residents of the European Union has to ask permission and give people the right to change or delete the data at any time. Anyone storing the data is also forbidden from sharing that data with third parties without asking the consent of the data subject.

Matthew Karnitschnig reports on how too many divergent interests may be slowing the progress of mobile e-commerce.

M-commerce is generally divided into two categories -- micropayments, or those under $10, and macropayments, more-expensive purchases that are usually made by credit card or check. There's a general consensus that telecom operators are best placed to handle micropayments by charging for the services on monthly statements. Wireless operators already do this for things like special ringer tones and logos -- symbols such as hearts or cartoon characters that one can download and send to friends. Indeed, this area alone is now worth about $1.7 billion world-wide. Operators have turned the market into a lucrative niche by charging surchages of as much as 30% for the services. But the real battle centers on control of higher-margin, macropurchases. After some resistance, mobile operators have come to accept that they lack the risk-management expertise financial institutions have in dealing with consumer credit on a large scale. There are also a host of regulatory issues that would prevent wireless firms from running payment services in many countries. Still, mobile operators are reluctant to cede the territory to credit-card companies and banks without getting a piece of the action themselves. The problem is, the low fees charged by the current array of payment options leave little room for any new payment system to recover its costs. Credit-card commissions, which generally are about 3%, already leave the likes of Visa and MasterCard with razor-thin margins. And bank commissions on debit-card transactions tend to be even lower.

Ellen Kelleher reports on Verified by Visa.

The world's biggest card network has put millions of dollars towards a campaign to convince its issuers and retailers to adopt Verified by Visa - a system that requires consumers to sign up for passwords that confirm their identities with issuing banks. So far, most banks and about 6,000 retailers have agreed to take part. "The official word is that they want to reduce fraud," says Avivah Litan of the Gartner Group. "But they firmly believe that credit card usage and purchasing will go up if there is less fraud." International losses from online fraud, which reached $1.64bn over the past 12 months, almost doubled in the past two years, Gartner Group research indicates. Last year, e-sales totalled about $91bn.

Reuters reports that Bank of America's ATM network was affected Saturday by a malicious Internet worm that affected Internet traffic worldwide.

Bank of America spokeswoman Lisa Gagnon said by phone from the company's headquarters in Charlotte, North Carolina, that many, if not a majority of the No. 3 U.S. bank's ATMs were back online and that their automated banking network would recover by late Saturday.

Alex Berenson reports that "at least 1,000 banks are encouraging customers with low balances to overdraw their checking accounts, allowing the banks to skirt credit laws and collect billions of dollars in new fees."

The BBC reports on a Nielsen survey that says about 60 percent of the UK online users shopped online this Christmas season.

The survey shows that buying online is now a part of everyday life for millions of people, a spokesman said. It also suggests the UK has the most web literate shoppers in Europe, with nearest rival Germany registering just over 10 million visits over the same period. Global bookselling giant Amazon topped the Nielsen chart, with Argos claiming the title of the most visited UK High Street retailer on the web for the second year running. The top ten includes the highest number of UK High Street retailers since the survey began, a Nielsen spokesman said.

Michael Horan reports on consumer credit card fee increases in Australia.

Research by leading financial monitors infochoice.com.au for The Sunday Telegraph shows five banks, including three of the "big four", increased fees by up to 50per cent since July. It also reveals the four major banks cut credit card interest rates by as little as 0.75 per cent despite an official rate cut of two per cent. The new fees could add hundreds of dollars to the cost of simply having a credit card. Commonwealth Bank customers will now have to pay an annual fee of $59 -- up from $45 -- to use a "Classic" Visa, MasterCard or Bankcard. Gold card users will have to pay $114 -- up from $82 -- for the privilege of extra benefits including a rewards program and a higher limit.

The Interactive Financial eXchange (IFX) Forum released for public review today the latest version of the IFX specification, Version 1.4, which incorporates new features to support ATM, POS and other financial channels.

This new version builds on IFX's multi-channel capabilities, such as enabling customers to deposit, withdraw and transfer funds, and allows financial institutions to exchange essential information with their customers, their service providers, and other financial institutions. "IFX is a well-designed specification developed by both the financial industry and its technology providers - a productive collaboration that produced an extensible and interoperable standard for all the industry to use," said IFX Forum Chairman Mark Tiggas of Wells Fargo Services Co.

Bradley Meacham reports on Washington Mutual's plans to open nearly 10 percent more branches nationwide this year.

The Seattle lender plans to open 250 branches, mostly in new markets such as Chicago and Denver, Chief Executive Kerry Killinger said yesterday at a University of Washington Business School Dean's Breakfast.

The New York Times highlights the contributions of George Waters to the success of American Express.

American Express hired Mr. Waters as general manager of its credit card division in 1961. At the time, credit cards were accepted primarily by restaurants, and Visa and MasterCard did not yet exist. Diners Club was the card that had the most members. Mr. Waters gave the American Express card a significant lift by persuading American Airlines to drop its credit card and begin accepting the American Express card. Other airlines soon followed. To strengthen the credit card division, Mr. Waters significantly increased its annual fee, reduced the number of delinquent accounts and improved its accounting system. Under his leadership in the 1960's and 1970's, the American Express card became a global brand and the flagship product of the American Express Company.

Diebold is testing biometric hand geometry recognition as part of its campus card system.

"WVU has partnered successfully with Diebold since 1995 with the use of the Mountaineer Card system, which allows our students to do a variety of things from purchasing meals at campus restaurants and items at the bookstore, to riding the Personal Rapid Transit System (PRT) and gaining entry to athletic contests," Hardesty said. "This innovative electronic security system for the residence hall and campus recreation center is just another example of how this company is changing the way we do things to make life more secure, convenient and accessible for our students."

Wells Fargo has announced that it is extending its support for online statement delivery to include eligible savings, checking, Portfolio Management Account (consumer or business) and brokerage accounts. The bank also described its "OneLook" account aggregation service as a differentiator.

"Wells Fargo's OneLook service helps customers manage financial resources across Internet sites," continued Modjtabai. "Instead of visiting multiple sites with separate sign-on procedures, customers can save time and view a consolidated financial picture of all their accounts -- even those outside of Wells Fargo. Customers now have one-stop service integrated through a single sign-on to all of Wells Fargo's banking; bill pay; mortgage; student and personal loans; home equity loans; auto loans; full-service and discount brokerage; credit card accounts as well as access to customers' personal e-mail and reward accounts." Forbes praised Wells Fargo's single sign-on service, saying that it, "allows access to all of your accounts everywhere." Leading technology analysts have said Wells Fargo's single sign-on service is the largest in terms of number of services available through a single sign-on. By integrating OneLook with its leading single sign-on service Wells Fargo is providing customers with a more seamless experience.

Charles Marc Abbey of First Annapolis reports on the economic implications for merchant bankcard acquirers supporting national merchants.

For the early 1990s, First Annapolis estimates that national merchant net spread (gross revenue less interchange and assessments divided by sales volume) averaged about 30 basis points (0.3%), which dropped to 17 basis points by mid-decade and then dropped again to 13 basis points by early this decade. (There is no good industry data, but our educated guess is that the price competition in the national market˜the decline in net spreads˜is twice the rate of the rest of the industry.) This 13-basis-point net spread compares to an average for the rest of the industry in the 55- to 65-basis-point range. So though national merchants generate over half the volume in the industry, they account for less than 20% of revenue.

The FDIC has released a paper on Basel II.

This paper, the first in an FDIC series exploring Basel II, traces the broad history of post World War II views of bank capital adequacy, and places the new accord against that historical context. Our purpose in placing the accord in historical context is to give an appreciation of how and why the current regulatory capital regime came into being, and an understanding of the changes in bank risk profiles and banking market structure that are providing the momentum for Basel II. This review also demonstrates the significant ways the proposed capital framework represents a philosophical departure from past practice.

VeriSign announced this morning their analysis of online sales during the holiday season.

The post-holiday season analysis revealed that VeriSign merchants' total online payments transactions increased more than 75% in 2002. Overall for 2002, consumers spent nearly $13.7 billion on the Internet, according to Nielsen//NetRatings. High-volume VeriSign merchants also saw substantial increases in transactions processed. The average dollar amount per transaction for the top 50 VeriSign online merchants nearly tripled in 2002 increasing from $43.91 in December 2001 to $123.85 in December 2002.

First Data Corp. has announced a suite of comprehensive merchant payment solutions.

First Data currently offers, directly and through its partners, multi-lane and specialty retailers, convenience stores, grocery stores and hypermarkets a breadth of services including debit, loyalty card, gift card, e-check conversion, electronic benefits transfers (EBT), fleet card, smart card and credit card processing services. First Data processes virtually any payment while leveraging the existing synergies between its services and subsidiaries, such as PayPoint, ValueLink and TeleCheck. These relationships enable First Data to launch the only comprehensive suite of point-of-sale (POS) solutions tailored to meet the specific payment requirements of retail merchants.

Declan McCullagh writes about his concerns with privacy involving RFID tags.

Don't get me wrong. RFID tags are, on the whole, a useful development and a compelling technology. They permit retailers to slim inventory levels and reduce theft, which one industry group estimates at $50 billion a year. With RFID tags providing economic efficiencies for businesses, consumers likely will end up with more choices and lower prices. Besides, wouldn't it be handy to grab a few items from store shelves and simply walk out, with the purchase automatically debited from your (hopefully secure) RFID'd credit card? The privacy threat comes when RFID tags remain active once you leave a store. That's the scenario that should raise alarms--and currently the RFID industry seems to be giving mixed signals about whether the tags will be disabled or left enabled by default.

Supermarket retailer Giant Eagle, Inc. and BillingZone, LP today announced that Giant Eagle is utilizing BillingZone's apConnect˙ service to receive, review and pay its invoices. BillingZone, an operating company of eONE Global, is a leading provider of business-to-business (B2B) electronic invoice presentment and payment (EIPP) services and offers companies the convenience of receiving and paying their invoices through one convenient service.

Dell announced this morning that it is entering the retail point-of-sale systems market.

We're following our retail customers' requests to bring their stores the same high performance and low cost of ownership we've already brought to their corporate office and datacenters," ssaid Joe Marengi, senior vice president, Dell Americas. "Dell's POS offering is an illustration of how Dell's direct model, which provides customers with customized products and services, works well in retail, a market that requires a seamless integration of technology, software and services across multiple locations."

Visa Canada held a conference in Toronto this morning for top online retailers. In a press release, Visa Canada reported online sales using Visa during the 2002 holiday season increased 103 percent. Also announced were survey results indicating that consumers are still concerned about security when purchasing over the Internet -- and would welcome the increased security of a password registered with their bank tied to their account.

Retailers who want to fully take advantage of the growth of online sales and fuel future growth need to adopt new Internet technology that will increase consumer confidence and reduce fraud," Internet authority Jim Carroll told the conference. "Systems like Verified by Visa(C) will make merchants more competitive and help them unlock the 85 percent of Canadian credit card holders who are avoiding holiday Internet shopping, many because of security concerns." "While holiday online sales showed a solid increase," Carroll said, "we cannot take for granted year-to-year growth without a breakthrough in online security; Verified by Visa(C) is that breakthrough and 2003 is the year."

Simon Property Group announced this morning that sales of its new gift cards in 47 trial malls were up 30 per cent over gift certificate sales in 2001 during the month of December.

Simon partnered with Visa to pioneer the Simon Gift Card as part of its commitment to provide shoppers with new innovative products and offerings that further enhance the shopping experience. The new gift cards provide customers with the convenience of a payment card that utilizes the Visa processing network and is used with the ease of a check card. Shoppers can use the Simon Gift Card, a prepaid card, anywhere Visa is accepted, like the many stores and restaurants within Simon malls nationwide.

WorldTel Chief Sam Pitroda today said he will soon help enable Indians to use their mobile sim-cards as credit cards. In an informal chat with Minister of State for communication and IT, Sumitra Mahajan, the WorldTel chief said the various MTNL and BSNL outlets can be used as hubs for the total financial activities.

Kevin Collison reports on MasterCard's move of its backup processing center from New York to Kansas City.

Artie Ahrens, senior vice president of computer and network services for MasterCard, said the facility will serve as a backup for the company's main processing center in St. Louis. "What we've always been concerned about was the distance from St. Louis to the Long Island backup site," Ahrens said. "The Sept. 11 event showed us if we had to get there, it would have been difficult." MasterCard officials decided they wanted to build a new backup center within a four- to six-hour drive of St. Louis.

Albert Crenshaw reports on tighter standards issued by Federal banking regulators on Wednesday including new guidelines on minimum payments.

"We saw slippage in banking practice," and the new standards are meant to "kind of pull it back into more the middle of the road," said Barbara Grunkemeyer, acting deputy comptroller of the currency for credit risk.

Philip Klein reports on the class action antitrust lawsuit brought by Wal-Mart and other retailers.

A New York judge on Friday will hear summary judgment arguments in a class-action antitrust suit brought by Wal-Mart Stores Inc. and 4 million other retailers. The suit argues that the credit card companies leveraged their market power to promote their own systems in the growing debit card market, charging higher fees that were passed on to consumers.

Due to problems in its iBill merchant processing division, InterCept announced that its 2002 earnings per share will come in below earlier expectations and also withdrew previously issued guidance for 2003.

Reduced revenues in our merchant area resulted primarily from the iBill operations, which experienced a large loss of merchant customers following the implementation of a new credit card association rule in mid- November. A number of iBill's web merchants declined to pay a registration fee mandated by the new rule, resulting not only in reduced revenues from our portion of the registration fee but also lost transaction processing fees from the departed merchants. Moreover, iBill incurred costs to transfer its transaction processing from our subsidiary, EPX, to a third party processor.

Concord EFS announced today that it had signed a non-binding letter of intent to acquire the Credit Union 24 Network.

"The Credit Union 24(R) Network is a strong franchise that has grown by focusing on meeting the unique needs of credit unions," said Edward A. Labry III, Concord president and CEO-elect. "We believe that the combination of Concord's processing engine and STAR's national connectivity with the Credit Union 24(R) Network's strong brand and segment expertise will create a powerful platform for a dedicated credit union network."

CNET reports that Gilette, Procter & Gamble, Wal-Mart and Tesco are planning to install "smart shelves" that enable inventory management by reading RFID tags of items on the shelves.

While the technology has appeared in other applications, such as cattle tracking, the tests appear to be the first by major retailers on such a large scale. If they prove successful at cutting costs, the trials could spur further adoption of the fledging technology, which has raised privacy concerns. Wal-Mart plans to carefully examine the technology's potential to help it become more efficient while keeping shelves well-stocked.

Neil Buckley reports on Wal-Mart's plans to provide financial services.

"I think financial services is an opportunity," Lee Scott, Wal-Mart's chief executive, said. "I'd like to do it more along the Wal-Mart way than other people's. "Rather than pricing off the market and [saying] if the market's at a 70 per cent margin, we could be at 50 per cent and make a lot of money and still be cheaper, I'd rather say, what is a fair return on doing that?"

Bob Tedeschi reports in this morning's New York Times that "the Internet continues to be more of a gift-buying medium than an everyday shopping vehicle." Among other things, the selection of goods available is so much better.

While the idea that the Internet offers greater selection than offline stores seems self-evident by now, Erik Brynjolfsson, a professor of management at the Sloan School of Management at the Massachusetts Institute of Technology, has been able to quantify the phenomenon. For example, Professor Brynjolfsson said the number of book titles available at Amazon.com was more than 23 times greater than the number at a typical Barnes & Noble superstore, and 57 times greater than the number of books available at a typical independent bookstore.

Marsha Stopa reports on the debit vs. credit card at POS debate.

"The whole thing is very disturbing because Visa and MasterCard are owned by banks," said Scott Horsburgh, chief investment officer with investment manager Seger-Elvekrog Inc. in Bloomfield Hills. Horsburgh's stock research specialty for many years has been the electronic payments industry. "Consumers would settle this in a second if they knew all the facts. The consumer is the one who pays or gives up rights," Horsburgh said. "Let people make their own decision. This is a consumer issue and the consumer doesn't know that."

The topic of micropayments springs up again on Slashdot. Separately, Reuters reports on survey conducted by Jupiter Research that said Internet users' reluctance to pay for online content, ranging from music downloads to news articles, dropped from 47% in 2001 to 41% last year. Not exactly what I'd call an upsurge in interest!

Cleveland-based Charter One Bank has one of the most comprehensive alert services that I've seen. Check it out using the link in the right sidebar on this page.

According to the eSpending Report from Goldman Sachs, Harris Interactive, and Nielsen/NetRatings, online spending during the eight week period from November 2 to December 27 jumped more than 24 percent year-over-year to $13.7 billion, up from $11 billion spent in 2001. Including travel, online spending grew nearly 22 percent to $15.7 billion.

The top two fastest growing categories for the season were toys and video games and consumer electronics, with shoppers increasing spending for both categories by more than 72 percent. With nearly $2 billion in sales, consumer electronics claimed the No. 4 ranking among shopping categories, while toys and games posted online spending of more than $1.8 billion.

Comperemedia reports that direct mail card solicitation pieces increased about 10 per cent in 2002 over 2001, about 300 million more pieces over the year.

Balance transfers are part of the package in approximately 60% of all acquisition offers. In 2002, there was a growing trend to offer the balance transfer rate for 12 or more months. Toward the end of 2002, over 70% of the balance transfer offers were for 12 or more months, compared to 30 - 40% in the beginning of the year. This could be a growing trend in 2003, and issuers may begin placing more conditions on their offers. For example, in November, Discover offered a 0% APR for life on transferred balances, but only if the cardholder makes at least two purchases or cash transactions each billing period. If the required transactions are not made, then the APR reverts to the regular interest rate of 12.99%.

In the beginning of 2002, late fees were predominantly between $11 and $20. Now the majority are between $31 and $40.

Korn/Ferry lists an opportunity based in Foster City, CA for CTO/Chief Architect of Inovant, Visa's technology solutions provider.

Paul Bird and John Fritze report that "the Indiana General Assembly is poised to strengthen the laws that protect consumers against fraud." Separately, Robert Hanley reports in the New York Times on an identity theft case involving a former manager of an H&R Block office in White Plains, New York.

Concord EFS announced today that Ronald V. Congemi has resigned from the board. Two new board members were announced: Dr. Shirley C. Raines, president of the University of Memphis and Arthur N. Seessel III Raines, a management consultant to the supermarket industry.

The Conference Board reported today an increase in trust by consumers when conducting financial transactions online.

Trust levels among Internet users for online transactions have improved from a year ago (fourth quarter 2001). Now, more than 33 percent express trust that their online financial transactions are safe, up from 27.5 percent a year ago. Consumers also expressed a greater degree of trust when purchasing products online. One-fourth trust that their personal information will be safe when purchasing products online, up from 21.9 percent a year ago.

• Only 33.6 percent of U.S. consumers have never been online, down from 34.7 percent.
• Currently, 37.4 percent of users go online daily, up from 33.7 percent a year ago.
• Of those who go online daily, 60.5 percent have made an online purchase in the last three months, down from 62.3 percent a year ago.

CyberStarts, backed by major financial services companies such as First Data, Wachovia, Fortis, Marsh Capital and NCO Group Inc., has announced the sale of Sunaro Inc., a provider of employee benefits software and services, to London insurance broker Willis Group Holdings.

A report on a survey of 2,000 Scottish consumers regarding their interest in store cards and reward schemes.

Visa responds to yesterday's press coverage reporting that Qantas and Caltex intended to adopt surcharges on credit card use in Australia.

Visa vice president Asia Pacific Gordon Wheaton said the credit card operator had always argued that rather than pass on price reduction, merchants who applied the surcharge would use it to increase their revenue. "On just the second day of these regulations being in place, we see a major oil company openly admitting that they would use the RBA's changes to their advantage and not the consumers," Mr Wheaton said. "Major retailers and oil companies have been at the forefront of arguing for these changes for the past two years. It is time they clearly stated if they intend to surcharge, at what level and what price reductions they are going to deliver to their customers."

The Service Station Association said it was keen to see retailers recover some of the costs imposed on them by the banks, and was aware of some operators considering a surcharge. But the association's president, Richard Halstead, said "no one wants to be the first to introduce it".

Jennifer Sexton reports on Qantas plans to impose credit card surcharges in Australia. A gasoline retailer, Caltex, is making similar plans.

Qantas is understood to be planning to charge customers a flat fee but it is unclear whether the airline has settled on an amount and whether Qantas-branded cards will be exempt. Qantas dominates the air travel market and its business is heavily geared towards credit card payment.