INNOVATION 2003
From the December 2003 Issue of CardTrak
       The idea of merging a bank name and a retail brand together to issue a co-branded credit card has grown a bit of a beard. It has been more than decade since General Motors rocked the credit card world with the launch of its Household Bank-issued MasterCard. Since then, thousands of co-branded credit card deals have come and gone. This year, however, one of the nation's top financial institutions has put new life into the co-branding strategy. During 2003, Bank One has done deals with some of the biggest brand names in America, including Disney, Starbucks and and Avon. While the Bank One/Disney co-branded card offered the usual run-of-the-mill rewards program based on card usage, the Starbucks and Avon cards were truly innovative products.

Recently, the "Starbucks Card Duetto VISA" was recognized by Business Week magazine as one of the "Best Products of 2003." The "Duetto Card," which was launched in September, offers the dual-functionality of a VISA credit card combined with the re-loadable "Starbucks Card." Cardholders earn one percent back in "Duetto Dollars" that are automatically loaded onto their "Starbucks Card" account after each billing cycle. "Duetto Dollars" can be used to purchase anything at Starbucks locations including beverages, food and store merchandise. Additionally, cardholders receive special Starbucks gifts and benefits with "Starbucks Card" account purchases throughout the year and Starbucks will contribute $5 to the Starbucks Foundation after each cardholder's first "Duetto Card VISA" purchase.

The new "Avon Platinum VISA" offers a new twist by rewarding both cardholders as well as Avon representatives. The new card offers cardholders a full one percent back on card purchases and offers Avon representatives the opportunity to earn $25 for each approved account they generate after a new cardholder makes a purchase. After their first VISA purchase, cardholders also receive Avon's "Anew RetroActive," one of Avon's most popular skincare products, worth $25. Every time cardholders accumulate 2,500 points, they will receive a $25 "AVON BEAUTY Rewards" certificate on their billing statement that can be redeemed for Avon products.

If Bank One deserves first place in the co-branding category, then Juniper Bank deserves second place. This year, Juniper has launched several co-branded cards with significant brand names. This month Juniper launched the "Caesars Entertainment MasterCard and the "Tesoro Platinum MasterCard."

The new "Caesars Entertainment MasterCard" offers cardholders a one percent "comp dollar" credit for all purchase transactions, plus 10 bonus "comp dollars" the first time they use the card. The "comp dollars" earned with the new card can be used to pay for hotel rooms, dining, show tickets, spa services, golf tee times and other amenities at 15 domestic casino resorts including Bally's, Caesars, Flamingo, Grand Casinos and Paris resort casinos in the USA.

The new "Tesoro Platinum MasterCard" rewards cardholders with a Tesoro gift card each time they accumulate $20 in rebates. Under the program, cardholders earn a 3% rebate on purchases at Tesoro-branded locations, and a 1% rebate on all other purchases. During the first two months after an account is opened, cardholders will earn double rebates for every purchase.

In August, Juniper inked a co-branded credit card deal with Best Western. In May, Juniper Bank launched the co-branded "Frontier Airlines MasterCard." Juniper also issues the "AirTran A-Plus Platinum VISA" and the "Midwest Express Airlines MasterCard."

To confirm its innovation, Juniper Bank, and its advertising agency, Rapp Collins, have been awarded an "International Silver ECHO Award" for the "Pinch Yourself" direct mail credit card solicitation program. The honor recognizes the creativity and effectiveness of the companies' direct marketing campaign targeting prospective credit card users.

CARDLESS PAYMENTS
Wallets may soon be a thing of the past as new payment technologies come online. MasterCard's new "PayPass" contactless consumer payment system is now spreading nationwide. Another firm, called Pay By Touch, is gearing up to launch next year, while a Florida-based firm has come up with the concept of imbedding a payment chip under the skin. CardWeb.com has also learned that a firm based in Burlingame, California is researching the concept of paying via brain waves, creating neural payments. Other concepts have also been beta tested such as paying with the sound of your voice or the scan of your eye.

Pay By Touch recently announced completion of a $10 million financing round. The company is gearing-up to bring to market a new patented payment system that allows consumers to pay at the checkout counter without having to present credit cards, debit cards, loyalty cards, paper checks or cash.

Applied Digital Solutions has introduced "VeriPay," a subdermal RFID solution providing cutting-edge payment technology for cash and credit transactions. "VeriPay" is based on the Company's "VeriChip" which is about the size of a grain of rice. ADS says that embedding the payment technology under the skin offers a much more secure, tamper-proof, and loss-proof solution. The standard location of the microchip is in the triceps area between the elbow and the shoulder of the right arm. The brief outpatient "chipping" procedure lasts just a few minutes and involves only local anesthetic followed by quick, painless insertion of the "VeriChip." Once inserted just under the skin, the "VeriChip" is inconspicuous to the naked eye. A small amount of radio frequency energy passes from the scanner energizing the dormant "VeriChip," which then emits a radio frequency signal transmitting the verification number.

MasterCard last month declared its new contactless consumer payment system a success, following trials in Orlando and Dallas. The network says it will now expand its "MasterCard PayPass" program to additional locations. More than 16,000 cardholders and more than 60 retail locations participated in the nine month Orlando trial of "PayPass." MasterCard says its biggest success was in the fast food environment where "PayPass" shaved between 12-18 seconds off the purchase time as compared to cash. Earlier this year, MasterCard began working with Nokia to incorporate "PayPass" into mobile phones for a trial in Dallas. MasterCard says the Dallas trial showed that the average "PayPass" payment made using a mobile phone was six seconds faster than using a card. MasterCard also released a survey that showed nearly 40% of U.S. adults carry less cash with them compared with 5 years ago. Findings also showed that 49% of consumers carry $20 or less in their wallet and 86% of consumers reported that they want to use cash less often than they currently do. MasterCard says the results are in line with 2002 studies which showed that 53% of consumers would use "PayPass" to replace cash payments if their banks offered it to them.

GIFT CARDS
The gift card market is hotter than many experts projected. So far this year, Americans are snapping up gift cards at twice the rate of 2002. According to a new research study, 45% of the adult population purchased a gift card in the previous 12 months versus just 23% in a similar survey conducted in August 2002. The study, commissioned by First Data's ValueLink unit, also found that 59% of consumers reported purchasing and/or receiving a gift card in the past year, a 22% increase over 2002 findings. Only 8% of consumers reported that they purchased a card for their own use during the previous year versus 12% in 2002. Other interesting findings: 68% of women give gift cards as a primary gift versus 57% of men; purchasers and receivers rate their overall satisfaction with gift cards as 9 on a scale of 1-10, with 10 being "extremely satisfied"; 79% of consumers purchased gift cards in person at a store location; compared to the average $197 spent on gift cards in the previous year, middle age purchasers, age 45-54, average $235 per year; and purchasers in the age range of 55-64 average $241 per year. ValueLink also found 54% of consumers spend the initial value of their gift card within one month; 61% of consumers spend the initial value of their gift card in their first visit; and 56% of consumers spend more than the initial value of their card.

Another survey confirmed the surge in prepaid cards, revealing that 32% of Americans have used a prepaid card to make a purchase or transaction, which compared to other payment methods, including cash, is not far off from the 45% who report using debit cards. The sixth annual Coinstar survey also shows that 36% of consumers buy prepaid cards to avoid credit card interest charges and that 35% say it helps then avoid accumulating credit card debt. More than one-third said it helps control spending, while 14% said they do not have a credit card. About one-third say prepaid cards are good to give as gifts; and 29% say they are especially good to give to kids. When asked what methods they would consider using to refill or replenish their prepaid cards' spending value, self-service kiosks, by check and by phone were each cited by about 20% of the respondents, followed by online (14%) and credit card (12%). Despite the increasing number of payment methods available to consumers, the Coinstar survey showed that 21% of Americans do not see a future without cash, and 45% believe society going cashless is at least 10 to 20 or more years away. Even prepaid card users (51%) report they carry as much cash in their wallet today, as they did one year ago.
MARKET POWER
The nation's top three issuers now control more than 41% of the bank credit card market, based on second quarter outstandings. Based on charge volume, Citigroup, MBNA, and Bank One, now hold a 39.8% share of the market. During the third quarter, Capital One gained market share while Providian gave up some share. (Third quarter industry data is currently being finalized.) As a group, the top ten issuers control more than 80% of the domestic bank credit card market. Based on second quarter charge volume, the top ten hold 81.6% of the U.S. market. With the exception of American Express, all of the top ten issuers have a larger market share based on outstandings than charge volume. For the second quarter the industry's total receivables were $646.2 billion, and charge volume for the quarter was $373.2 billion.
SWIPE IT
American Express has launched a new campaign to pit its charge cards against debit cards. The strategy hits as the industry cuts merchant fees and adds cardholder fees to debit card products. The AmEx "Swipe It" campaign encourages consumers to charge everyday expenses to help stay on budget and to avoid debit card fees and potential interest charges. AmEx also promotes its online access and detailed monthly statements as expense-control tools. The new campaign comes on the heels of an extensive re-pricing in the debit card market. VISA and MasterCard have been forced to reduce off-line debit card interchange by more than 30%. The card associations are also, reportedly, in the midst of negotiating further cuts in debit card fees with individual major merchants. As of January 1st, merchants have the right to stop accepting VISA and MasterCard off-line debit cards. Consumers have also been drawn in the debit card restructuring. Some banks have already begun charging fees for PIN POS debit card transactions. As of December 1st, MD-based Mercantile Bankshares Corporation is charging a 30 cents per PIN POS debit card transaction. NC-based BB&T is charging its customers a $2 per month inactivity fee if they do not make at least one off-line POS debit card transaction each month.
YOUNG FEMALES
A new study has shown that the majority of American females, between the age 18 and 29, using the Internet, have researched credit cards, banking, bill paying, and insurance products, online. The study also revealed that young adult men are more likely to say that online information changes their financial service brand opinions, but young adult women who are online are more likely to actually open new accounts. The "American Interactive Consumer Survey" conducted by Milwaukee-based The Dieringer Research Group found that 57% of all online women age 18-29 have researched financial service or insurance products online, compared to only 41% of young men. If the online women are 25 to 29 years old, nearly two-thirds have researched financial and insurance products online. In the peak activity segment of 25-29 year-olds, the survey found that 82% of all online women now bank online, and 49% report that they pay bills online. Bank accounts, bank savings products and credit cards are the top financial products researched online by women in the 18-29 age group. In each product category, women are more likely than comparably aged men to go online to seek product information.
ON TARGET
Target reported in November that its credit card operations produced 34% of its total pre-tax profit of $481 million for the third quarter ending November 1st. The retailer's "smart VISA" portfolio posted 3Q/03 outstandings of $3.81 billion, a 23% increase over 3Q/02. Meanwhile, Target's private label "Guest Card" credit card posted another drop as it migrates its best customers to the "smart VISA" program. At the end of the third quarter, Target's private label outstandings were $721 million, compared to $733 million for the second quarter, and $779 million one year ago. Target's net charge-off rate for its VISA program was 9.7%, compared to 9.3% in the second quarter, and, compared to 6.9% one year ago. Net write-offs for its store credit card program were flat at 8.0% for the third and second quarter, compared to 7.9% for 3Q/02. The 90-day+ delinquency rate for "smart VISA" was 3.8% for 3Q/03, compared to 3.5% for the second quarter, and, 3.0% for 3Q/02. For its "Guest Card" program the figure was also flat at 5.2% for 3Q/03 and 2Q/03, and down from 5.6% one-year ago. Target's pre-tax profits from its credit card operations were $162 million, compared $160 million for the second quarter, and well above the $138 million recorded one year ago.
CARD SITES
A California research firm has ranked the Web sites of American Express, Fleet, and Discover Card as the top three in providing the best overall online consumer experience. Vividence says Fleet, MBNA and American Express performed the best in terms of potential to acquire new customers through their Web sites. However, Chase, Fleet, and Discover Card did the best job of driving online usage. Vividence says it monitored 2,000 prospective customers as they interacted with credit card Web sites and performed tasks such as applying for credit cards and exploring services offered online. Besides an aggregate of site performance across hundreds of metrics, the Company's indices also ranked the credit card sites in terms of customer satisfaction, customer acquisition, online adoption and brand impact. Vividence also found that 50% of consumers who have two or more credit cards, are eager to use online credit card services to check account balances, receive billing statements and perform self-service tasks. More than 75% of users in the study reported accessing a credit card account online, and almost 50% use one of their credit card's sites at least once a week. Vividence also noted that credit card sites consistently posed more frequent problems than their banking site counterparts. On average, consumers experienced a problem every 2 minutes on credit card sites.
GOLF CARD
The nation's fastest-growing golf instruction and equipment company has teamed up with Ohio-based National City Bank to launch a rewards credit card. The new "Natural Golf VISA Platinum" offers cardholders 2% back on all purchases using the card, which then can be redeemed for Natural Golf products. Cardholders also receive a $50-value application gift. Under the program, cardholders earn a $25 Natural Golf certificate, which is included with their monthly VISA statement, for every $1,250 in VISA purchases. Natural Golf Corporation has more than 125 Certified Instructors teaching the Natural Golf System at schools that vary from half-day in length to four days at nearly 200 locations worldwide.
EUFORA SWEEPSTAKES
The Eufora MasterCard recently awarded its fourth automobile winner in its monthly sweepstakes which awards one lucky cardholder a choice of a $30,000 car. Eufora gave away its first car in August 2003 to a Colorado couple, its second car to a woman from Texas and its third car to a woman from Arizona. Eufora cardholders earn one automatic entry into the sweepstakes for every $100 they spend in a month; the winner is randomly drawn on or around the 15th of each month from all entries received during the previous month. The Eufora MasterCard Card is issued by InfiBank, and the Eufora pre-paid MasterCard Card is issued by BANKFIRST.
BEST WESTERN PROMO
Best Western has launched a holiday promotion for its "Best Western Travel Card," offering 250 miles for every $50 purchased on the card, 250 bonus miles for spending $500 or more, and, a double mile bonus if the purchase is made with a MasterCard card. The card can be personalized and given as a gift to cover hotel charges at more than 4,100 Best Western hotels worldwide and the sender can earn frequent flyer miles for the purchase of the card.