The number of smart credit cards in the USA has tripled during 2001, from
slightly less than 5 million to nearly 15 million cards. This year will be
another year of accelerated growth as retailers, MasterCard, and smaller
institutions beef up their magnetic credit cards with imbedded computer chips.
The retailer Target signed up more two million of its store credit cardholders
for its smart VISA card at year-end. Target surpassed the one million mark in
total cardholders for the new smart card within the first six weeks of last
September's launch. As of November 3rd Target had signed up more than
1.4 million smart VISA cardholders with credit limits ranging from $2,500 to
$10,000. Target has been soliciting the upper tier of its Guest Card store
card program for the new smart VISA. Target said smart card applications will
initially be limited to downloading coupons across its platforms, such as
downloading special offers from the Company’s Web site for use in-store and
vice versa. Target intends to expand the loyalty applications
of the card and may consider partnerships with outside companies.
The nation's largest issuer, Citibank, and the nation's fastest growing
network, MasterCard, entered the smart card market during the fall. The Citi
Smart Card and citi.you card is taking aim at different parts of the credit
spectrum. The Citi Smart Card is available to the general public with instant
online approval, a 9-month 0% APR for balance transfers, free smart card
reader and a free electronic wallet. Initial functionality is limited to storing Web
sites, user names and passwords plus automatic completion of online shopping
forms via the electronic wallet feature. Citibank plans to expand the
functionality of the chip to enable cardholders to consolidate information
from other accounts onto the new card to give customers easy access to several
credit cards at one time. Citi also plans to enable cardholders to download
loyalty programs, special discount offers, and coupons from their favorite
merchants and to store e-tickets for express check-in at select airports, or
VIP entry to concerts, sporting events, and theatre performances. During
November, Citi also launched a pilot of customized smart card called the
citi.you card by invitation only offering a rewards program and annual fees as
high as $85.
In December, CUNA Network Services signed a deal to market, distribute and
support SchlumbergerSema payment, IT and security related smart card-based
solutions to more than 10,000 credit unions across the USA. As a result,
credit union members will be able to use secure authentication to access financial
portals to manage accounts for electronic payment, home banking and other
registered financial services. Consumers who are members of participating
credit unions can also use SchlumbergerSema smart cards as secure devices for
storing and managing personal data, including favorite URLs, passwords,
addresses and accounts. CUNA will also utilize newly released SchlumbergerSema
e-gate technology which enables a smart card to plug directly into the
standard USB port on a PC, eliminating the need for a card reader, separate power
supply and driver software. With e-gate technology, SchlumberSema says credit unions
issuing MasterCard and VISA payment cards will have a clear migration path to
future smart card and secure payment technology platforms.
Datacard Group also announced eight new, and specially priced packages that
provide VISA member banks with the software, hardware and services to migrate
to smart cards. The solutions enable issuers to create, test, personalize and
load smart card applets on VISA smart cards as well as dynamically manage
cards and applications with scalability. Among the solutions is a system for a pilot
or low-volume smart card issuance and a system for high-speed smart card
issuance.
Last summer, VISA International announced a deal to provide issuers with smart
cards that cost less than one U.S. dollar. The new $1 smart cards,
developed in partnership with IBM, will be the first in a family of low cost products from
STMicroelectronics. The new sub-one dollar smart card will be manufactured by
Orga, although other manufacturers are currently negotiating with VISA to join
the program. In 2000, VISA introduced a multi-application Open Platform card
costing less than three U.S. dollars and later announced two new Open Platform
card products, one with enhanced data authentication capability for less than
four U.S. dollars and one with a contact/contactless dual interface capability
for less than five U.S. dollars. Five card vendors offer multi-application
smart cards under three dollars, including Giesecke & Devrient, Orga, Dai
Nippon, Oberthur, and Schlumberger.
The list of technology providers offering cost-effective assistance to banks
for issuing smart cards in the USA is endless.
Meanwhile some of the top issuers of sub-prime credit cards, or cards
issued to consumers with no credit or blemished credit, have temporarily, at least,
halted their marketing of such cards. Providian, CompuCredit, and NextCard
have all pulled back in the wake of rising losses related to recessionary economy.
Providian announced in late October it was withdrawing from the sub-prime
market following the release of a very weak third quarter earnings report.
NextCard, said on Oct 30th it was ending its secured card program after
regulators imposed new limitations on NextBank’s activities. NextCard, the
pioneer of the Internet-centric credit card, has largely shutdown all its
marketing activities since. CompuCredit, which has been actively purging
inactive account to improve its risk profile, has pulled the plug on online
applications for its sub-prime Aspire VISA card until sometime this year.
Capital One has seized the opportunity with a major campaign for its sub-prime
credit cards.
SECURITY/PRIVACY 2002
In the wake of the September 11th assault on the USA, it appears that
consumers are willing to give up some privacy for the sake of increased security. They
want security when they travel and when they use a credit card online.
Nevertheless 35% of consumers say they are more concerned about their
financial privacy than they were a year ago. The other 65%, however, report
either the same level or a lower level of concern. And 61% of respondents to
the survey, recently released by Star Systems and conducted by SWR Worldwide,
are satisfied with the way their primary financial institution has informed
them of its privacy policies. Interestingly, respondents to the STAR survey
believe the privacy of their financial information varies with the type of
electronic payment method they use. They rated credit-card transactions the
least private and PIN-secured ATM/debit-card transactions the most private.
They said signature-authorized ATM/debit-card transactions fall between the
other two categories. Asked which entities can access information collected
electronically at the time of purchase, “government agencies” (76%) ranked
ahead of “the store where the purchase was made” (73%), “marketing companies”
(65%), and “the company that makes the product that was purchased” (48%). Only
“the financial institution that issued the card” (85%) and “the companies
involved with processing the electronic transaction” (80%) were perceived to
have greater access than government agencies.
SAVINGS/DEBT 2002
A home page poll by CardWeb.com reveals that consumers have made resolutions
for 2002 to use credit cards less, pay down credit card debt and develop
better savings habits. More than 60% say they plan to charge less to credit cards
during 2002 than last year. However only 31% say they will use their debit
cards less this year than 2001. An amazing 94% indicate they will pay down
credit card debt during 2002. More than 80% plan to save more in 2002 than
last year. Surprisingly only 14% plan to consolidate credit card debt to a
home equity loan or home mortgage in 2002. When it comes to travel
56% say they will travel the same or less than last year.
LATES/LOSSES 2002
More confirmation that credit card delinquency is headed higher, came from the
American Bankers Association’s 3Q/01 Consumer Credit Delinquency
Bulletin. Based on total dollars outstanding, third quarter credit card
delinquencies were 4.45%, about 8% higher than the second quarter and more
than 13% above the year ago level. Based on the number of credit card
accounts, the ABA found that 3.77% were overdue during the third quarter, a slight
decline from the previous quarter, but remaining at the highest level
tabulated since 1980.
Further confirmation of a sharp rise in chargeoffs or losses since 9/11 comes
from Wall Street analysts. According to the latest performance figures of
credit card-backed securities, the monthly charge-off rate rose 30 bps, to
6.8% in October from 6.5% in September. According to data collected by CardData and
RAM Research’s Bankcard Barometer, chargeoff rates industry wide for November
hit 6.42%, the highest level in nearly 11 years. Some analysts are predicting
loss rates of 8.0% this year.