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From the May 2003 Issue of CardTrak |
The eleventh-hour settlement this month between VISA/MasterCard and Wal-Mart/major retailers over debit card pricing appears to be nothing more than a high stakes poker game between two 800 pound gorillas. VISA and MasterCard had the choice of facing astronomical damages and protracted legal fees if they lost, or they could extract themselves from the game with a measly $300 million per year for the next ten years. VISA and MasterCard also had to give up their "Honor All Cards" policy and agree to cut debit card fees by at least a third. MasterCard, who controls less than 25% of the signature or off-line debit card market, is forking over 33% of the total deal. MasterCard unsuccessfully tried to extract itself from the lawsuit, but, interestingly was the first to settle. VISA, armed with the best antitrust lawyers in the USA, and a successful litigation track record, as well as overwhelming market power in the payments card industry, could not best the Wal-Mart beast.
Truth is: VISA and MasterCard are increasingly finding it more difficult to dictate pricing to retailers.
Last year in Australia, and more recently in the United Kingdom, VISA and MasterCard have been forced by the Reserve Bank of Australia to cut fees and change policies. Thanks to the Reserve Bank of Australia, retailers in Australia now have the right to pass on their credit card fees to the customer in the form of a surcharge. VISA and MasterCard are also being forced by the RBA to cut fees charged to Australian merchants by 40%, starting this summer. In the United Kingdom, the Office of Fair Trading want VISA and MasterCard to cut merchant fees by 27% to 36% by 2007.
How has this affected VISA and MasterCard cardholders?
In Australia, credit card fees paid by Australian consumers increased a record 30% last year. According to the Reserve Bank of Australia, credit cards fee grew from $339 million in 2001 to $440 million in 2002. Between 1997 and 2001, credit card fees generated from Australian households only increased 25%. Card fees are expected to surge again this year as merchants add surcharges for credit card transactions. The record increase in 2002 was driven by card issuers jacking up annual fees and other card fees in anticipation of the January 1, 2003 RBA regulation, which permitted merchants to pass along their card fees to consumers. For example, ANZ raised annual fees on all its credit cards by nearly 150% in December 2002. ANZ is currently considering raising annual fees further. ANZ may increase the basic "Qantas VISA" from $40 to $120, and increase annual fees for the "Qantas VISA Gold" from $95 to $285.
Will U.S. consumers face higher fees for debit card purchases in the future?
It's a sure bet.
Will Wal-Mart lower prices after using the courts to negotiate a 33%+ discount for signature debit card transactions?
It's your call.
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| SILVER LINING |
A new study released this month suggests that the losses in debit card revenue due to the elimination of the "Honor All Cards" policy may be more than recouped by savvy debit card issuers that reposition and promote the use of debit cards for recurring bill payments and online transactions. Dove Consulting says only 3% to 5% of the more than $36 billion in recurring bill payments are made with a card-based instrument. Dove also says the re-pricing of signature debit will also provide a more attractive alternative to ACH items for enrolling consumers for Internet Bill Presentment and Payment. Dove estimates that as many as 150,000 consumers enroll with billers each day for IBPP, and they prefer to use their debit cards when registering for electronic payment. Up until now, billers that wanted to accept only debit were also forced to accept credit because of the "Honor All Cards" rule. Dove concludes that in the end, the unbundling of credit and debit will actually increase card issuer and bank revenues just as it did in other industries including computer software and telecommunications.
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| PAYMENT SHIFTING |
A new study has found that consumers prefer PIN to signature debit transactions by a 12% margin and that 19% would be willing to use a payroll card. The research also found that 42% of consumers surveyed stated they changed how they made payments last year, and 33% expect to make changes this year. The survey was conducted by Unisys, Global Concepts and Talson Associates. The study found that most interest is in interbank transfers with a shared customer ("me-to-me transfers") and cross-boarder payments, although RFID and "smart cards" still show some promise. The report noted that banks are loosing Internet payments to PayPal and other players. Based on the data, the researchers project that 15% of retail bill payment check writing will shift to electronic payments over the next 12 months and that electronic POS payments should grow substantially over 12 months with 34% of cash transactions shifting to cards.
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| DELINQUENCY |
Delinquency rates among the top ten U.S. issuers edged up during the first quarter, thanks largely to the Metris/Direct Merchants portfolio. All three of the nation's top issuers report declines of about 20 basis points over the first quarter of 2002. Providian, which has been dogged by soaring delinquencies over the past two years, reported a modest uptick in first quarter delinquency. Fleet and Sears National Bank reported significant increases in first quarter delinquency.
TOP TEN VISA/MASTERCARD ISSUERS -
QUARTERLY DELINQUENCY
DAYS 1Q/03 1Q/02 Y/Y CHG
1. Citigroup: 90+ 1.91% 2.13% -22 bps
2. MBNA: 30+ 4.74% 4.97% -23 bps
3. Bank One: 30+ 4.08% 4.27% -19 bps
4. Chase: 30+ 4.59% 4.58% +1 bps
5. Cap One: 30+ 4.97% 4.80% +17 bps
6. Providian: 30+ 10.31% 10.22% + 9 bps
7. BofA: 30+ 6.09% 6.11% - 2 bps
8. Fleet: 30+ 4.37% 3.97% +40 bps
9. Sears Natl 30+ 7.87% 7.37% +50 bps
10. Dir Merch: 30+ 11.50% 9.80% +170 bps
30+ DAY AVG*: 6.50% 6.23% +22 bps
NR- not reported * 90+ day is not meaningful
* does not include Household which is now part of HSBC
SOURCE: CardData (www.carddata.com)
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| CHARGE-OFFS |
Charge-offs among the top ten U.S. VISA/MasterCard issuers rose 91 basis points during the first quarter compared to one year ago. Charge-offs stood at 8.11% compared to 7.20% one year ago. The increase was driven by the huge increases in losses by sub-prime issuers. All but three issuers reported up-ticks in charge-offs. Citibank, Bank One, and Bank of America reported decreases in first quarter charge-offs.
TOP TEN VISA/MASTERCARD ISSUERS -
QUARTERLY CHARGE-OFFS
1Q/03 1Q/02 ANN CHNG
1. Citigroup: 6.04% 6.41% - 37 bps
2. MBNA: 5.04% 5.00% + 4 bps
3. Bank One: 5.29% 5.69% - 40 bps
4. Chase: 5.75% 5.82% + 19 bps
5. Cap One: 6.21% 4.70% + 179 bps
6. Providian: 17.34% 15.05% + 256 bps
7. BofA: 5.25% 5.43% - 18 bps
8. Fleet: 6.13% 5.42% +71 bps
9. Sears Natl: 6.11% 5.43% +68 bps
10. Metris: 17.90% 13.00% + 490 bps
AVERAGE: 8.11% 7.20% +91 bps
* does not include Household which is now part of HSBC
Source: CardData (www.carddata.com)
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| FAMILY ACCOUNT |
MasterCard's new "Family Account MasterCard" has found its first issuer. El Paso, TX-based GECU has launched the "GECU Family Account Credit MasterCard Card." The new card features a family credit line with individual credit cards and customized spending limits for each adult family member. The primary accountholder may set and change the spending limits. The "Family Account" will also include cash access to ATMs and monthly-itemized statements. GECU is offering the card with no annual fee. Gold cards offer an APR of 9.9% and standard cards carry a 12.5% APR. In November, MasterCard and Texas-based Town North Bank/TNB Card Services teamed to offer the "MasterCard Family Account" in 2003.
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| SCHOOL FUNDRAISING |
Target Stores announced a $14.7 million payout to schools nationwide through the "Target School Fundraising" program. With the program, families, teachers and members of the community can designate the eligible K-12 school of their choice to receive an amount equal to 1% of their "Target VISA" and "Target Guest Card" purchases made at Target and target.com . Target also donates 0.5% of all "Target VISA" purchases made everywhere else. Currently, more than 8 million Target guests are enrolled in the program. Since 1997, the Target School Fundraising program has contributed more than $89 million to our nation's schools.
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| GLOBAL TRANSFERS |
Citibank has launched a low-cost, account-to-account real-time international, and domestic funds transfer service, for its consumer customers in Mexico, Belgium, Germany, Spain, France, the United Kingdom, Greece, Jersey, Monaco, Switzerland, Italy, Luxembourg and India. "Citibank Global Transfers" enables banking customers using the "Citibank Online" banking service or Citibank ATMs to transfer funds between two Citibank accounts in the U.S., or between a Citibank account in the U.S. and a Banamex account in Mexico or a Citibank account abroad. During an introductory, promotional period through the end of May, 2003, there will be no transfer fee for Citibank Global Transfers originating in the U.S. Foreign exchange rates, attractively priced at approximately 2% commission over wholesale bank foreign exchange rates, will apply. Following the promotional period, the transaction fee for each transfer domestically and to Mexico will be $5.00. Transfer fees to other countries will be $10.00. Transfer fees are the same regardless of the amount being sent. The same foreign exchange rates will apply. Citibank consumer customers, including "CitiGold" and "International Personal Banking" customers may transfer up to $3,500 per calendar day up to $10,500 per calendar week. Citigroup "Private Banking" customers may transfer up to $5,000 per calendar day up to $25,000 per calendar week.
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