All articles by Verdict Staff
Verdict Staff
Towards a cashless society?
How far away is the cashless society? Despite growing card use across the world, it appears that cash, cheques and other forms of paper-based payments have yet to relinquish their positions as the favoured methods of payment by consumers. CI reports. In an ideal world as posited by those in the payment industry, there would be no need for cash. Consumers would be able to make purchases and a whole host of other transactions through one multi-purpose smart card or perhaps even through a mobile phone or other form factor. This scenario is still is a long way off because tried-and-trusted paper-based forms of payment remain the favoured payment instrument in many markets. Cash is still king for many consumers, although its use does appear to be decreasing as consumers engage with newer forms of payment such as contactless and prepaid cards, in line with increasing levels of merchant card acceptance globally. Over the past decade, in the developed card markets of the US and Western Europe in particular, debit cards have made significant ground in taking away some transactions from cash as consumers become more comfortable with using payment cards for small-ticket purchases, such as those under £10 ($20). However, it would appear that growth levels will continue to be constrained by both consumer and merchant reluctance to use cards in place of cash.
Subprime contagion hits credit cards
It looks as if the subprime contagion is spreading into consumer credit, with the major US issuers all sounding warning bells for their earnings outlooks for 2008. What, if anything, can issuers do to avoid the ramifications of a weakening US economy? Victoria Conroy reports. The US card industrys big hitters American Express, Capital One, Bank of America, JPMorgan Chase and Citi have all recently reported that their earnings are likely to take a huge hit in 2008 due to higher levels of card charge-offs, consumer delinquencies and slower economic growth. Fourth-quarter results were down across the board, and issuers will now be wondering how best to stave off the effects of a possible recession in the US. Amex is not insulated Perhaps the most surprising results were posted by Amex, which many industry commentators had pointed to as being somewhat more insulated from the fall-out of the subprime crisis due to its more affluent cardmember base and prime card portfolios. Amex reported on 10 January that it is seeing signs of a weaker US economy, as cardmember spending began to slow and delinquencies and loan write-offs trended upward during December. Its fourth quarter income from continuing operations was down 6 percent from the year-ago period to $839 million, while net income dropped 10 percent to $831 million. The fourth quarter results included a previously announced $438 million ($274 million after-tax) credit-related charge in the US Card Services Segment, reflecting the impact of the weakening economy during the latter part of the fourth quarter. US Card Services reported fourth quarter net income of $7 million, down from $473 million a year ago.
Where next for the card networks?
Following the ECs ruling on cross-border interchange fees, the implications for both Visa and MasterCard could be far-reaching, although industry analysts differ in their views on how this may affect the payment industry as a whole. William Cain reports. Retailers have claimed victory following the European Commissions decision to make cross-border interchange fees illegal, while MasterCard has been left nursing its wounds. But industry analysts have remained relatively sanguine regarding the implications of the ruling, at least in the short term, mainly because the outcome of the MasterCard decision had been so widely anticipated. Analysts at investment bank and securities broker Keefe, Bruyette & Woods (KBW) described the ruling as negative but altered their earnings expectations for MasterCard only minimally when the news broke. KBWs research note said: While the news flow surrounding the European Commissions decision could pose headline risk for shares of MasterCard, we believe it does not materially affect the companys business model. KBW said it believes the company can hold its line on revenue margins from current levels, and admitted it had been too conservative on its expectations in this area before. KBW added the companys general and administrative account should moderate in 2008 and 2009, relative to 2007, when the company spent heavily on growing out personnel.
Merchant acceptance jumps in UK trials
It is early days for contactless and mobile payments in the UK, with most programmes only a few months old. But figures released by some of the UKs leading players in the field indicate the technology is starting to catch on.
Card-backed securities market grows
In the face of the subprime meltdown, the card-backed securities market will benefit from the abandonment of home equity lines of credit, according to a recent study. Charles Davis reports on how card-backed securities are poised to take advantage of the capital flowing toward credit cards. The recent meltdown in the subprime mortgage sector has raised investor concerns regarding the entire securitisation market, negatively impacting on asset-backed securitisation pricing as well as the profits of those issuing these vehicles. Yet new findings from industry researchers TowerGroup paints a much sunnier picture, finding that asset-backed securities (ABS) will continue to provide credit card issuers with much-needed financial flexibility to manage funding costs. The TowerGroup research report Credit Card Asset Securitizations: Has the Subprime Meltdown Dampened This Market Too? by Dennis C Moroney, senior analyst in the TowerGroup Bank Cards practice finds that card issuers are well positioned to capitalise on the expected flow of consumer debt away from home equity lines of credit and toward credit cards. While securitisation overall has taken a fairly significant hit, the impact on the credit card securitisation market will be short-lived, wrote Moroney, who found much to like in the market. The biggest advantage for card-backed securities might very well be the close monitoring of issuing banks by several government agencies, which means that the ABS market is subject to less volatility than mortgage-backed securities (MBS). Though the study finds that the weakening economy, rising delinquency rates, and problems with subprime will raise the cost of funding for new issues, TowerGroup believes the credit card securitisation market which currently exceeds $400 billion will continue to be the source of an estimated 50 percent of funding for credit card companies.
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Metavante gains strength in Europe via Nomad acquisition
US-based banking and payments technology provider Metavante Technologies has announced the £29 million ($57.4 million) acquisition of UK card processor Nomad Payments.
Cards still gaining credit
With an improving economic climate, healthy asset quality, a growing segment of card-friendly young consumers and new Islamic products entering the market, Malaysias credit card issuers are bullish about the future, despite competitive pressures. Titien Ahmad reports. Ten years since the Asian crisis of 199798, Malaysias retail customers are cautiously optimistic. The economy is growing steadily, with GDP growth of 6.7 percent in the fourth quarter of 2007. The Kuala Lumpur Composite Index an aggregate of local blue chip stocks reached a 13-year high in that same quarter. The countrys healthy economic growth, a stronger ringgit (the local currency), recent salary increases for civil servants and the removal of real property gains tax have boosted consumer confidence. However, people are still fretting over the pending national elections, low real growth in disposable income for the average Malaysian and the recent bubbling-over of racial tension. These factors seem to temper any optimism built up from the positive economic environment. This scenario is played out in the cards business in the peninsula. The number of card transactions nearly doubled from 126.85 million in 2002 to 215.14 million in the first 11 months of 2007. By comparison, the growth rate for average transaction values is only 22 percent (from MYR208.31 ($63.40) to MYR253.95) over the same period, reflecting Malaysians cautious economic outlook.
MasterCard set to appeal EC ruling on cross-border interchange fees
In one of the most widely anticipated regulatory interventions in recent years, the European Commissions Competition Commission has ruled that MasterCards cross-border interchange fees are illegal and has given MasterCard six months to stop levying the charge.
Visa Europe is primed for SEPA era
Visa Europe has released its full-year results for 2007, outlining an optimistic outlook for the next three years following the launch of the Single Euro Payments Area.
China opens up for foreign issuers
Five foreign banks have become the first to be given permission to issue credit and debit cards in China by the countrys banking regulator. Citigroup, HSBC, Standard Chartered (StanChart), Bank of East Asia and Hang Seng Bank have been told they can issue the cards from late 2008 if they meet regulatory criteria set out by the central bank, the Peoples Bank of China (PBoC). Previously, foreign banks had to take equity stakes in or partner with domestic Chinese bank institutions in order to issue cards. In 2004, Citigroups Citibank and HSBC became the first foreign banks approved to issue credit cards through Chinese banks. American Express issued a card later that year. Now, the government has lowered regulatory barriers to meet World Trade Organisation commitments, meaning that foreign banks can make preparations for starting their own bank card services. In May 2007, China agreed to allow foreign banks to issue yuan-denominated debit and credit cards following the China-US Strategic Economic Dialogue, a bilateral macro-economic forum. The following month, the China Banking Regulatory Commission began reviewing applications from the locally incorporated units of four foreign card issuers to issue yuan-denominated debit cards. In late 2007 it was expected that foreign banks with locally incorporated subsidiaries could begin issuing yuan-denominated cards but new legislation from the PBoC was introduced requiring foreign banks to establish data centres.