Credit Card Issuers Face Bigger Losses Than Expected

Hat Tip: Mish's Global Economic Trend Analysis

We at IPM think this is a positive development for our stored value pre-paid card market. As the credit card market continues to drop, the demand will continue to increase for stored value cards as a way to conduct electronic monetary transactions.

The stored value pre-paid will continue to expand in the unbanked and banked markets.

Article from CNNMoney.com follows:

Dow Jones Newswire

June 27, 2008: 10:54 AM EST
By Aparajita Saha-Bubna and Marshall Eckblad

Investors sold on plastic may want to reduce their balances.

Credit card issuers - ranging from standalone companies such as Discover Financial Services (DFS) and American Express Co. (AXP) to those at banks like Washington Mutual Inc. (WM) and Citigroup Inc. (C) - are likely to suffer worse losses in the coming quarters than initially expected.

Hit by the double-whammy of a growing reliance on credit cards by cash- strapped borrowers and a worsening economic downturn, issuers' earnings should be dented by deeper loss reserves and higher defaults.

New credit card data from Fitch Ratings indicate that losses are hovering around or have exceeded five-year averages and issuers have increased their loss expectations or withdrawn guidance in the face of rising unemployment, record- high gas prices and a housing slump that has yet to bottom.

"The deterioration in credit cards is accelerating faster than many had expected," said Christopher Wolfe, an analyst at Fitch and one of the authors of the report published Friday. "The message we are trying to deliver is that things are going to get worse before they get better. Thus far, credit card businesses have been profitable but that could change.

Click here to read entire article: Credit Card Issuers Face Bigger Losses Than Expected

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Fed Looking To Bend Rules To Aid Banks

Hat Tip: Mish's Global Economic Trend Analysis

CNBC is reporting Fed May Ease Rules on Private Equity Bank Stakes.

The U.S. Federal Reserve is considering steps to make it easier for private-equity firms and others to invest in banks, the Wall Street Journal reported on Thursday, a move that could open the door to more capital for cash-starved banks.

Fed officials recently have met with big buyout firms, including J.C. Flowers, Carlyle Group, Kohlberg Kravis Roberts and Warburg Pincus, and banking lawyers to discuss the obstacles, according to people familiar with the matter. Under federal law, to own more than 24.9 percent of a bank, an entity must register as a bank holding company, which is subject to heavy regulation and can be forced to serve as a "source of strength" for the bank, the Journal said.

Ownership of more than 9.9 percent of a bank also subjects the entity to regulatory scrutiny to ensure that it isn't controlling—or even influencing—the bank's operations.

The Fed can't change those laws, but it has room to maneuver in how it interprets them. This announcement today is not unexpected. It is in strict accordance with the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

When it comes to new rules or bending the rules, if the Fed does not like an interpretation, it will simply make the one it wants. The key point now,however, is the Fed feels a personal need to intervene directly in the markets to help line up sources for capital.

If the worst was over as Bernanke suggested (See Things That Have Not Yet Happened) then why is there a need for these kind of actions?

Have the Sovereign Wealth Funds in Singapore, China, etc. had enough? It's looking more like that every day. Yet the writeoffs continue.

Click here to read entire post: Mish's Global Economic Trend Analysis: Fed Looking To Bend Rules To Aid Banks

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Consumer ire puts ATM charges on hold

22:19' 15/06/2008 (GMT+7) VietNamNet

After first announcing that all ATM transactions would be charged a minimum fee of 1,000 VND starting in July, the Vietnam Bank Card Association has now reconsidered its plan following questions about the current state of ATM services and infrastructure.

An ATM of the Bank for Foreign Trade of Vietnam (Vietcombank)ATM cardholders began speaking out against the policy almost as soon as it was announced, claiming that the poor quality of most banks’ ATM services did not merit their collecting additional charges.

“If banks get fees from customers, they have to ensure good services. I don’t feel happy with the fact that at the moment sometimes ATMs don’t work properly,” said Nguyen Van Hung, construction engineer in Hanoi.

Many customers such as Nguyen Quoc Viet, a construction workers from Hanoi , say they face difficulty in finding an ATM at the end of month to get their salaries.

Students who often use the ATM as a means of receiving money from their families are vowing not to use the service anymore if fees are charged. “If the bank does so, it changes the contract with customers. Having to pay fees makes students’ lives more difficult,” said Tran Van Phu, sixth year student from Hanoi ’s Medical University.

The plan to charge fees has been delayed until the infrastructure is in place to improve ATM service quality, said the chairwoman of the Vietnam Bank Card Association, Nguyen Thu Ha. The association will propose to the State Bank the specifics on fee collection, but is not ready to choose a date for implementation.

The Government has been pushing business and agencies to move from paying salaries in cash to using banks and paying through ATMs since the beginning of 2008. Charging fees right now could work against this effort.

Right now only about 10 percent of Vietnamese people use bank services like ATM cards or credit cards, reported the MCKinsey company.

There are now about nine million cards in-use out of which 4,500 are ATM cards. An additional problem is that each ATM system only accepts certain kinds of cards. To help alleviate accessibility problems, banks are joining forces.

“With the present scale of the problem, it is very difficult for any bank to do it alone. So co-operating is the best way to improve the situation,” said Nguyen Duc Huong, general director of Lien Viet Bank. Banknetvn and Smarlink have officially operated their bank alliance for the last five months. With this new alliance, owners of cards belonging to Vietcombank, Vbard, BIDV, Vietinbank and Techcombank can do their transactions at ATMs.

By the end of March, the amount of ATMs of the five member banks had gone up to 3,614, accounting for 64 percent of the total machines in the market.As planned, by the third quarter of 2008, Banknetvn and Smartlink will cooperate to increase the number of machines to 4,500.

VietNamNet - Consumer ire puts ATM charges on hold

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Washington Pays Youth Workers with Prepaid Cards

ePaynews.com Jun 24 2008 :

The Washington, DC, Department of Employment is using prepaid debit cards to pay the wages of 19,000 workers participating in a summer youth employment scheme.

The 2008 Passport-to-Work Summer Youth Program offers young people an opportunity to work on a temporary basis in a wide range of occupations. The 10-week program is offered to young people living in DC who are aged 14 to 21.

The prepaid Visa cards are issued by JPMorgan Chase as part of its Payroll debit card program, which was first launched in 1987. Processing for the cards is also provided by JPMorgan.

The cards can be used at the point of sale or at ATMs with a PIN. They are reloadable and will be funded twice a month during the 10-week program.

“We hope the real-life experience gained by using payroll debit cards to budget and purchase items will help these students become responsible for their own finances,” says Dr Natwar M. Gandhi, chief financial officer for the District of Columbia.

Another advantage of the cards is that, by not incurring check-cashing and bank account fees, they will save the workers money, Gandhi says.

ePaynews.com - the payment news and resource Center

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Line of Credit Linked to U.S. Prepaid Card

ePaynews.com Jun 20 2008 :

Meta Payment Systems (MPS) is offering small loans that are deposited on a prepaid card to the millions of Americans who cannot afford conventional bank loans.

The U.S. prepaid card firm originally launched the iAdvance Line of Credit product in February 2008, but is now enhancing it with the help of Fiserv and TransUnion.

The basic version of iAdvance does not involve any credit checks. However, in autumn 2008, MPS will launch a version of iAdvance which will offer lower interest rates and longer payback periods to credit-worthy borrowers. Currently, the company charges $2.50 for each $20 borrowed, equal to an annual percentage rate of 150 percent.

TransUnion says it will provide MPS with risk management and credit decisioning systems for the new version of iAdvance, while U.S. payments software firm Fiserv will supply processing and receivables management technology.

Once a borrower has applied for either a basic or enhanced iAdvance loan, the money is available immediately on a prepaid card issued by MPS’ parent Sioux Falls, South Dakota-based MetaBank. The borrower’s repayment performance is reported to the three main U.S. credit reference agencies, Equifax, TransUnion and Experian.According to MPS, the loan application process takes just a few minutes.

ePaynews.com - the payment news and resource Center

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Mexican Issuers Leverages Canadian Gift Card Software

ePaynews.com

Jun 20 2008 : Mexico’s Mercadotecnia, Ideas y Tecnologia (MIT) is launching a gift card program using software developed by Toronto-based Smart Processing Solutions.

MIT will use the SmartIssuerPro system to provide gift cards which will be issued by its clients.SmartIssuerPro enables independent sales organizations (ISOs), financial institutions, retailers and processors to issue and manage prepaid, debit, gift, and loyalty card programs in-house.MIT provides transaction switching services for Mexican banks, retailers and payment networks.

Smart Processing Solutions provides processing and switching software for banks, ISOs, processors, acquirers and retailers. In Canada, its software is used to drive a network of around 11,000 non-bank ATMs.

ePaynews.com - the payment news and resource Center

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American Express is OPEN

Chris Brogan shows how American Express' OPEN FORUM website works and has positive influence on how businesses are run.


by Chris Brogan
June 21, 2008 OPEN Forum

It’s interesting to see an implementation of content networks the way I first envisioned them in May 2006.

I recently heard from Federated Media’s James Gross about American Express’s OPEN Forum. Basically, it’s a project where AMEX through Federated has a blog area that aggregates interesting business content, with the mindset of gathering a conversation in a sponsored area.

Mentioned as a place to find insight from business experts, it’s essentially a way for AMEX to spread its brand across some select blog content (with the bloggers’ permission).

I asked James what the plan was: The primary goal was for OPEN to start identifying, curating, and participating in a media landscape that was constantly changing. They had done a lot of work with other publishers, but it was always on the publishers domain and like most microsites, tended to be lightly trafficked and not converting people to the OPEN forum.

Not to mention, with what we call, “the de coupling of media” surveys were finding that most SMBs were using blogs and other forms of social media far more than major publishing brand’s SMB sites. It’s interesting to me, because it’s the other way around from how we perceive our blogs.

I think it’s definitely a way to build a content network that would be more useful to end readers. It’s not that we don’t want more traffic to our blog, but that there are ways this content can be made more useful to end readers, by being curated by others in interesting ways. That’s why we use Creative Commons. That’s why we use RSS. It’s the plan.

Click here to read entire post American Express is OPEN | chrisbrogan.com

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Anticipated Demand for Prepaid Cards among Latin America Unbanked

Paynews.com

Jun 17 2008

By 2015, 324 million unbanked Latin American consumers could have general-purpose prepaid cards, according to a study by NovoPayment.

The Miami, Florida- and Caracas, Venezuela-based firm develops prepaid card programs for the unbanked in Latin America.

NovoPayment says that by 2015, annual general-purpose prepaid card spending by unbanked Latin American consumers could reach US$214 billion a year. Prepaid cards will bring access to point-of-sale, ATM, mobile and online card transactions to consumers who today rely almost exclusively on cash, NovoPayment says.

The study by NovoPayments covers 15 countries across Latin America including Argentina, Brazil, Chile, Colombia, Guatemala, and Venezuela. NovoPayment says that Brazil, followed by Mexico, will be the biggest general-purpose prepaid card market in the region by 2015.

In Brazil, there will be 109.9 million general-purpose prepaid cards in 2015, accounting for US$22.15 billion of spending, NovoPayment says. In Mexico, there will be 64 million general-purpose prepaid cards in 2015, accounting for US$54.34 billion of spending.

“Our study discovered a significant number of consumers with the income, access to infrastructure, and spending behavior to be viable users of prepaid general-purpose cards,” says NovoPayment CEO Anabel Perez. “Around 57 percent of the Latin American population has the need, the capacity, the means, and the necessary economic and social incentives to warrant prepaid cards.”

ePaynews.com - the payment news and resource Center

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BBK makes remittance easy for NRIs

MANAMA: Bahrain-based BBK has signed an agreement with Bahrain Indian International Exchange Company (BIIECO) to provide all its non-resident Indians (NRI) banking customers the opportunity of seamless remittance.

Customers will now be able to remit funds from their BBK account in Bahrain to their BBK or any other bank account in India.

Present at the signing ceremony held at the BBK head office in Manama were BBK assistant general manager - international banking division Ashish Sarkar, NRI business head Mudit Mathur, BIIECO chairman and managing director Khalil Ebrahim Qamber and general manager Lakshmi Narasimhan.

"BBK is one of the leading retail banks in the kingdom and we have a strong base of NRI clients in Bahrain and Kuwait," Mr Sarkar said."With this tie-up we will now provide them with a service to remit money back home more efficiently. In contrast to the traditional remittance services available, this would be a more convenient and trustworthy method as the client is directly dealing with their bank instead of a third party."

Our commitment at BBK NRI business remains, to serve the Indian community, through our own branches via such alliances with the best-in-the-industry partners.

"Our endeavour is to offer a wide range of quality products and services to our clients to cater to their growing needs with the BBK quality of service," he said."This is a proud moment for us at BIIECO to partner with a leading bank like BBK. This tie-up will enable us to reach out to the vast NRI community and increase our volume of business," Mr Qamber said.

http://www.gulf-daily-news.com/Story.asp?Article=219257&Sn=BUSI&IssueID=31076

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First Bank Steps Into Chinese Market via Cooperation with Sumitomo Mitsui

The Chinese remittance market is starting to open.

Taipei, June 12, 2008 (CENS)

First Commercial Bank has successfully stepped into the Chinese banking market, despite the absence of business points there, thanks to the cooperation with Japan`s Sumitomo Mitsui Banking Corp.

Chang Chao-shun, chairman of First Bank, pointed out yesterday (June 11) that the bank has successfully provided yuan-denominated loans to a number of Taiwanese-invested enterprises in China for working-capital use via the Chinese branches of Sumitomo Mitsui Banking. The bank, though, still plans to set up its own Chinese branches, according to Chang.

The business is part of the cooperative venture between the two banks following their signing of the memorandum of cooperation on Dec. 17, last year. During a meeting reviewing the achievements of the cooperation last week in Taipei, ranking officials of the two banks looked into the results of their cooperation in the fields of corporate banking, greater China business, syndicated loan, forex remittance, cooperation between overseas branches, credit card, trust custody, forex trading, fund maneuvering, consumer banking, risk management, and personnel exchanges.

An official of First Bank noted that both parties have attained good results in the fields of client recommendation, syndicated loans, forex remittance, financial trading, loans for Taiwanese enterprises in China, and personnel exchanges. Thanks to the assistance of Sumitomo Mitsui, First Bank, for instance, has solicited substantial amount of banking business for Japanese individuals and enterprises in Taiwan.

The official reported that the bank will intensify its cooperation with the Japanese partner, especially in the core businesses of greater China market, domestic and international syndicated loan, wealth management, and marketing, this year.(by Philip Liu)

CENS.com – The Taiwan Economic News

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Microfinance institutions can facilitate remittances

From: Manila Times web edition

Sunday, June 15, 2008

By Maricel E. Burgonio, Reporter 

Microfinance institutions can facilitate remittances Microfinance refers to the provision of financial services to low-income clients, including the self-employed. It also refers to a movement that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial srvices, including not just credit, but also savings, insurance, and fund transfers.”

Microfinance institutions can take the form of cooperatives and other self-help groups, rural banks, and small economic formations. They are now emerging as remittance channels and can effectively play this role, as they are present in many rural areas and poor people’s enclaves.

Lately, money transfer agent PetNet Inc. has decided to tap microfinance institutions to expand its remittance market.

Lorenzo T. Ocampo, PetNet president, said PetNet has partnered with microfinance institution Alalay Sa Kaunlaran, Inc. (ASKI) to widen its market in Regions 1, 2 and 3 that ASKI covers.

“In the partnership, Aski’s clients can remit through PetNet. These areas are underserved,” Ocampo told reporters.

PetNet signed on Wednesday a memorandum of agreement (MOA) with ASKI. Under the partnership, ASKI’s clients may channel its remittances through PetNet.

ASKI has 21 branches in the three regions, all of which are areas with high demand for microfinance loans. PetNet, meanwhile, is a money transfer agent of Western Union, has 200 locations nationwide.

Rolando Victoria, ASKI’s executive director, said its loan portfolio increased by 20 percent year-on-year to P240 million as of May. It also has a capital base of P63 million.

ASKI provides P5,000 to P150,000 worth of micro loans with 3 percent monthly interest rate to its clients.

“There is strong demand for microloans such as in agricultural loans and for small businesses,” he said. It also provides microinsurance with only P20 paid every week in exchange for P120,000 insurance coverage.

ASKI also plans to use make use of ATM services in releasing loans to their clients.

Besides ASKI, PetNet also signed a MOA with GSIS Family Bank in April.

The Bangko Sentral ng Pilipinas (BSP) has been encouraging banks to engage in microfinance, a flagship program for poverty alleviation.Microfinance loans posted double-digit growth last year as more banks increased their participation in microfinance lending.

Amando M. Tetangco Jr., governor of the BSP, earlier said microfinance loans grew 12 percent to P6 billion last year.About 229 banks are into microfinancing, with a total client base of 780,000.

The Manila Times Internet Edition | OFW TIMES > Microfinance institutions can facilitate remittances

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The Ethics of the Bottom of the Pyramid

Hat Tip: World Bank

It looks like Ethical Corporation has caught on to the ethics of serving the bottom of the pyramid. An article in their most recent newsletter discusses opportunities in the vast bottom of the pyramid market in Latin America. About 360 million people in Latin America fit into this category. So far, local companies have left multinationals in the dust:

A third noteworthy trend is the leadership of national companies over their international peers. Micro-insurance firm Paralife in Mexico, Peruvian financial intermediary Cajasur and many of the other high performers in the index are local firms. With the bulk of their local market being low-income consumers, such firms have learned to search out opportunities among the “majority” by default.

Multinational companies, by contrast, often lack the experience, the local relationships, the market understanding and often the vision to trouble themselves with poor customers. Yahoo, Microsoft and PepsiCo feature among the big-brand laggards in the index.

What's it going to take for the multinationals to catch on?

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