Thursday, October 23, 2008

More Mobile Use for Internet Access but NOT Online Banking

Finextra: Mobile Internet users shy away from banking - IBM
Mobile Internet users shy away from banking - IBM
Despite growing interest among consumers in accessing the Internet through their mobile phone, most people still prefer to use a PC when it comes to banking, according to a survey commissioned by IBM.

A poll of 600 people in the US, UK and China by NetReflector found that over 50% would substitute their Internet usage on a PC for a mobile device.

Respondents expect to use the Internet on their handsets for a raft of purposes, including obtaining maps and directions, instant messaging, social networking, e-mailing and reading the news.

But consumers are less convinced about using their phone for banking and trading stocks, with the majority preferring to carry out these activities on a PC.

IBM says the availability of IP wireless broadband and more affordable devices will inevitably change the way companies like banks operate and relate to their customers, but suggests that the opportunities for engagement are greater in emerging markets where the phone is leapfrogging the PC for Internet access.

Although people in the US still prefer to bank through a PC, the use of mobile phones is gaining acceptance. A poll earlier this year for Fiserv found three quarters of US customers would now consider using mobile banking services if offered, up from 49% in 2006.

Meanwhile the push to encourage m-banking take-up in the developing world was highlighted in August when California-based Obopay teamed with microfinance pioneer Grameen to launch an initiative that aims to use the technology to deliver banking services to a billion of the world's poorest people by 2018.
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Fortune - MasterCard vs. Visa

MasterCard takes on Visa - Oct. 23, 2008

MasterCard (MA) is at the center of it as well. Concern about credit card debt is front-page news. The company's well-being is closely tied to consumer spending and to the fate of its thousands of business partners: the banks.
"As the economy and our customers suffer, we're going to suffer," says Robert Selander, CEO of MasterCard since 1997. "Our customers' appetites are going to be very reduced next year because of the new challenges they're facing."

MasterCard, which started in 1966 as a bank-owned entity to promote cards and transmit payments, has been fending for itself since 2006, when it went public. Last year it generated revenue of $4.1 billion, up 24% from 2006, putting it close to entering the Fortune 500 for the first time (it ranked No. 548 last year on the Fortune 1,000). The company has gained a reputation as a smart competitor, wielding new technology (key fobs as credit cards), memorable advertising (its "priceless" campaign), and global reach (three billion cardholders and offices in 40 countries).

At the same time, the company is being tested by enormous challenges, including the historic worldwide financial crisis, waves of litigation over the fees it charges, and relentless competition from its larger rival, Visa (V). (That company, which went public this year, already has the revenues to qualify it for next year's Fortune 500.) What makes Selander upbeat in the midst of crisis, however, is talking about potential business he doesn't have yet from people still using paper money for tens of trillions of dollars' worth of transactions.

"One of the great opportunities, for us and our name-brand competitors, is to grow the pie." Or in credit card industry talk, to "plasticize" the world.

In fact, MasterCard is more like an IT company with great TV commercials. It does not lend money to consumers (its customers, the banks, do that) or set rates for their credit cards, but instead collects fees from banks to electronically zip from banks to merchants the billions of tiny loans and withdrawals we all make every day. The more swipes we make - regardless of whether we can afford that new plasma TV or whether banks will have to write down the loans to us - the more money MasterCard makes.

The company's journey to independence began in 1998, when the government filed an antitrust suit against both MasterCard and Visa, alleging that their ownership by a network of banks effectively stifled competition between the two of them - they accounted for 75% of all credit card purchases - and kept rivals like American Express from doing business with the banks.

Visa and MasterCard eventually lost the suit, bringing on more legal action. MasterCard recently settled a suit with American Express for $1.8 billion for damages stemming from the original antitrust case. Discover's similar suit against MasterCard is scheduled to go to trial in late October.

When Selander took MasterCard public, partly to change the perception of collusion driving these lawsuits, the company raised nearly $2.5 billion at $39 a share (symbol: MA), and its shares shot as high as $320 before falling below $160 in the current stock market swoon. In its new incarnation, MasterCard must now compete hard to win the business of the banks, which are combining by the day in a rapid, forced consolidation.

And it's playing with a disadvantage: its size. Visa's market share of global credit- and debit-card transactions is 68% vs. MasterCard's 28%, according to the industry newsletter The Nilson Report. Combined, those advantages give Visa not only a bigger wallet to fund new programs but also superior leverage with the banks.

So these days at MasterCard's elegant corporate campus designed by architect I.M. Pei in the Westchester County hamlet of Purchase (so named well before MasterCard moved there), Selander is asking his team to embrace the life of an underdog and a public company, operating in credit-tight markets. In a nutshell, that means squeezing more out of the assets it has, which formerly were "used more for the benefit of our brand and company," says Selander. "We have begun to realize, Hey, we can extend the use of those assets to our customers."

One of its biggest is marketing muscle, primarily in the form of the "priceless" campaign. ("There are some things money can't buy. For everything else there's MasterCard.") Since debuting in 1997, the ads have successfully conveyed a sense of the nonmaterial benefits of spending money, something that MasterCard feels distinguishes it from Visa and others.

The philosophy is evident in the way it designs its credit-card rewards products, which it pitches to banks. The rewards focus on experiences, like free vacations, rather than just objects or privileges. Says Larry Flanagan, global chief marketing officer, the custodian of this one-word franchise: "You've got to avoid the pitfalls of a classic campaign like 'priceless' losing its value."

With that in mind, MasterCard works overtime to woo bank customers with one-of-a-kind marketing angles. Its biggest reward experience - and the subject of the first-ever "priceless" spot - is Major League Baseball. Banks buy from MasterCard the right to put MLB teams on their cards or offer cardholders a trip to the World Series.

MasterCard competes tenaciously with Visa for those sponsorships, such as for soccer's World Cup. A lawsuit over who got to sponsor the event ended in 2007 with $90 million paid by the global soccer federation to MasterCard but the sponsorship going to Visa.

Chris McWilton, president of global accounts, and his team spend much of their time calling and visiting MasterCard's four biggest customers - Citigroup (C, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500), and HSBC (HBC) - which make up nearly 30% of its revenues, to make sure they're happy. Lately he's had his hands full. When J.P. Morgan Chase, a majority-Visa debit customer, bought Washington Mutual (WM, Fortune 500), a majority-MasterCard debit customer, analysts suggested that Chase would eventually switch WaMu's cards to Visa. "It will take a long time to play out," says McWilton.(continue reading)
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IBM Says Consumers Prefer Mobile Internet Access vs. PC

IBM Study Finds Consumers Prefer a Mobile Device Over the PC

ARMONK, NY--(Marketwire - October 23, 2008)

IBM today released new survey results which reveal that over 50 percent of consumers would substitute their Internet usage on a PC for a mobile device.

Expanding on the May 2008 "Go Mobile, Grow" study produced by IBM's Institute for Business Value, the survey identifies new findings that validate previous conclusions on how consumers will be open to full adoption of the mobile device as the hub for Internet activity.

IBM surveyed 600 consumers in the United States, China and the United Kingdom on their preferences regarding the mobile Internet. The survey found that communication, travel and navigation applications, as well as news and information services, are expected to increase significantly in popularity and usage over the mobile Internet. With the world's population of mobile-phone users expected to increase from the current 50 percent to 80 percent in 2013, which translates to a staggering 5.8 billion people, the availability of IP wireless broadband and more affordable devices will change the way companies around the world operate and relate to their customers, employees and partners.

"Worldwide adoption of the mobile phone as the preferred device for accessing the Internet is just around the corner," said Dr. Sungyoul Lee, Global Consulting Leader, Electronics Industry, IBM. "With 70 percent of consumers worldwide who believe that the mobile Internet has the potential to add significant to moderate value to their day-to-day lives, the time is now for companies to develop intuitive applications and services that allow people of all ages to effortlessly access and use the Internet while on the go -- anytime, and anywhere."

Internet Adoption

By 2011, 39 percent of respondents said they expect to increase Internet use on their mobile device by at least 40 percent. The Chinese consumers polled lead the world as the fastest adopting society of the mobile web. This finding is in synch (sic) with IBM's previous hypothesis that within emerging and leading edge markets, the mobile platform will be the primary way of interacting with businesses and institutions. These countries have in many cases leapfrogged the PC era and are routinely using their mobile devices for a variety of consumer services.

Desired Content

71 percent of respondents acknowledged that they expect to increase their usage of communication services such as obtaining maps and directions, instant messaging, social networking, emailing and reading the news from their mobile device. Growth markets like China and India are leading this adoption at a rapid pace and are proving to be the most open towards mobile internet than the mature markets. The survey found that consumers still prefer to execute services such as banking, stock trading, shopping and general search on the PC rather than a mobile device.

Age Preferences

The mobile Internet is the most popular among Generation X and Generation Y, as they tend to be more technology savvy and have a greater exposure and acceptance of emerging technologies. Over 50 percent of respondents who chose "Strong to Full substitution" of accessing the PC versus a mobile device were 15-30 years old and believe the industry is doing its best to advance the mobile Web, although most are still unsatisfied with the price and services offered by carriers and handset manufacturers.

Brand loyalty

Consumers are most loyal to their preferred brands for communication services such as email and instant messaging, but the survey found a lack of loyalty for entertainment services. Over 50 percent would like to use the same brand on their PC and mobile device when emailing, banking and instant messaging.

Device Features

While there is an overall consensus that the industry is doing its bit for mobile Web, more consumers desire greater affordability, awareness and better content and applications for the mobile Internet. In terms of device features, the survey found consumers prefer a large screen, high resolution, internal memory, and quick speed data transfer as the most important and desired features in their mobile device.

Implications and Recommendations

In order to stimulate and increase mobile Internet adoption, device makers, mobile operators, Internet service providers, mobile application developers and content providers need to consider the following:

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Stress for Credit Card Industry Until 2010

Credit card charge-off rates in the U.S. continued to rise in August and are expected to surpass the peak rate of charge-offs following previous recessions, according to Moody's Investor Services.

The charge-off rate, which measures credit card balances written off as uncollectible as an annualized percent of loans outstanding, rose 48 percent in August to 6.82 percent, compared with 4.61 percent a year ago, said Moody's in a special report.

Moody's said it expects the industry to remain under pressure through the end of 2009 as a result of the worldwide economic crisis and worsening underlying collateral performance as the credit card asset-backed securities market shows signs of increasing stress.

Although the balance sheet strength and liquidity of the sector’s largest credit card issuers remains quite strong, the uncertainty and tempo of the turmoil will test even the stalwarts’ ability to adapt.

In its mid-year report released last month, Moody's forecasted the sharp deterioration in credit card delinquency and charge-off rates. Earlier this month, Standard and Poor?'s highlighted the worsening performance in August of credit card ABS.

For details, see Credit Card Sector Faces Challenging Period Ahead.
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50% of Canadians Unable to Pay Off Credit Cards

Epoch Times - Plastic Nation: Canadians Drowning in Credit Card Debt
Roughly 50 per cent of Canadians are unable to pay off their credit cards every month according to Credit Canada, a non-profit agency that provides free credit counselling.

Debt loads have been increasing steadily since 1990, and by 2007 the average Canadian was in debt to the tune of $80,000, mortgages included.

“Canadians have a ferocious appetite for credit and for debt like our American cousins, and the result is that it’s not sustainable,” says Laurie Campbell, executive director of Credit Canada.

“People have put themselves in this situation where they’ve got cars on lease or on loan, they have a huge mortgage on their homes and they may have $30,000 to $40,000 on lines of credit and unsecured debts such as credit cards and that’s just not sustainable.”

Students are in an equally bad situation, graduating with the highest debt loads they’ve ever had, and it’s not just a result of high tuition fees, Campbell says.People have put themselves in this situation where they’ve got cars on lease or on loan, they have a huge mortgage on their homes and they may have ,000 to ,000 on lines of credit and unsecured debts such as credit cards and that’s just not sustainable.

“Students have large credit card debt on top of their student loan and they can least afford this type of debt because they’re generally not working during school and they come out of school with these grand ideas of getting the perfect job, but often end up with a $15/hr job and they can barely make their rent and their living expenses never mind paying back the huge amount of debt.”

In a study on household debt released last year, the Vanier Institute for the Family found that the poorest 20 per cent (2.6 million households) had a net worth of $34 billion. However, their debts came to $40 billion.  The richest 20 per cent had debts worth $186 billion but held $3.5 trillion in net assets. The study also showed that the poorest 20 per cent were more likely to have student and vehicle loans and credit card debt.

One of the reasons for rising personal debt may be that, according to some studies, Canadians don’t read the contract that comes with their credit card and are largely ignorant about how the credit system works, George Grass included.  “At the time, I didn’t know that 90 per cent of your payment goes on interest and 5 per cent goes on the principle. So it takes a long time to pay off and then of course the interest keeps going up because the debt is not going down very fast,” he says. 

Consumer debt is on the rise in many countries. Numbers released by the U.S. Federal Reserve Board showed that household debt in the U.S. topped $2 trillion in 2006, and that doesn’t include mortgages. In Canada in the same year it was $1 trillion.

Astronomically high interest rates are no help, and New Democrat Leader Jack Layton recently criticized the banks for not passing on the full central bank's interest-rate cut to their customers. While it is expected that profits for 2008 will be down, Canada's six banks reported 2007 profits of a record $19.5 billion.  “The fact that the banks charge 18 or 19 per cent interest is ridiculous, it’s unjustified,” says Amir Rubin, assistant professor of business at Simon Fraser University.

Rubin adds that while Canada didn’t experience the “sub prime fiasco they had in the U.S., we certainly had a run-up in the pricing of houses and increased level of mortgages, and that probably contributed a lot to the debt levels of the Canadian household.”  There is a domino effect from this massive debt load that Canadians are carrying, says Campbell, manifesting in health problems, addictions, marriage break-ups and less productivity in the workplace, to name a few.

Grass says that before he got help from Credit Canada to consolidate his debts and get his monthly payments down to a manageable amount, he was “at the end of my rope and thought of all kinds of crazy things. I became a very miserable person. My nerves were shot.”   As for saving for that rainy day instead of relying on credit, Grass says that by the time the bills were paid, there was nothing left over to save. According to the CGA-Canada study, 25 per cent of Canadians do not engage in any type of savings activity, not even for their retirement.

CIBC senior economist Benjamin Tal says savings rates went down because net rates went up. In recent years people were making a lot of money in the stock market and in the housing market, he explains, and this was their way of “passively saving.”  “But beyond that, now with the housing market levellng off we will see a situation in which people will go back to old fashioned saving, especially in an economic slowdown,” Tal predicts.

Regarding the economic slowdown and the situation in the U.S., Campbell says that when large numbers of people can’t sustain their home and have to sell, “the whole housing market falls apart.”Canada, she says, must avoid the same scenario.“We have an opportunity to learn from what’s going on down south — we’d better be quick on our feet.”

New Research Report on Credit Card Rewards

Credit Advisory Service
Credit Card Rewards Programs 2008: Trends, Challenges, and the Demand of Innovation


United States credit card issuers are facing many challenges today. The weak economy and turmoil in the financial industry are making it harder for issuers to deal with the soaring costs of their reward programs. Rewards have become a key driver of card acquisition, usage, and retention. The pressure from the uncertainty surrounding the disputation and pending bill about interchange fees, which is the main funding source of card rewards, also pose a significant threat to the survival of today's credit card rewards programs. At the same time, consumers' needs and expectations are also changing, calling for credit card issuers to offer more attractive and relevant products and services. Merchants, while pushing for more regulation on interchange fees, also face their own problems to attract and retain customers and encourage spending. All these factors represent challenges as well as opportunities to the credit card industry.

Terry Xie, Director of Mercator Advisory Group's International Advisory Service and principal analyst on the report, comments, "The credit card industry needs to think about rewards programs in a new way. No longer can they take the old funding mechanisms for granted and hope to survive and prosper by just doing what everyone else is doing. There is an urgent need for taking a new look at the relationships between merchants, consumers, and issuers to rethink the value proposition for each party involved. With insights into customers' needs, innovative thinking, and the help of new technology solutions, some players will gain a significant competitive advantage over others that fail to adapt."

The most recent report from Mercator's International Advisory Service provides an update of some new developments in credit card rewards programs in the United States since February 2007.

The focus is on major and potentially fundamental challenges for the credit card rewards market. With limited upsides (and potentially a deep dive on the revenue side) on the horizon, credit card issuers need to rethink how they design and structure rewards offerings. It is possible that this mandate will drive innovations that revolutionize credit card reward programs, perhaps more so than we have seen in a long time.

Highlights from this report include:
  • The card industry is seeking solutions to reinvigorate credit card rewards programs in response to the soft economy, regulation, fuel prices, and consumer behavior.
  • Gas cards and miles cards both have their challenges in today's economy.
  • Merchant-funded rewards programs have a tremendous amount of potential to revolutionize credit card rewards programs due to new value propositions to different parties.
  • Premium merchants might become a scarce resource as they are heavily sought after by card networks, issuers, processors, and independent merchant discount networks.
  • Data analytics offer a new level of targeted marketing and promotions but their full potential will not be realized until combined with merchants' involvement, likely in the format of a merchant-funded discount network.
  • New innovative rewards programs such as non-transactional rewards and programs combined with non-traditional rewards components are emerging.
This report contains 32 pages and 7 exhibits. Members of Mercator Advisory Group
have access to this report as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits. Please visit us online at For more information call Mercator Advisory Group's main line: 781-419-1700 or send email to

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