Credit Cards Online Information

The number of micro-business loans -- defined as loans of up to $100,000 -- to small businesses shot up 10 percent last year, while traditional loans stayed stable.

Small businesses around the country racked up 10.8 million micro- loans last year, about 1 million more than the year before, according to a study by the U.S. Small Business Administration's Office of Advocacy. But the dollar value on those loans -- $126.8 billion -- was up only 4.4 percent.

The difference is in credit cards, said Charles Ou, senior economist with the SBA's Office of Advocacy, and the study's author.

"There was a 10 percent increase in micro-loans but it is almost completely from credit card operations," said Ou. "Once you take out the credit card operations, you see that small business loans did not grow."

Excluding them, the actual number of small loans last year grew by less than 0.5 percent.

The jump in credit card loans to small businesses is part of a trend that has been building for several years, said Ou, as banks become increasingly aggressive in their credit-card promotions.

It is much less expensive for them to extend credit via credit cards than through traditional small business loans, which require more in the way of documentation and collateral.

Because of the expense, banks often will not grant business loans for less than $25,000.

"You have to understand that we are a really regulated industry, you have got to dot your I's and cross your T's and there are less costly ways of doing that," said Gary Thomas, vice president of Key Bank and Trust in Owings Mills.

Fledgling business owners who do not have the financial wherewithal to qualify for traditional loans often have no choice but to use credit cards to finance their businesses. But even long-term business owners turn to credit card loans for everyday expenses.

And why not, said Paul Taylor, executive director of the Small Business Resource Center in Baltimore. Credit-card companies have an aggressive presence on the Internet and elsewhere, making the process irresistibly convenient for the consumer, he said. American Express, which is one of the largest Small Business Administration lenders, will extend a line of credit as part of a marketing tool to its already established, low-risk customers. And credit-card loans satisfy a small business's need for small amounts of money fast -- something banks typically cannot.

"No doubt about it, a lot of small business people use it to buy goods and products just like you buy clothes," said Alan Stephenson, director of the SBA's Baltimore District Office. "But if you look at the price, it becomes counter-productive, you can't grow your business." With yearly interest rates as high as 23 percent, paying off credit-card debt can be a difficult feat.

Thomas, for example, routinely reviews loan applications for between $80,000 and $150,000 from business owners who, once they have reached some level of success, are looking to pay off their debt. Such debt is not uncommon, he said.

"Since the recession in 1991, you see a lot of people trying to change their vocation, and that is often how they do it," he said.

Of course, alternative micro-loan programs are available, though many small business owners are unaware. Stephenson's office, for example, is in the midst of building a program with Innovative Bank for the truly small business loans of $5,000 or less, he said.

"Our program is underutilized," said Oliver J. Phillips, chief of business development at the SBA's district office. "Because we are not yet a household word, unfortunately, and because small businesses fall into credit cards."

Elimination of surcharges is a major advantage

NATIONAL REPORT -- The use of debit cards and electronic signatures -- already a standard in department stores, supermarkets and other high-volume retailers -- is finally making its way to the check-out lanes at home improvement stores.

HomeBase installed both technologies in all its units this past summer. Orchard Supply Hardware just completed a rollout of debit card readers and is now adding electronic signature capabilities. Home Depot is getting ready to roll out both technologies next year. The buying groups Do it Best, Ace Hardware and TruServ are also looking into the latest in point-of-sale systems for their dealer-members.

Debit cards work just like credit cards, except that payments are automatically deducted from a customer's savings or checking account. With electronic signatures, customers use a stylus to sign their names on a screen. The signature is then "captured" and stored electronically. Both technologies offer retailers considerable savings in time and money.

Unlike credit cards, debit cards don't carry a surcharge for the retailer, which typically ranges from 1 percent to 3 percent per transaction. Signature capture eliminates the need to handle and store hard copies of every credit card transaction. These two advantages convinced HomeBase, the Irvine, Calif.-based home-improvement chain, to start installing both systems last August. All 88 stores (including its five House2Home test stores) now have signature capture and debit card capabilities at each register.

Using an interactive touch screen, HomeBase customers can choose "credit" or "debit" and then swipe their cards through a magnetic-strip reader. The machine toggles between a signature capture for credit cards and a personal identification number prompt for checking accounts. Since the PIN allows HomeBase to check bank account balances, customers in need of cash can request up to $60 back.

David Swanberg, vp-finance for HomeBase, has calculated that the upgrade will pay for itself within a year. "It has an immediate payback," Swanberg said, citing the average credit-card transaction fee for HomeBase at somewhere between 80 cents and 90 cents.

The electronic-signature capability will free HomeBase from the burden of storing paper records on approximately 10 million credit-card transactions per year. Hard copies of each signature are kept in case of "charge-backs," which happen when a customer challenges a purchase found on his or her credit-card statement. On average, HomeBase fields 35 charge-backs a day, counting all stores. The chain already keeps an electronic journal of credit-card transactions, and now the customer signatures can be added and retrieved, if necessary, at a later date.

'Check card' dilemma

HomeBase is using the same interactive touch screens as the San Jose, Calif.-based Orchard Supply, which began replacing its POS terminals at its 85 stores in May and finished last month. Phase two of the project -- adding signature capture to the terminals -- will take place over the next six months, according to Orchard vp and chief information officer Garry Beaty.

"The debit card [rollout] was worth a whole lot of money to us," said Beaty, declining to give specific figures. Orchard also extends a cashback option (up to $40) to shoppers, a convenience that customers have come to expect from supermarkets and other retail establishments. "Our employees really appreciate it, too," Beaty added.

Introducing debit-card readers may provide a solution to a longstanding feud between retailers and the credit card industry over the processing of "check cards" purchases. Check cards, which function as both debit and credit cards, are automatically processed as credit transactions, resulting in a surcharge to the retailer. But when customers enter their PINs at the point of sale, the purchase goes through as a bank debit, eliminating the processing fee.

The new POS systems are not without their drawbacks, however. Most require precise timing and careful selection, especially with overly sensitive touch screens. Customers can get confused and frustrated; cashiers require an additional level of training.

"The future, my boy, is in plastics." When Dustin Hoffman's neighbor uttered this line in The Graduate, little did he know how prescient the statement would be, at least as it applies to the credit card industry. Although, the character was not referring to credit cards back when the film was released in 1967, no one can deny that the credit card market has been booming during the past 30 years.

Industries that expand at such a rapid rate often are vulnerable to fraud schemes devised by those seeking to capitalize on newfound criminal opportunities, dated security measures, and outdated laws. The credit card sector is no exception.

Approximately 124 million of the 193 million adults in the United States owned at least one credit card in 1994.(1) Experts expect this gap to narrow over the next 6 years at a rate of about 2.8 million new cardholders per year, as credit card companies inundate prospective customers nationwide with more than 2.7 billion mailings and pitches.(2)

The New York Times noted that "...the sheer pace of this growth raises the question of whether credit card lending is following in the checkered tradition of loans to third world countries and speculative real estate developers."(3) Indeed, recent statistical data indicate that credit card fraud is growing in proportion to industry advancements.

Around the world, bank card fraud losses to Visa and MasterCard alone have increased from $110 million in 1980 to an estimated $1.63 billion in 1995.(4) The United States has suffered the bulk of these losses - approximately $875 million for 1995 alone. This is not surprising because 71 percent of all worldwide revolving credit cards in circulation were issued in this country.(5)

Law enforcement authorities continually confront new and complex schemes involving credit card frauds committed against financial institutions and bank card companies. Perpetrators run the gamut from individuals with easy access to credit card information - such as credit agency officials, airline baggage handlers, and mail carriers, both public and private - to organized groups, usually from similar ethnic backgrounds, involved in large-scale card theft, manipulation, and counterfeiting activities. Although current bank card fraud operations are numerous and varied, several schemes account for the majority of the industry's losses by taking advantage of dated technology, customer negligence, and laws peculiar to the industry.

CREDIT CARD FRAUD SCHEMES

Visa and MasterCard account for approximately 65 percent of all outstanding revolving credit, and most substantive fraud cases involve schemes centered on one or both of these bank cards.(6) Law enforcement authorities repeatedly encounter certain ethnic groups - particularly Asian and Nigerian - and organizations involved in multilevel bank card fraud operations.

Notably, nearly one-fifth of all U.S. credit card losses occur in California, an amount close to the combined total for the other five identified problem areas worldwide: Florida, Texas, New York, Asia, and Great Britain.(7) While losses to Visa, MasterCard, and the financial institutions issuing these cards continue to mount, several basic schemes have been identified as most prevalent throughout the nation.

Mail/Credit Bureau Theft

One of the simplest ways to obtain account information or actual bank cards is through postal theft. Numerous Nigerian fraud rings operate sophisticated theft operations throughout the eastern and southern regions of the United States. Having illegally obtained legitimate bank cards or account information, the group then creates portfolios of fictitious identification, including driver's licenses, social security cards, and other materials, to support the purchasing power behind those cards. At the direction of group leaders, "runners" purchase merchandise from a variety of sources until the legitimate owners report the cards as stolen or confiscated.

These organizations also take advantage of contacts within the various credit bureaus to obtain legitimate bank card account information for counterfeiting or telephone order purchasing. The groups commonly mail stolen cards and information via overnight courier to other factions located throughout the country. For this reason, the U.S. Postal Inspection Service has implemented the Express Mail Label Profiling Program to identify packages likely to contain contraband. The profile flags suspicious packages based on mail quantity, delivery frequency, destination, label and packaging material characteristics, etc. The profile was developed initially to identify packages containing drugs. Postal inspectors in the drug unit forward profiles to the credit card fraud unit if they believe that non-drug criminal activity is occurring.(8) Through this program, postal inspectors can trace the illicit mail to both its source and its destination, thus identifying members of the fraud rings.

Keeping yourself on track takes planning, practice and loads of discipline

NONMORTGAGE consumer debt in the U.S. is currently $1.3 trillion. That equals about $4,600 of debt for every man, woman and child in the United States. American consumers, with more credit cards per capita than any other country in the world, are in serious financial trouble. So serious, in fact, that last year more than 1.4 million Americans filed for personal bankruptcy.

Why are debtors having so much trouble making their payments and managing what they owe? Too little income and too much debt, says a recent survey on consumer behavior by Western Union Commercial Services. The survey also found that consumers who are overextended are willing to assume even greater debt to meet their financial needs--a dangerous tactic that could send them into a financial tailspin.

If you're concerned that your unwieldy credit load may eventually put you in the red, read on. It's never too late to turn the tables and start developing the habits that will get your credit to an optimum level and keep it there.

As difficult as that feat may seem, it really can be done. Mamie Walker, once $47,000 in debt with seven credit cards, now owes just $1,900. The 38-year-old mother of three from Wake Forest, North Carolina, says that over the past 15 years, she has budgeted her way to peace of mind and freedom from angry debt collectors.

"I didn't know then what I was spending," remembers Walker, who is employed in the manufacturing department of a local telecommunications company and is studying liberal arts at Duke University in the evenings. "Now, I've developed a budget, and everything that I buy is paid for in cash." Walker signed up for credit counseling and cut up all her credit cards. She's also started a savings account and has reduced entertainment, food and clothing expenses.

Like Walker, evaluating the way you live will be an essential part of your quest for good credit. To put yourself on that track, understand first that credit and money are inseparable. "Good credit starts with solid money management," says Bettye J. Banks, vice president for education at Consumer Credit Counseling Services in Dallas. "The same controls that help you manage your money well will help you manage your credit well," she says. Look seriously at your financial situation, write down your long- and short-term financial goals and make the commitment to monitor your spending.

Develop a budget. "The first three months are the hardest," says Walker, "but it all starts with having a plan and sticking to it." When you create a budget, you'll know exactly where your money is going and what needs to be modified.

Gather your checks and bills back six months, and put them into the categories shown on the budget worksheet (see "Consumer Take Charge--Budget Worksheet") Your regular expenses include your steady monthly commitments, including rent and credit payments. Variable expenses, such as food and entertainment, can change drastically. That's where you should examine your expenses closely.

When all categories are filled in, figure out your total monthly and annual income, then subtract your monthly and yearly expenses. If the number is negative, determine where you need to cut back and continue to keep track of your expenses on a monthly basis.

With this budget in mind, think twice about making new purchases. "If I don't have the money for it in the bank, I leave it at the store," says Walker. She now uses a debit card instead of a credit card so that money is drawn directly out of her checking account.

Besides getting your budget under control and maintaining good credit habits, you should also be aware of the creditors' rating system. Whether you're an experienced credit card holder or a beginner trying to establish a history, here are some key points to understand.

Pay your bills on time and before the due date. "It's not OK just to make a payment," says Banks. "Don't think you're only a month late and then double up on payments the next month," she says. If you don't make payments by the due date, it will be negatively reflected on your credit report. Any payment more than two months late is considered delinquent.

A creditor bases its projections on expected income from customers. "Every small pebble in the pond affects the other pebbles. If your payment is due on January 1 and you don't pay, then the creditor is at risk because it will have to alter its anticipated income," she explains.

Keep in mind that paying no more than the minimum payment every month is a no-win situation. "It would take 11 years for a person to pay off a $2,000 loan at an 18% interest rate if he just paid the minimum," says Luther R. Gatling, president of Budget and Credit Counseling Services in New York.

Read the fine print on your credit agreement. "Understand what the interest rate is and what the penalties are," says Gatling. Compare credit card interest rates both at the start of your agreement and long term. Find out the terms of your grace period, whether interest is charged immediately after a purchase or after a specified period. Also understand how finance charges work. Ask customer services how you will be assessed a charge based on purchases in a billing cycle. Inquire about annual fees, the penalties for exceeding your credit limit, missing a payment or not using your card regularly. It all adds up. If you're concerned that your charges are too high, Get Smart and CardWeb Inc. list low-fee credit cards nationwide on the Internet.

NetBank, Inc. (Nasdaq: NTBK), parent company of the country's first commercially successful Internet bank, NetBank(R) (www.netbank.com), today announced the addition of business credit cards for small business banking customers. Since launching its service one year ago, NetBank has signed up approximately 1,600 small business customers with over $37.5 million in deposits.

"We are extremely pleased with the success of our small business banking initiative," said Douglas K. Freeman, chairman and CEO, NetBank, Inc. "More and more, small businesses are embracing the Internet and using it to do business better, faster, cheaper. In fact, our own research shows that 79% of small business owners across the country say the Internet is either 'somewhat important or very important to their business.' Clearly, small business owners find the hallmarks of the NetBank experience - convenience, personalization and value - compelling."

NetBank continues to build out its Small Business Banking product offering with the addition of two new business credit cards: the no annual-fee MBNA Platinum Plus(R) for Business and the MBNA Platinum Plus(R) Business Rewards. Both cards feature a credit line of up to $100,000; free additional cards for employees with individual credit limits; and employee misuse insurance protection. The Business Rewards card allows cardholders to receive bonus points for purchases.

In addition to traditional deposit products, NetBank also offers small businesses Internet-based payroll and tax filing services through a partnership with PayMaxx; equipment financing services; and online bill payment (including 10 free payments per month). NetBank plans to introduce other new products later this year, such as insurance and additional loan and credit products.

"We're working to add the types of products and services our customers have told us they need," said Bert Davis, director of small business banking, NetBank. "Our goal is to provide banking and ancillary services for small businesses in the industry's most convenient and versatile setting, and allow our customers to focus their time and energy on running their business."

And as many small business owners come to find out, running a small business can become an all-consuming endeavor. NetBank recently conducted a survey of more than 400 small business owners across the country on the realities of running their own business. Among the findings:

--23% of respondents said operating a small business was "more time consuming than imagined;"

--53% said they also serve as the accountant for their business;

--35% said they took less than one week of vacation in 2003;

--And when asked how much they worry about their business during personal time, 40% said "quite often."

NEW YORK, NEW YORK, U.S.A., 2000 APR 25 (NB) People who surf the Web looking for credit card offers are more ethnically diverse and also more receptive to online branding than the general online population, according to a recently released study from Cyber Dialogue, a company specializing in Internet customer relationship management.

The study is part of the company's "American Internet User Survey."

Cyber Dialogue also says that it has found online credit card seekers to be younger, primarily male and more likely to carry larger balances than other segments of the cyberspace population.

To date, according to Cyber Dialogue projections, 9.8 million Americans have shopped for credit cards on the Internet.

Newsbytes spoke with Sam Callard, a financial analyst for Cyber Dialogue's Internet Strategies Group about the findings of the study. He said he thinks the study, which traces the offline and online consumer use of financial services, provides important information for credit providers in understanding how online credit card seekers differ from consumers looking for other types of financial services, such as home loans or insurance.

For example, Cyber Dialogue says, online credit card seekers are especially attractive because nearly half of them a projected 4.3 million have actually applied for a credit card directly online. This translates into a reduction in the cost of acquisition to online credit card issuers.

Another positive aspect of online credit seekers, according to the report, is that online credit card applicants have a high conversion rate. This means that more than half of those who applied for credit cards on the Web a projected 2.2 million ultimately acquired a credit card online, and began using it.

"Credit card companies are missing an opportunity to acquire potentially valuable lifetime customers by overlooking such largely untapped groups as ethnic minorities," said Callard. One of the benefits of the Internet, Callard points out, is its ability to reduce both the offline cost and risk of targeting these kinds of small, high-potential customer segments.

But online credit card seekers are also more demanding than the general Internet population, according to the report. They are especially driven by low interest rates as well as the reputation of the credit card issuer.

Cyber Dialogue reports that 90 percent of online credit card seekers list low interest rates as an important feature of a credit card; and, 83 percent list a trusted institution as being important in their choice of cards. The general online population is said to be a third less likely to cite these two factors as important elements in their choice of a credit card issuer.

Among the other findings of the report was the statistic that 35 percent of online credit card seekers are in an ethnic minority group, as compared to 20 percent of the total general online adult population. The primary reason for this, Callard feels, is due to the anonymity of the Internet.

Another figure of importance for credit card issuers is that with an average balance of $3,100, online credit card seekers carry $1,000 more credit card debt than the general online population. This translates into greater merchant fees and more interest income for card issuers, as long as the monthly payments are made.

The findings reported by Cyber Dialogue are from the company's cybercitizen Finance Continuous Advisory Service which is part of Cyber Dialogue's American Internet User Survey (AIUS). According to Callard, the AIUS random measures via telephone 1,000 online adults, age 18 and older, as well as 1,000 non-Internet users.

The number of Americans who have shopped for credit cards through the Internet is a projection updates hard data from the second quarter of 1999. The number of consumers reported to have actually acquired a credit card is, according to Callard, also based on hard data.