Card Overview Final

Overview Of Card
Technology To Loyalty
Industry
1
A Thought
Commerce has become a

technical issue. It is not only
about making a financial
transaction, it is about having
a relationship with the
consumer while they are
exchanging currency for goods
and services.
2
© 2001-2004 BusinessHive & Creative Commerce Group.
All rights reserved.
Insight
• Kim Resch
– Extensive Experience in Debit, Credit, and Smart
Cards, Mobile Commerce, Loyalty and Incentives.
– Practical Experience in new product launches
including Amex Blue and smart Visa.
– Specializes in project strategy, project management,
implementations, and training in the emerging areas
of commerce.
• Dave Carrithers
– 20 years experience in semiconductor, chemicals,
consumer products, incentives, stored-value & debit
cards, etc.
– Marketing, IT, Sales, NBD, operations
– Focus on product, business & market development
3
A Little Laugh
4
Objectives Of Today
• History of the card industry

• Review the different types of cards and
payment types available in the market
• Insight into how card products are
processed & the players
• Review of the loyalty card industry
• How & where the money is made in the
industry
• Review of the credit card & airline loyalty
programs
• Review of the smart card
• Trends in the world of cards & payments
• Opportunities
5
History Of Payment Cards
• 1914 - Western Union provided metal cards giving free, deferred-

payment privileges to preferred customers. These cards came to
be called "metal money.“
• 1924 - General Petroleum Corporation issued the first metal

money for gasoline and automotive services first to employees
and select customers and later to the general public.
• Late 1930's - American Telephone and Telegraph (AT&T)

introduced the "Bell System Credit Card." Soon, railroads and
airlines introduced similar cards. Credit cards grew in popularity
until the beginning of World War II when "Regulation W"
restricted the use of such cards during the war and temporarily
suppressed the growth of this new payment alternative.
6
• 1946 - A New York banker developed a credit system called Charge-

It. When customers charged local retail purchases, the merchant
deposited the charges at Biggins Bank and the bank reimbursed
(hoàn trả, bồi hoàn) the merchant for the sale. The bank later
collected payment from the customer.
• 1950 - Mr. McNamara created Diners Club charge card.
• 1951 - Customers of New York's Franklin National Bank submitted an
application for a loan and were screened for credit. Approved
customers were given a card they could use to make retail
purchases. The merchant copied the customer information from the
card onto a sales slip, called the bank for approval of transactions
over a certain amount. The bank would credit the merchant account
for the loan minus a fee to cover the costs of providing the loan.
7
• 1959 - Many banks were offering the option of revolving

credit, which allowed customers to make regular
payments on the balance owed rather than having to pay
off the entire balance at one time.
• 1965 - Bankcard associations began when Bank of

America formed licensing agreements with other banks.
This enabled them to issue BankAmericard and
Interchange transactions among participating banks.
• 1966 - Fourteen US banks formed Interlink, a new

association with the ability to exchange information on
credit card transactions.
8
• 1967 - Four California banks formed the Western States

Bankcard Association and introduced the MasterCharge
program to compete with the BankAmericard program.
• 1967 - Jürgen Dethloff invents the smart card computer.
• 1969 - As the bankcard industry grew, banks interested in
issuing cards became members of either BankAmericard or
MasterCharge. Their members shared card program costs,
making the bankcard program available to even small
financial institutions.
• 1970 - As credit card processing became more complicated,
outside service companies began to sell processing services
to VISA and MasterCard association members. This reduced
the cost of programs for Issuing Banks and Acquirers and
increased the size of the bankcard industry.
9
• 1970 / 1971 - MasterCharge and BankAmericard developed rules

and standardized procedures for handling the bankcard paper flow
in order to reduce fraud and misuse of cards. The two associations
also created international processing systems to handle the
exchange of money and information and established an arbitration
procedure to settle disputes between members.
• 1976 - A pre-paid phone card was introduced by the Italian

national phone company SIP. The introduction of the phone card
was brought about by an extreme shortage of coins in the country
which led to a rash of payphone thefts. The Italian phone card used
a magnetic stripe, similar to those found on credit cards, and
required the use of a payphone specially equipped with a magnetic
card reader.
10
• 1977 - BankAmericard became VISA.
• 1979 - MasterCharge changed its name to MasterCard.
• 1982 - Japan's Nippon Telephone and Telegraph introduced the first

Japanese pre-paid phone card to make calling more convenient for
the tens of thousands of daily subway riders in Osaka and Tokyo. Like
its European counterparts, the Japanese pre-paid cards relied on a
magnetic strip and specially equipped telephones.
• 1993/1994 - Experimental card operating system at the University of

Karlsruhe. It was mainly intended to implement and compare a
family of public key crypto protocols worked on at the European
Institute of System Security. Hence the name of the card was
"ICEcard" (Ic card for Cryptographic Experiments).
11
• 1990 New York's RBOC, Nynex released the first pre-paid calling card that
used PIN authorization instead of the magnetic stripe. Nynex's card
permitted the cardholder to dial an 800 number and enter his PIN to make
long distance phone calls.
• 1993 – First bank debit card/ checking card issued.
• 1994 - MAOSCO and Keycorp create programmable smart cards.
• 1995 – Selective Use Debit Card Issued – Exclusively Yours Card.
• 1995 – First Stored-Value card issued – Your Choice Card.
• 1996 – Visa Cash Stored-Value Launched.
12
Card Industry Landscape
The Why!
The Players!
The Program Specifics!
The How!
13
Definition of Terms
• Card Associations: Both VISA and MasterCard are not for-profit organizations
who both issue credit cards and set and maintain the rules for processing. They
are both run by board members who are mostly high-level executives from their
member banks.
• Issuing and Acquiring Banks: An issuing bank is the original bank that issues
the card, such as a First USA Visa card. The acquiring bank is the bank set up by
the merchant to accept transaction processing for cards accepted.
• Authorization Request and Response: An electronic request for authorization

sent to an Issuer by a merchant or Acquirer. The response can approve, decline or
route the transaction.
• Authentication: A cryptographic process that validates the identity and integrity

of data used in smart cards.
• Smart Card/Chip Card: A plastic card embedded with an integrated circuit, or

chip, that communicates information to a interface device. Chip cards offer
increased functionality through the combination of significant computing power
and data storage. Chip cards are capable of holding multiple applications and
sometimes are referred to as Multi-Ap Cards.
14
Definition of Terms
• Online Authorization: A method of requesting an authorization

through a data communications network other than voice to an Issuer,
an authorizing processor, or stand-in processing.
• Offline Authorization: A method of processing a transaction between

the card and terminal at the point of transaction without sending the
transaction online to the Issuer for authorization. Transactions are sent in
batch format to the processing systems.
• Processor: A vendor acting as the agent to a bank that provides

authorization, clearing, or settlement services for merchants and banks.
• Host Systems: A computer system used by an Issuer, Acquirer,

Merchant, Client or Vendor to perform in-house processing.
• Interchange: The fees merchants pay to the card associations or

companies on the transactions, usually a % of the sale price.
15
Card Industry Landscape
The Psychology of a card program

Why!
The
Cardholder Banks Corporate Merchant Processor
Players
Issuing and Sponsor / POI
Acquiring
The Access Device Rewards Program Collateral

Programs (Card, Transponder, (Points, (Loyalty supplier, (setup, statements,
Specifics Terminals ….) coupons…) database, rules) printed materials)
The Technology
How!
(Systems, processing, hardware, firmware, Issuing)
16
Transaction Breakdown
Cash Check Card eCurrencie

s*
In Store 60% 10% 30% 0%
Web 0% 0% 95% 5%
Catalog/ 0% 30% 70% 0%
Phone
* Represents e-coins/e payment services, direct deposit
17
Card Facts
• 2000 - MasterCard's 20,000 member institutions had issued

over 437 million branded cards world wide, 15.4 percent more
than the previous year. The number of cards issued in the US
reached 235.1 million in 2000, 16 percent above the 1999
level.
• MasterCard association generated $857 billion in gross dollar

volume (GDV), which includes both purchase activity and cash
transactions, representing a 21.5 percent increase on 1999. In
the fourth quarter of 2000, GDV rose 19 percent to $231
billion. In the US, full year GDV registered its highest growth
rate in six years having risen 20.2 percent to $423 billion.
• MasterCard has 21 million acceptance locations worldwide, a

12.7 percent increase on 2000.
• 1998 - Visa had issued 655 million cards, generating sales

volume of $ 1,4 trillion and was accessible at 488,585 ATMs.
18
Card Facts
Affinity Cards
• MBNA Corp. The Wilmington, Delaware-based issuer issues

cards for 4,000 groups, ranging from virtually every college
and university in the US to the International Bridge Club.
The company's 2000 annual report says its average account
balance was USD $3,519, compared with the industry
average of USD $2,311. The average transaction value for
MBNA customers was USD $129, compared with the
industry's USD $99.
• First USA has more than 2,000 partnership programs,

including relationships with America Online Inc., Microsoft
Corp., and Yahoo! Inc.
• According to association estimates, about 40 to 50 percent

of cards issued worldwide are multibranded (either a co-
branded, affinity, or loyalty card), a level that some say is
the saturation point for the market.
19
Card Facts
Affinity Cards
• MasterCard has more than 12,000 co-branded and affinity

programs worldwide. Visa has about 9,000 multibranded
programs worldwide. About 20 percent of its US card base
is co-branded or affinity.
• Auto and airlines cards each account for 23 percent of the

co-brand card market, followed by retail cards at 19
percent, according to Visa and MasterCard figures.
20
How Money Is Made
• MasterCard & Visa are not-for-profit associations, which

support member banks, which share a common network
• American Express & Discover Card are, for-profit companies

and own their own networks
• All card associations and companies charge an interchange

fee to the merchants that offer their cards
Ranges:
– MasterCard & Visa 1.2% to 3%
– AMEX 2.5% to 5%
– Discover Card 1.2% to 4%
• MC & Visa issuing banks get a cut of the interchange

(between .03% and 1% based on size of issuing volume)
• Acquiring Banks get a cut of the interchange fee, plus

sometimes a processing fee (between .002% and 1%)
21
How Money Is Made
• Processors charge a fee to handle transaction bundling

and data reporting, etc. Range between 1 cent to 25
cents per transaction
• Card issuers charge consumers a fee to have a card,

ranging from $25 a year to $300 a year
• Purchase cards charge yearly fees on reporting and

filtering support (range from $50,000 to $200,000 a year)
• Cost per card, by card manufactures range from 10 cents

to $5 dollars based on the type of card (i.e. smart card)
• Breakage & float
22
Types Of Cards
• Charge Cards
– American Express
– Retail Store/Private Label
• Credit Cards
– Visa/ MasterCard
• Secured Credit Cards
• Purchase/ Procurement Cards
• Debit/ Check Cards
• Stored-Value Cards
– Gift Cards
– Phone Cards
• Membership & Other Cards
• Smart Cards
23
Types Of Card - Charge
• Charge Cards
– American Express
– Retail Store & Gas Cards
• Interesting Points
– No line of credit – must be paid off each month
– Heavy penalties for late payment
– In the past most retail stores offered one
– Profitable for the stores
– Single retailer version limited use
– Service & extended warranty sales
opportunities
24
Types Of Card – Credit Cards
• Credit Cards
– Visa/ MasterCard
– Affinity Cards
– Airline Cards
– Limited in what can be done
– Payment pretty straight forward
– Requires credit check & approval
– Market seems to be at saturation point
– Operates on an open platform
25
Types Of Card - Secured
• Secured Credit Cards

– Target market is credit consumers
– Requires a deposit of between $500 and $2,000
– Monthly payment is required otherwise draw
down on deposit and high penalty
– Requires high maintenance and yearly fees
– Operates on an open platform with some level
of authorizations
26
Credit/Debit Online
Transaction Processing
-Merchant’s bank initiates

-Merchant’s bank initiates
transaction -Routes to locations
transaction -Routes to locations
determined by card ids for approval
determined by card ids for approval
-Merchant accepts card and processing
-Merchant accepts card and processing -Consumer’s bank approves
-Validates card by -Collects card ID/number, Merchant -Consumer’s bank approves
-Validates card by -Collects card ID/number, Merchant
transaction, sends back to
signature check or PIN ID, Amount.
transaction, sends back to
merchant
signature check or PIN ID, Amount. merchant
-Processes transaction -Settlement will post to statement.
-Processes transaction -Settlement will post to statement.
Request Request
Auth Auth
Settlement Settlement
Processor
Processor
Visa or MC
Visa or MC
systems
systems
Legacy Hosts
Legacy Hosts
27
Types Of Card - Purchase
• Purchase/ Procurement Cards

– Allows for filtering/selective use via SIC codes
(i.e. hotels, fuel, etc.)
– Spending limits (daily, weekly, monthly, by
category)
– Intense reporting & tracking
– Main target B2B & corporate travel
– Operate on an open platform, with some level
of tabling/filtering
28
Purchase/Procurement Card
-Merchant accepts card -Merchant;s bank initiates

-Merchant accepts card -Merchant;s bank initiates -Processes transaction
-Validates card by transaction -Processes transaction
-Validates card by transaction -Approves or Declines
signature check or PIN -Processes against SIC filter -Approves or Declines
signature check or PIN -Processes against SIC filter transaction
-Processes transaction -Routes to appropriate locations transaction
-Processes transaction -Routes to appropriate locations -Posts to statements on
-Posts to statements on
settlement
settlement
Request
Request
Auth
Auth
Settlement
Settlement
Processor
Processor
Visa or MC
Visa or MC
systems
systems
SIC Filtering
SIC Filtering
29
Types Of Card – Debit/Check
• Debit/ Check Cards

– Started out as ATM only card
– Requires a pin
– Access to a bank/ checking account (continual
deposits)
– No credit line (instead an overdraft line)
– Concern by retailers on fees
– Runs on bank transaction networks (Interlink and
Maestro)
– Networks originally designed for banks to share
information
– Operates on an open and/or closed platform with
security
– Filtered (selective use) and open available
30
Debit Offline
-Merchant accepts card

-Merchant accepts card -Collects batch data and formats -Processes transaction
-Validates card with PIN -Collects batch data and formats -Processes transaction
-Validates card with PIN clearing transaction -Posts to statements
-Processes transaction clearing transaction -Posts to statements
-Processes transaction -Approves or Declines transaction
-Approves or Declines transaction
-Routes to appropriate locations
-Routes to appropriate locations
Batch Request Request
Auth and Settlement Auth and Settlement
Processor
Processor
Visa or MC
Visa or MC
systems
systems
Legacy Hosts
Legacy Hosts
31
Types Of Card – Stored Value
• Stored-Value Cards
– Gift Cards
– Phone Cards
– Mall Cards
– Gas Cards
– Open and Filtered (selective use) from one store, to a
chain, to a mall
– Funds are pre-loaded on the card – most once spent
are disposable
– Most are anonymous
– Most operate on a closed platform
32
Stored Value
-Cards are preloaded with -Transaction processes like -Processes transaction

-Cards are preloaded with -Transaction processes like -Processes transaction
points. Debit -Posts to statements
points. Debit -Posts to statements
-Merchant requests -Card is validated against
-Merchant requests -Card is validated against
transaction stored value hosts or filtering
transaction stored value hosts or filtering
-Verifies Card
-Verifies Card
Request Request
Auth Auth
Processor
Processor
Visa or MC
Visa or MC
systems
systems
Legacy
Legacy
Hosts/filters
Hosts/filters
33
Types Of Card - Other
• Membership & Other Cards

– Most likely no payment involved
– Account &/or membership ID / number
– Discounts / punch cards
– Special access/ areas
– Purchase or activity tracking
– Magnetic strip &/or bar code
– More about belonging to a club/group
– Operates on a closed platform
– Loyalty & frequency tracking
34
Membership Card
-Card is accepted
-Card is accepted
-Checked against internal
-Checked against internal
database
database
-Can be routed to third-party
-Can be routed to third-party
database through processor.
database through processor.
Example:
Internal
Blockbuster
Database
rd
3 party
Example:
Database
Processor
Processor
DiningAlaCarte
35
Types Of Card – Smart
• Smart Cards
– Multi functional (debit, stored-value, credit)
– Simple cards to very complex (based on chip
type)
– High security & fraud protection
– Requires special reader
– Contact & contactless technologies
– Operates on closed and open platforms
– Can have multiple currencies (i.e. cash, points,
etc.)
36
Smart Card
-Card and Terminals authenticated with

-Card and Terminals authenticated with
cryptograms
cryptograms -Validates card and
-Obtain PIN, if needed -Validates card and
-Obtain PIN, if needed transaction data
-Verifies static data on chip transaction data
-Verifies static data on chip -Routes to hosts
-Processes static programs offline -Routes to hosts
-Processes static programs offline systems
-Sends transaction online systems
-Sends transaction online -Processes settlement
-Routes to any internal legacies -Processes settlement
-Routes to any internal legacies -Formats the crypto authentication -Posts to statements
-Verifies risk parameters on card -Formats the crypto authentication -Posts to statements
-Verifies risk parameters on card request
request
-Routes and initiate online
-Routes and initiate online
transactions.
transactions.
Online Request Online Request
Auth Auth
Processor
Processor
Visa or MC
Visa or MC
systems
systems
Legacy Hosts
Legacy Hosts
37
Smart Card Overview
Voucher Replacement
Automated Lodging
Mobile Commerce Processes
Logical & Physical Access •Smart Card: 101 Electronic Ticketing &
Automated Air Travel
•The Market Processes
•Smart Cards in
POS / Merchant's Loyalty
Automated
•Lessons Learned Car Rental Processes
Corporate Security Target Marketing and

Expandable to other
Locations
Enhanced Customer Special Offers and

E-Purse Loyalty Programs
Information
38
History of Smart Cards
• Smart Cards have been around since the early 70’s. The
patent was registered in 1974.
• Commercialization started in the early 1980’s with phone
cards.
• In 1993, there were 300 million Smart Cards issued in the
world. (80% were phone cards)
• In 1998, Amex Blue was introduced in US.
• In 2000, vendors shipped 1.6 billion chip cards worldwide,
of which 541 million were cards with microprocessor chips,
up 36% from the year before.
•In 2005, vendors will ship an estimated 2.4 billion of the
higher-end microprocessor cards, half of which will be
subscriber identity module cards for mobile phones
39
What is a Smart Card?
• A smart card resembles a credit card in size

and shape, but inside it is completely different
• A silicon chip beneath a contact plate
• The silicon chip is a small computer with 8-
64bit microprocessor
• It has the same processing speeds as old
computers, such as Tandy
40
Smart Card at a Glance!
Contact Plate
Applications
EMV Loyalty Wallet Misc.

Appl.
Operating System (MULTOS, JAVA, Windows)
Silicon
1234 5678 9012 3456

Joe Smith
41
Why Smart Cards?
• Security and fraud reduction
• Interactive
• Storage Capacity
• Dynamic downloading
• Side Note: Outside the U.S., Smart Card use

has aggressively taken place because of two
major factors:
1. Telecommunications is very poor &
costly
2. Majority of transactions are offline
42
Types of Smart Cards
• Memory Card: No processing capability

• Contact
• Contactless (Proximity): Using Radio
Frequency
• Combi-Card
• Transponders or Key Fob
Operating Systems
•Java Card
•Multos
•Microsoft Windows for Smart
Cards
43
Fraud and Security
• Magnetic stripe technology remains in wide use in the

U.S. However, the data on the stripe can easily be read,
written, deleted or changed with off-the-shelf
equipment.
• To protect the consumer, businesses in the U.S. have

invested in extensive online mainframe-based computer
networks for verification and processing.
• The microprocessor on the smart card is there for

security. The host computer and card reader actually
"talk" to the microprocessor. The microprocessor
enforces access to the data on the card.
44
Fraud and Security
• Smart cards are protected with a public/private key

infrastructure:
– Digital Signatures
– Cryptography to perform:
• Data Integrity
• Authentication
• Non-repudiation
• Confidentiality
45
Why are Smart Cards Safer?
• Built in interactive capabilities
• Personalized cryptography
• Tamper resistant, cannot be reproduced
• Creates card present environment
• Individual risk parameters
Note: Security directly contributes to price.
46
Standardization
• EMV (Europay, MasterCard and Visa)

– Card specifications
– Terminal specificities
– Application specifications
• Cross-border concerns
• How are they doing so far?
47
Common Uses of Smart Cards
The most common smart card applications are:

• Credit cards
• Electronic cash
• Computer security systems
• Wireless communication
• Loyalty systems, like frequent flyer points
• Banking
• Satellite TV
• Government identification
48
Common Applications
• Loyalty: Multiple programs, tickets, points,

coupons, one-to-one.
• Network Access: secure email, secure sign-

on, web access.
• Payment: Secure transactions, multiple

accounts.
• Travel: reusable tickets, virtual ticketing,

links to payment applications and software,
Automated check-in, reduced fraud.
49
Smart Cards In Other Countries
• Smart cards are much more popular in Europe

than in the U.S.
• In Europe the health insurance and banking

industries use smart cards extensively. Every
German citizen has a smart card for health
insurance.
• Even though smart cards have been around in

their modern form for at least a decade, they
are just starting to take off in the U.S.
50
Where The Smart Card Market Is
Headed!
• Card issuers want chip card to reduce fraud.
• Anticipates multi-aps will attract cardholders and

transactions.
• Chip Manufacturer and Hardware Suppliers are

showing losses
• Readers are not being adopted….even when free.
• Keyboards are progressing.
• Merchant migration is happening.
• Gimmicks are more successful than functions (i.e..

Blue, Clear)
51
• Internet transactions are “seeming” more secure.
The Current State of the Market
American
Express
o Launched “Blue” September of 1999. Now with
over 2 million cards.
o Applications: Secure Access, Wallet, Reader,
BlueLoot
o Rolling out to multiple countries, Business,
Student.
o Decommissioned Wallet
o Focusing on palm computing and mobile.
52
Visa USA
o Visa USA Launched “smart Visa” September 2000

o Over 3 million cards with Providian, First USA and Fleet.
o Applications: Payment, Access, Loyalty, Reader.
o Launched Target POS (Providian made first transaction).
o Hypercom, Vital and National City teaming up for POS
o Pushing Loyalty as driver for merchant
53
MasterCard
o Citibank planned September 2001 launch of

4m cards
o Applications: e-cash, loyalty, e-ticketing
o Strong alliances, yet Multos-based.
54
Loyalty and Smart Cards
• Multi-ap functions are prime for loyalty, yet difficult to

please the whole market.
• Closed environments are good examples and ripe for
loyalty.
• Will supply more security.
• Market will not advance without merchant.
• Have not proved usable functions are more superior
than mag stripe.
• What the industry is looking for is a “gift card on
steroids.”
55
Opportunities for Loyalty
• Relationship management on the card

• Multiple earning and redeeming
• Individualized information and preferences
• Points and programs held locally on card
• Info storage capacity
• Links to databases
56
Obstacles In Adoption
• Infrastructure
• Ease and convenience with Mag. Stripe
• Cost of card and conversion
• Retailer ROI
• Cardholder confidentiality
• Standardization
57
Lessons Learned
• Version and program control

• Application segregation
• Transaction processing changes
• Card/program expiration dates
• Replacement cards
• Branding
• Servicing
• Information management / multiple databases
58
A Quick Review
Frequent Flyer & Card

Programs
59
Frequent Flyer & Card Programs
• Prior to 1980, FFPs Not Possible

– Airline Industry Regulation
– Lack of Infrastructure
• Dominated by Unsophisticated Offerings
– Merchandise & Coupon Based
– S&H Greenstamps
– Raleigh Cigarette Coupons
• 1981 Regulatory & Market Changes Give Birth To FFP
– American invents frequent flyer miles
– Loyalty Becomes Impossible Without A Planned Program
– Hertz joins and subsequently drops, citing the high costs. Later
rejoins after dramatically losing market share without a FFP.
Today Hertz belongs to 20 FFPs
– After in-house Frequent-Stay Programs, hotels conclude that the
greatest marketing benefits still come from the FFPs
60
• "We didn't want an FFP. But it came to my attention that

FFPs were siphoning business travel away from us. We did
it defensively, and I think if we had not done that we would
have been terribly disadvantaged."
- Herb Kelleher, President, Southwest Airlines
• First 20 Years Of FFP 9.77 Trillion Miles Accumulated

- Source: InsideFlyer Magazine 2001
• 1985 - Banks Team Up With Airlines
• Co-branded Cards Wildly Successful

– Average spend up to 10x higher
– Active account rate up to 80 percent or higher
– Attrition and acquisition costs decline
• 150,000 members in 1981 to 200,000,000 members in 2001
61
• By 1991: All major airlines and banks established

exclusive relationships and Hundreds of credit card
issuers locked out
• 1994: “Virtual Airline” is Born – Generic Mile Programs
• Miles by a different name:

– Single Branded Miles vs. Co-branded Miles
– Generic vs. Branded Points
– Non-Restrictive Points – Any Airline In The World
• How Generic Points Work:

– Sold to Over 125 of the largest US Banks
– Consumer Acceptance: fees $25 to $75
– Spend Ranges: $8,000 to $22,500 a year
– Officially Sponsored by MasterCard
– Amex plays “Follow the Leader”
– $200 Billion + Spent on Enrolled Cards
– No need to Co-brand with an airline partner
62
Top Banks With Unrestricted
Programs:
• Capital One • First USA

• GE Capital • Fleet
• Travelers Bank • Morgan Stanley
• Direct Merchants Dean Witter
• Chase Bank
• Bank One • Charter One
• Wells Fargo
• MBNA
• Household Bank
• HSBC
• Town North
• Comerica
• Citibank
• Merrill Lynch
• Household Credit
63
Loyalty Learning’s
• 71% of consumers if FFP said they wouldn’t trade

their frequent flyer benefits for lower airfares.
Source: Frequent Flier Magazine
• The proven addition of miles can drive repeat

purchases and maximize customer lifetime value.
Source: Hambrecht & Quist
• Consumers charge about $3,200 a year on a

typical credit card – add miles and they spend
more than $18,000 a year.
Source: Bank Rate Monitor
64
Universal Mile + Network + Card
The Network as a Catalyst for Increased Spend and Activation
Purchases on XYZ BANK PLUS all other

card at partner $1,32 $ card purchases
retail locations outside the
5 partner
Miles Earned Through Partners: 2,125 network
Miles from Card: 1,325 +
Total Earning that Month: 3,450 +
300 Miles 100 Miles 250 Miles 300 Miles 800 Miles 375 Miles
$ 300 $ 100 $250 $ 300 $ 300 $ 75
+ + + + +
65
Grocery © Retail
Gas & Oil All rights reserved.Electronics
2001-2004 BusinessHive & Creative Commerce Group.
Trip TeleCom
(online & offline)
Universal Mile + Network + Card
Incremental monthly revenue volume increases 400%+ & revenues increase $100
Million + a year.
$500
Increase in Monthly Charge Volume (in
Sample Card Issuer with 200,000 cards
$400 EXAMPLE* Monthly Annual

Revenue Revenue
Increase Increase
Increased $ 4.0 M $ 48.0 M

$300 Spend
$Millions)
Incremental
Increased $ 2.7 M $ 32.8 M
monthly charge
Activatio
volume goes from
n
$200 $72M to $314.2M
$ 1.9 M $22.3 M
—an increase of
Increased
430% Acquisitio
n $ 8.6M $
$100
103.1M
TOTAL
$0
00
00
00
00
00
00
00
00
00
00
00
00
$0
,0
,2
,6
,8
,4
,0
,2
,4
$2
$4
$6
$8
$1
$1
$1
$1
$1
$2
$2
$2
Average Monthly Spend 66
* Revenue figure based on 2.9% of gross charge volume in interchange and miscellaneous fees, plus 60% revolving balances at 13.9% annual
Card & Mile Issues To Keep In Mind
• Attainability Of The Program Member: Limited

Earnings Capability = Short-Term Loyalty &
Interest
• Single Partner, Stand Alone Programs: Even Top

Customers Can’t Make For A Successful
Program – It Requires A Network
• Just Because They Carry Your Card Doesn’t

Mean You’ve Captured Their Heart: "The
research shows clearly that the existence of a
loyalty card scheme is not associated with a
degree of loyalty in shopping habits." -Source:
Customer Loyalty Today
67
Trends – Relationship Convergence
Wireless Data
Availability
Security Loyalty
68
Thank You For Your Time
KimResch, FounderandPresident
Decision making around technical issues is expensive.
Think-tank atmospheres are vital, yet difficult and
expensive to implement in corporate America. Efficient
implementation is the key to success. It is not an
environment for a learning ground. Let us help with:
www.CreativeCommerceGroup.com •Resources for the Emerging Commerce Industry

Creative Commerce Group, Inc. •Smart Card and Magnetic Stripe Solutions
is dedicated to the support of their •Hardware Equipment and Implementation
client’s needs and solutions. Each
client offers unique and special •Stored Value Card Applications
challenges, whether in
technology, in concept •Loyalty Strategy Specialist
development, in speed to market •Project Management Formula “Methodlogically”
or hardware to make it happen.
But through disciplined project
management, we have helped
clients' launch new products
successfully, time-and-time again.
636-861-9850orKim@ccg-i.net
69
Thank You For Your Time
David Carrithers, Chief Bee Keeper

Providing consulting services for business individuals looking for honest
and straightforward counseling, coaching & implementation of business
solutions that improve profit performance and loyalty with employees,
channels and customers. www.BusinessHive.com
Generating Results Through:
Targeted Individualized Coaching Program
•Improved Customer & Employee Loyalty
•Enhanced Product, Market & Business Development Results
• Profitable Brainstorming & Product Creation
•Faster & More Accurate Product & Business Launch
Management
•Unbiased Incentive Program Assessment & Support
•Dynamic Organizational Development
707-484-3620 or e-mail David@BusinessHive.com

70

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Overview Of Card

Commerce has become a

• History of the card industry

• 1914 - Western Union provided metal cards giving free, deferred-

• 1924 - General Petroleum Corporation issued the first metal

• Late 1930's - American Telephone and Telegraph (AT&T)

• 1946 - A New York banker developed a credit system called Charge-

• 1959 - Many banks were offering the option of revolving

• 1965 - Bankcard associations began when Bank of

• 1966 - Fourteen US banks formed Interlink, a new

• 1967 - Four California banks formed the Western States

• 1970 / 1971 - MasterCharge and BankAmericard developed rules

• 1976 - A pre-paid phone card was introduced by the Italian

• 1977 - BankAmericard became VISA.

• 1979 - MasterCharge changed its name to MasterCard.

• 1982 - Japan's Nippon Telephone and Telegraph introduced the first

• 1993/1994 - Experimental card operating system at the University of

• 1993 – First bank debit card/ checking card issued.

• 1994 - MAOSCO and Keycorp create programmable smart cards.

• 1995 – Selective Use Debit Card Issued – Exclusively Yours Card.

• 1995 – First Stored-Value card issued – Your Choice Card.

• 1996 – Visa Cash Stored-Value Launched.

The Program Specifics!

• Authorization Request and Response: An electronic request for authorization

• Authentication: A cryptographic process that validates the identity and integrity

• Smart Card/Chip Card: A plastic card embedded with an integrated circuit, or

• Online Authorization: A method of requesting an authorization

• Offline Authorization: A method of processing a transaction between

• Processor: A vendor acting as the agent to a bank that provides

• Host Systems: A computer system used by an Issuer, Acquirer,

• Interchange: The fees merchants pay to the card associations or

The Psychology of a card program

The Access Device Rewards Program Collateral

Cash Check Card eCurrencie

* Represents e-coins/e payment services, direct deposit

• 2000 - MasterCard's 20,000 member institutions had issued

• MasterCard association generated $857 billion in gross dollar

• MasterCard has 21 million acceptance locations worldwide, a

• 1998 - Visa had issued 655 million cards, generating sales

• MBNA Corp. The Wilmington, Delaware-based issuer issues

• First USA has more than 2,000 partnership programs,

• According to association estimates, about 40 to 50 percent

• MasterCard has more than 12,000 co-branded and affinity

• Auto and airlines cards each account for 23 percent of the

• MasterCard & Visa are not-for-profit associations, which

• American Express & Discover Card are, for-profit companies

• All card associations and companies charge an interchange

• MC & Visa issuing banks get a cut of the interchange

• Acquiring Banks get a cut of the interchange fee, plus

• Processors charge a fee to handle transaction bundling

• Card issuers charge consumers a fee to have a card,

• Purchase cards charge yearly fees on reporting and

• Cost per card, by card manufactures range from 10 cents

• Breakage & float

• Secured Credit Cards

-Merchant’s bank initiates

• Purchase/ Procurement Cards

-Merchant accepts card -Merchant;s bank initiates

• Debit/ Check Cards

-Merchant accepts card

Batch Request Request

Auth and Settlement Auth and Settlement

-Cards are preloaded with -Transaction processes like -Processes transaction