Paynetsecure Blog

These days everyone is using plastic to pay.  And that “everybody” includes corporations.  More and more corporations are making purchases on corporate or purchasing cards.  It’s a wise decision for the company since record keeping and account reconciliation is a breeze.

Corporate cards provide an additional level of data to the purchasing business, allowing them avoid the costly administrative process of creating purchase orders, while still providing the data they need to reconcile, control and track expenses for smaller ticket items.

Any merchant with corporate clients will find that accepting corporate credit cards is essential to satisfying the payment needs of corporate clients.  Merchants accepting cards save the cost of invoicing and get better control DSO (Days Sales Outstanding).  Contingent liabilities are minimized, collections are easy and invoicing procedures are shortened or eliminated all together.

Corporate cards require a payment processor accept as Level II and Level III cards.  The extra levels refer to the additional amount of data captured from the cards known as Level II and Level III data.

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Despite all the negative news about the US economy, average credit scores for US consumers are still pretty good.  According to Credit Karma, the average credit score for U.S. consumers has stayed fairly steady, dropping only 8 points within the last few months.

The average credit score of US consumers now stands at 669.  Miami consumers have the lowest credit scores, with an average of 654, or 15 points below the national average.

Consumers lowered their credit card debt in January, 2010, decreasing debt 2% over December 2009.  The average credit card debt in January was $7,925, a decrease for from $8,079 in December 2009.  Consumers in four states – Kentucky, Minnesota, Oregon and West Virginia reduced credit card debit even more, decreasing amounts owed by 5%.

Ken Lin, Credit Karma’s CEO, predicted that credit scores will hold steady in 2010.   Lin believes people are getting a handle on their finances and have a greater sense of how credit scores affect their lives.

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Charge-offs on credit card rose about half of a percentage point in November, according to Moody’s Investors Service This ended the slight improvement in chargebacks trending which happened for the two months prior.  The credit card delinquency rate in November rose to 6.2%.  The charge back rate was 10.56%.

With the current economic climate, credit card issuers expect chargebacks to stay high for the the foreseeable future.  The rise will be particularly steep for the first quarter of 2010 and then level off, although still remaining high.

Card issuers began tightening underwriting standards for credit issuing about 18 months ago.  This will help lower delinquencies because there is substantially less credit available than before the meltdown.  Today’s credit card holders are a better risk and more likely to replay their debts.

However, even though sub-prime lending may be thing of the past, the increased unemployment rates are bound to impact even the best credit risks.  Unitl the economy makes a strong turn-around, including stabilizing employment, credit card defaults will continue to be a major problem for issuing banks.   And, there are many fewer debt-buying companies today than there were a few years again, limiting the market for bad debt portfolio sales.

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Consulting firm AlixPartners,reported that its recent survey of shopped revealed their top concern was eliminating personal debt.  In order to decrease debit, credit card spending is on the decline as shoppers opt to pay for gift purchases with cash or debit cards.

Of course, the cutbacks on availbe credit availale on cards also severely curtailed the amount of credit consumers have to spend.  The Federal Reserve recently reported that consumer borrowing fell for a record ninth straight month in October. Demand for revolving credit, the category that includes credit cards, fell 9.3%, following drops of 10.5% in September, and 10.6% in August. In all, credit card borrowing has fallen for a record 13 straight months.

Alternative payments are taking up some of the slack in the drop in credit card payments.  For example, PayPal, saw a 20% surge this quarter over last in customers that opted to pay by echecks instead of credit cards.  Echecks are a form of direct debit that deducts payments directly from the consumer’s checking or savings accounts

Forrester Research estimates that alternative payment services, now represent 11% of total online payments.

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American Express Company reported third-quarter income of $642 million, down 25 percent from $861 million a year ago. Diluted earnings per share from continuing operations were $0.54, down 27 percent from $0.74 a year ago.

Net income was $640 million for the quarter, down 21 percent from $815 million a year ago. Consolidated revenues net of interest expense was dropped 16 percent to $6.0 billion, down from $7.2 billion a year ago. Consolidated provisions for losses were $1.2 billion, down 13 percent from $1.4 billion a year ago.

The company’s return on average equity (ROE) was 11.7 percent, down from 27.8 percent a year ago. Return on average common equity (ROCE), was 10.4 percent, down from 27.6 percent a year ago.

U.S. Card Services reported third-quarter net income of $109 million, compared to net income of $244 million a year ago.  Total revenues net of interest expense for the third quarter decreased 16 percent to $2.9 billion, due to reduction in card member spending, lower securitization income, net and lower loan balances.

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Provisions for losses totaled $850 million, a decrease of 10 percent from $941 million a year ago. The decrease was due to lower loans and receivables. Total expenses decreased 11 percent. Marketing, promotion, rewards and member services expenses decreased 16 percent from the year-ago period, reflecting lower rewards costs and reduced investments in marketing and promotion.

International Card Services were brighter with reported third-quarter net income of $127 million, compared to $67 million a year ago.