Visa and MasterCard Financial Standings

Visa and MasterCard were among the few “standouts” in the financial sector in 2011.  But as 2011 turned into 2012, the two companies have seem to have fallen behind and investors are beginning to worry about legal and regulatory issues that could hurt the card companies.

In 2011, MasterCard shares gained 70.78% while Visa gained 47.71%.  However, as of date MasterCard as only increased 5.19% and Visa brings up the rear with only earning .11%.  Some analyst predicted this turn in the market downgrading both the stocks from”neutral”  from “buy.”  They argued their reasoning was that the shift to credit and debit cards from cash has slowed.  “During the 1990s, spending on cards exceeded overall consumer spending by about 9%. During the most recent decade, this slowed to about 6%,” the report states.

Along with that, investors are very focused on an antitrust lawsuit that could result in billions worth of penalties for Visa and MasterCard.  While it seems that other competing companies, such as Citigroup and Bank of America are involved in the suit, the legal agreements between the banks and “payment networks” are by Visa’a admission complex which is critical to the company’s financial health.

Below is a chart which depicts where exactly Visa and MasterCard are standing among their competitors:

http://www.forbes.com/sites/thestreet/2012/03/15/visa-mastercard-falling-behind-financials-in-2012/

(Lack of) Job Security at Bank of America

Back in September of 2011, Bank of America Corp’s Chief Executive Brain Moynihan launched a major restructuring of the company, calling it the New Bank of America,  by cutting 30,000 jobs nationwide.  Continuing working on downsizing its consumer operations, the country’s second largest bank in terms of assets, is now targeting highly compensated investment bankers and non-US wealth managers. These efforts are expected to reduce  job rolls by 2,000 people, effecting commercial bankers jobs as well.

 

The idea is to create a smaller, more focused and profitable company.  Along with that, Moynihan is trying to cut cost to weather the fallout from the company’s disastrous take over of the California based mortgage company, Countrywide Financial Corp., back in 2008.  With the global economic crisis there has been a large decline in deal-making.  Lastly, Moynihan plans for the downsizing to compensare for reduced fees and lending income in the current environment of an unstable economy, record low interest rates and tougher bank regulations.  Analysts expect addition job cuts when more details of the broader strategy become clear.  Moral of the story: job security is extremely low right now at bank of America.  Times are tough, and I am sure glad I am not working there right now.

 

http://www.latimes.com/business/money/fi-mo-bofa-layoffs-20120501,0,3114760.story

 

Credit Card Gimmicks

Four Top Credit Card Gimmicks For Students:

Fourth: “Good Grades Reward Programs” Credit card companies offer programs where students can receive “up to” 2000 points for good grades. However, the students only receive 750 ponts if they have between a 3.5 and 3.99. College students have been conditioned by “good grade discounts” from insurance companies, who have found that kids who generally get better grades are generally less likely to get in accidents. Thus the thought of “I’ll get a good discount because I’m a pretty good student” carries over to credit cards, but only 2-3% of students actually receive the real benefit.

Third: Really complicated rewards programs. With the BP Visa Signature or Visa card for example,  you could get “25 cents off per gallon on your next fuel purchase. However, you’ll have to spend at least $100 in a month, the offer is only good for up to 20 gallons, and you won’t be able to carry over any leftover rewards. So, if you only need 9 gallons of gas on your next fill-up, the rewards for the remaining 11 gallons will go to waste.”  Then after the first 60 days, the reward drops down to 15 gallons, and you can only contribute to the rewards if you go to BP stations.

Second: “No co-signer Required.” A college student may be very enticed by the prospect of not having to have a parents co-sign the credit card.  However, if this college student does not have a steady income (as virtually no college students do) the offer does not apply.

First: Partnerships with other stores. The Banres & Noble Credit Card, the Abercrombie & Fitch Credit Card, the Costco Credit Card, the Men’s Wearhouse Credit Card. These cards typically offer discounts at certain stores, however, the APR rates can be outrageous. (Ex- 27.99 % APR at Best Buy)

http://www.creditcards.com/credit-card-news/retail-store-reward-credit-cards-1280.php

http://blog.creditkarma.com/credit-cards/3-gimmicks-credit-card-companies-use-to-lure-you-in-dont-be-fooled/

http://www.huffingtonpost.com/tim-chen/college-student-credit-cards_b_935477.html

Middle-of-the-Pack Problems

A FICO score is a figure calculated by the Fair Isaac Corporation to determine a consumer’s credit-worthiness. While the median FICO score is 710, nearly 22 percent of Americans score between 600 and 699, according to the Fair Isaac Corporation.

Today there seems to be a no man’s land in the credit card market for customers who have neither really good nor really bad credit but rather hover somewhere between the two extremes.

While credit card companies have resumed aggressively targeting customers with especially good credit scores, and even jumped back into the market for customers with bad credit scores, they are reluctant to reenter the fair credit market because they lost money on these customers during the recession. The question is the uncertainty surrounding these scores. Some people pay and some people don’t. But, banks prefer knowing whether they will be able to pay (excellent credit scores) and not be able (poor scores), then face the uncertainty of a person with a fair credit score.

A lot of this has to do with the downturn of the market–once the economy soured, these customers were typically among those hit the hardest. They were also the most volatile group in terms of their payments out of any segment of credit scores, which is expected because if you don’t have any money, you’re not expected to be able to pay your bills and if you’re well off, you can most likely afford to stay on top of your charges.

Southwest Airlines’ All-New Rapid Rewards

I interviewed a customer of Southwest that uses a Southwest credit card to learn more about their experience with the card.

How long have you had a Southwest credit card?

Two years

Why do you have a Southwest credit card?

I was sold after learning about all of the perks to using their credit card.  I get points for everything we purchase (dining rewards, hotel rewards, car rental rewards).  Also, when we buy Southwest tickets, we earn double the points.

Overall, have you been happy with your Southwest card?

Extremely.  They are very generous with their frequent flier programs.  I travel across the country fairly often, so it makes sense to take advantage of their rewards programs.

Do you consider yourself a loyal Southwest customer? Why or why not?

Yes.  I was a loyal customer to Southwest before getting their credit card.  However, now I hardly ever use other airlines.

As the video will demonstrate, Southwest has a great rewards program in place.  Developing a Southwest credit card was a very strategic decision by top management at Southwest.  As shown by the interview, Southwest customers appreciate all of the perks from using the credit card.

-Lauren Bernard

Technology and Credit Cards

Technology has slowly crept its way into our lives and has forever altered the way we do things, personally and as a society.  These days, you can use your credit card or debit card just about anywhere.  With devices such as the Square, which is a credit card reader that you can place on your iPhone, android or iPad that accepts credit cards.  Essentially it turns your device into a register.  Pretty soon, you won’t be able to use the excuse ” I don’t have any cash on me” to get out of making a purchase.   These types of technology is making the use of credit and debit cards more and more convenient, but this comes with a cost, a cost of increased spending.

It is estimated that a person will spend about 12%-18% more per month with a credit card than they would have if they used cash.   Furthermore, now that cards contain chips and other technology that allow you to wave the card instead of swiping it, this can cause people to spend an additional 9%.  With credit cards, you don’t see the immediate affect, such as your cash pile depleting- it makes impulsive buying and spending that much easier.

The Square