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ARLINGTON, Va. – In the wake of the card data breaches of 2005, security, security and more security are the watchwords for 2006, according to different card executives, closely followed by a steady increase in the gift and prepaid card markets and a steady expansion in the rewards arena. “I think you are going to see an increased focus on security across the card industry and across the transaction,” said Kenton Potterton, a director with PSCU Financial Services, the card processing cooperative for more than 500 credit unions that use First Data’s card platform. “With all the breaches last year I think security is going to be one of the lead card stories, if not the lead story,” Potterton said. Potterton said that too many credit unions were still moving their card platforms to platinum for the industry to be looking for the next new thing, or even to discern what would necessarily be the next new thing. “If platinum has become the new gold or classic,” Potterton said. “It’s hard to see what the next platinum will be. Signature has some appeal and is gaining steam among some high-end consumers but I don’t think it has caught on quite like platinum eventually did.” Potterton also predicted that rewards programs on both debit and credit cards would continue to gain strength in 2006 as credit unions sought different means to drive traffic to both types of cards, but he declined to offer a comment about the potential impact that legal decisions on interchange might bring to the card industry. “With so much up in the air about that I don’t think I have anything to offer on it,” he said, though he expected that PSCU would keep an eye on it. He also reiterated PSCUs position downplaying persistent rumors that First Data might sell its card processing business. “I understand that these rumors have come about before and that nothing has come of them,” said Potterton, who came to PSCU in Sept. 2005 from the $1 billion Baxter Credit Union, “so I don’t expect anything will now either.” By contrast, Jim Brahm, vice president with Certegy, cited a potential sale, noting the rumor had already introduced enough uncertainty among credit unions that Certegy had begun to see the effects. Certegy itself has a shareholder meeting on Jan. 26 that will determine if its merger with Fidelity National Financial goes forward. If the merger does move forward, Brahm said that will mean Certegy has more financial institutions to which it can offer services and existing client CUs shouldn’t see any changes at all. Brahm agreed with Potterton that security would be a watchword for the year and added that Certegy saw a lot of potential new business arising from its gift and prepaid card business and that over 900 credit unions started taking the gift card in 2005. That is almost 25% of the roughly 4,000 CUs that the process their credit transactions with Certegy. He added that he expected the gift and prepaid cards that credit unions offered would fly under the rising law enforcement and security concerns about prepaid cards generally because credit unions, which sell the cards only to their members by definition, know who they are. He agreed with Potterton that rewards programs would continue to grow in popularity but doubted that any credit unions would take up innovative card reward programs such as those offered by Bank of America. Last year, the bank began to offer a debit card which would round up cardholder purchases to the nearest dollar and deposit the difference in a savings account. “We really haven’t heard from many credit unions that are interested in that idea,” he said, adding that he thought more traditional rewards programs would offer cardholders more of what they wanted. Brahm also said he was encouraged at credit union card programs’ improved performance and growth and said the industry may have seen the high tide of card portfolio purchases. “I think part of it is that cards are performing better,” Brahm said, “but I also think more credit unions finally appreciate their card programs for the sorts of relationship products they really are. They are thinking more along the lines of making sure they have access and control of that relationship product,” he added. The latest data available from NCUA indicated that card portfolio sales were on a pace similar to last year’s but might not come in any higher than that. Glen Lee, senior vice president with TNB Card Services, agreed that rewards programs would continue to gain in popularity and said that he expected more credit unions to take the option of offering rewards for all parts of their credit union members’ relationship with their credit union. Credit unions like these sorts of reward programs because they helped establish them as the members’ primary financial institution, Lee said. [email protected]

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