Credit Card Debt Management

MasterCard (MA) shareholders are undoubtedly excited to see the stock’s performance this year, an amazing 45% increase thus far. On Friday, the stock hit a record high of $320.30 — more than double its 52-week low of $120 in August 2007 — before settling at $308.65 at the close of Friday trading. The good news came after the company reportedly announced its expectation of double-digit net revenue growth in 2008.

According to Thomson Financial News:

“The Purchase, N.Y.-based company said it continues to see gross dollar volume growth rate slowing in the U.S. in the second quarter, but growing in the rest of the world, according to slides from the company’s investor meeting Thursday. In the long-term, Mastercard said it expects average annual net income growth of 20% to 30% and net revenue growth of 12% to 15%, according to the slides.”

It might not the best entry-level point for newcomers to the MasterCard stock, but Visa (V) might be worth considering. It closed Friday at $86.36, up 1.11% from the day before and almost double its IPO cost of $44 a share in March. That’s remarkable growth and still a relatively reasonable price per share, considering the respectability and stability of the Visa corporation.

Both Visa and MasterCard are considered relatively stable investments for a couple reasons. Other than the fact that we live in a credit-obsessed society and these two companies stand among the industry giants, they also have a great business model. Unlike the banks and competing credit card companies AmEx and Discover, Visa and MasterCard don’t stick their necks out with loans. All they do is collect fees off credit card transactions. Therefore, they have very little exposure to the bad debt so prevalent in these turbulent economic times.

In other credit card news, American Express (AXP) finished last week down 10.9% YTD at $46.35. Discover Financial Services (DFS) finished at $17.15, up 13.73% YTD. Capital One Financial Corp (COF) finished at $48.12, up 1.82% YTD.

The world’s first independent credit card company, established in 1950, is changing hands. Owned by Citigroup since 1981, the sell of Diners Club international network and franchisor brand to Discover Financial for $165 million was approved this month. This was cash money, a serious investment that belies how badly Discover wants to expand its payment network around the globe.

According to Banking Times, the sell was designed to “cut costs and increase efficiency,” as Citigroup was pretty banged up by bad debt, including that acquired in the subprime mortgage fallout. Citigroup’s profits for 2007 were down more than 50%, and 2008 isn’t projected to be much better.

According to the article, this acquisition is expected to be a big boost to the ailing Discover Financial:

“Diners Club is accepted at more than 8 million locations in 185 countries and Discover expects the purchase to improve its presence among business travellers, particularly outside the North American market. The transaction should add between $10 million and $15 million to the group’s annual pre-tax profit.”

Other finer points include the fact that Citigroup will retain ownership of 13 Diners licensee territories (roughly 30 percent of the total), including USA, Canada, Europe and Japan. It’s interesting that MasterCard was co-branded on Diners Club cards since 2004, a partnership that is expected to continue in the territories controlled by Citigroup. Discover’s acquisition — which gets it into the commercial market for the first time with more than 80,000 such credit cards — totals $30 billion in charge volume. Everything is expected to be finalized within 60 days.

Do you sign the back of your credit cards? There are varying schools of thought on this, the latest being a Small Life Blog post explaining why you should sign the back.

Apparently, a recent Money magazine article claimed that the practice of shopper identification verification by merchants is forbidden by Visa, MasterCard and Discover, and strongly forbidden by American Express. A credit card with a signature on the back is identification enough, the companies say. Therefore, while shoppers may hear a request to provide photo ID at the cash register, they are under no obligation to provide it and the merchant cannot retaliate by stopping the transaction.

This bit of information was verified by Small Life Blog with a quick check of the actual credit card companies’ web sites. What’s their rationale? Protection against identity theft: a cashier may get your credit card number, security code, and expiration date, but when you add in the address and zip code that appears on your driver’s license, they can do major damage.

It’s an interesting perspective, but what are the odds a merchant is going to be able to gather and memorize or write down all this information in the split second they see it? The print is so small on driver’s licenses that they probably can’t even see it anyway, or you can just hold it out for them and cover the address with your thumb. You might also use another form of identification, like a gym membership card.

Indeed, it seems to me like this is the least secure of all strategies. I subscribe more to the ideas expressed in the lifehacker blog — do not sign the back of your credit card, but instead write “Check Photo ID” in the little white space. The likelihood that a credit card thief could wind up with your credit card in their possession and try to use it fraudulently seems much greater than the likelihood that a merchant is going to record all your personal data off your credit card and photo ID. I only subscribe to this belief because I’ve seen it in action during a high school stint as a retail sales clerk, when a savvy cashier interrupted a credit card thief’s shopping spree. Frankly, I appreciate it when cashiers ask for my photo ID and have no problem with providing it. Though it may take a little more time to show your photo ID, it could really protect you long-term.