The Case Against Catuity (CAT)

The Catuity AGM will be held this Thursday.

For those who are interested in an Aussie tech cutting it in the big smoke I have compiled a summary of recent events and statements (from both Catuity and Visa executives) which provides some background information on future directions/possibilities.

It is reproduced from my Stockhouse posting:

US Smart Card Market -v- Catuity

Catuity the defendant stands accused of stealing the US smart card loyalty opportunity.The evidence is mounting.It is outlined below for your pre-AGM consideration:The evidence is taken from Catuity announcements and satements obtaained from high level Visa operatives- :

4 April 2002 - how's this for bottom picking-Director Mount buys well ahead of the AGM-and these are just a few of the 140K (involving over AUS$0.5 million outlay-some risky company we have here ,eh?)he bought in the recent months,placing him at the apex of the Top Twenty:

Number Acquired 83,881

Number disposed -

Value/consideration $280,013.25
(Average price per share of
$3.34)

Price now $5.42-buy another Boomerang now-or don't they come back anyway?.

And don't forget that CEO Mike Howe also bought some of his own the same day 10000 @ US $1.98 -

pourquoi?that's french for?

24 April 2002 -Catuity discusses the Visa smart rewards platform:

"The backbone of the smart Rewards Platform is a centrally hosted computing system that will manage the interaction between rewards applications on smart cards and software and administration rules residing on point-of sale terminals."


22 Feb 2002 - now remember that backbone you just read about?....well

"Catuity Inc (ASX code 'CAT' and NASDAQ code 'CTTY') has received a
Notice of Allowance from the US Patent and Trademark Office for a
patent claim directed principally to a method or system for
manipulating data on a plurality of data carrying devices (such as
smart cards) used in multiple terminals capable of communicating with
a host to conduct numerous programs such as electronic payments,
ticketing and loyalty programs."

"Catuity has patents pending in many countries including Australia and Catuity has been advised by its Australian patent attorneys that it is reasonable to assume that its claim will be granted in these countries"

I love reasonable assumptions.

(ever heard of a patent for a backbone?Mmmmmm..only way to get into the skeleton of the smart infrastructure is through the backbone-that should start some bells ringing!)

21 Jan 2002 -

"Our development work for Visa is proceeding as scheduled, and we look
forward to the full implementation of the Catuity systems with smart
Visa later this year. The multi-program smart Visa product will set
new functionality standards for smart card systems and the
opportunities the Visa relationship provides Catuity are setting the
basis for an exciting, growth oriented future."(CEO Mike Howe speaking there)

(We are talking Target here-whole system due for delivery this month-let's see what they say at the AGM)

12 Dec 2001 -

"The company at this point projects it will be profitable
(subject to non-cash adjustments) and cash flow positive in 2002 with
revenues of more than A$14 million, which would be a 250% increase
over 2001 revenue. "

and think a bit "beyond the cube"...:

"Catuity expects consolidation to occur within the smart card software
market, the loyalty market and more broadly the CRM market. Catuity
intends to participate in this consolidation phase of the market.
Catuity continues to hold discussions with Welcome Real Time about
the potential for mutually beneficial co-operation.

Catuity is examining ways to increase its technical integration
capabilities and to extend its reach into the data analytics markets.
Both these activities complement and add to the existing product and
market position and offer revenue enhancement opportunities. When
examining opportunities Catuity is looking for complementary features
with it's existing business in loyalty software markets or businesses
that offer niche market positioning, service similar customers and
involve similar software expertise."

and

"Within the context of business strategic development, Catuity will:

* Seek agreements with other card associations and major strategic
participants in card issuing and transaction acquiring areas.

* Continue to extend market reach through marketing and other
relationships with businesses that provide market access.

* Continue to lead the industry in creating loyalty system
inter-operability through standard development as an industry
objective.

* Continue to extend relationships with POS terminal suppliers, card
suppliers and other infrastructure suppliers."

and some figures:

"We estimate that Visa member banks in the US will have issued 7.5
million payment smart cards by the end of 2001 and we estimate more
than 30 million (approximately 9% of all Visa cards) by the end of
2002. We forecast total payment smart cards issued in the US by the
end 2001 to exceed 15 million with American Express being the other
major issuer."..

(these 2001 forecasts proved to be accurate by the way in recent surveys-15 million out there)".

That's just Catuity-let's hear from the horse's mouth-Senior Visa executives quoted recently concerning smart cards and smart rewards:

"The program will roll out with existing Smart Visa issuers and new issuers before the end of the year, says Patrick Gaulthier"

(Just to put that in perspective-a later press report from the same conference said this:

"JP Morgan and the Bank of America (BofA) have both hinted that they are to begin to issuing Smart Cards before the end of the year according to a report in American Banker.


JP Morgan told the magazine it planned a "soft launch" of chip cards this year, whilst a Bank of America executive, speaking at CardTech/SecurTech this week, said his company would do the same. The BofA card is expected to include online authentication, electronic signatures and stored value for mobile payments and offline transactions."...and don't forget B of A ,Citi ,Chase-are the top three in the US banking tree)..and you may want to read the underlying research too-here is the post reference:
pourquoi5 (ID#: 224751) CAT/Bank Of America-A Deal? 25/4/02 10:51:07 PM 5090310 )

Now I digressed-back to the Visa rep's_

""The vast majority of the 10 million-plus smart cards in the United States now already are loaded with loyalty support," said Patrick Gauthier, senior vice president-smart card applications of e-Visa U.S.A. in speaking to press at the CardTech/SecurTech conference in New Orleans this week. "

"Rewards resonated strongly with merchants," Patrick Gauthier, senior vice president of smart card applications for e-Visa U.S.A., says. "Merchants were interested in a platform that all merchants and issuers can use," (thus the coming together of Catuity and Welcome).

"Visa likely will financially support new hardware installations at POS for select merchants. Gauthier says a major goal of Visa U.S.A. is to increase the number of points of smart card acceptance in the physical world."..(so they are handing out free carrots to merchants)

" The new platform will overlay the smart Visa program and likely be adopted by both current (Wilmington, Del.- based First USA, Horsham, Pa.-based Fleet Credit Card Services, San Francisco's own Providian Financial and Retailers National Bank, issuer of the Target Visa) and yet-to-be announced smart Visa issuers by the end of the year, says Gauthier(HE KEEPS REPEATING HIMSELF THIS BOY!) Visa's new platform is designed to support customized rewards sponsored by both merchants and issuers. Data from the transaction is recorded on chips in real-time and transferred to host databases in batch mode."


and remember that backbone patent?-well read this-more spinal tapping-

"Visa seeks merchants with high frequency of consumer purchase activity. Customer service on all programs will be hosted by a Visa platform where significant data across loyalty propositions will be aggregated so consumers receive answers about the total value of their smart cards with a single call. For headier questions related to a single merchant loyalty offer, Visa U.S.A. will be the spine. It will manage the card database such that detailed customer inquiries can be routed to the "appropriate architecture sponsor through that 'loyalty verified by Visa' pipe," said Diana Knox, senior vice president-emerging channels, in her presentation "Building the Multi-application Highway," delivered yesterday afternoon."

And finally a repeat of my take on the two announcements by Visa concerning smart rewards by Visa and the WRT/CAT interoperability initiative:


"THE SIGNIFICANCE TO CATUITY


These announcements are of fundamental significance to future success.

First-CAT remains the sole loyalty supplier to Visa smart.

Second-WRT/CAT develop the interoperability initiative,keeping the market largely to themselves in the process-in the vital formative stage.CAT has an edge in the two party war though.Note how far Mastercard is off the pace-it has nothing like this system announced tonight.WRT's alliance with Mastercard is a slow cart alliance.

Third-Interoperability leads to standards creation,and standards which will in all likelihood embody CAT's own technology,even possibly patented technology.That will occur with the host system which Catuity has created for the rewards platform

Fourth-That CAT is developing this rewards platform for Visa ensures it has first foot in the door for Visa banks.Tonight a Visa exec is saying there are two definite projects this year-they must be Catuity as it is the sole loyalty supplier.Remember Visa has previously said that four more banks will join the smart fray this year

Fifth-all of these initiatives have brought the technology "down to earth" and ensured rapid achievable practical adoption of operating systems so that when the Target rollout occurs those who want to copy can be quick to market.Fundamental stuff,wonder who can help them get there quicker.

Sixth-and this is one I particularly like because it has large implications for Catuity-customers from all sectors-the second announcement concerning the rewards platform stressed the fact that a number of participants could operate off the one card and system-so what has been developed here is obviously the operating platform for coalition loyalty-a good idea in the past,but now a practical achievable and seemingly achieved reality.So Providian,First USA etc can now join an airline,a supermarket,a clothes retailer on one card and allow cross selling opportunities driven by rewards which are redeemable across the coalition.THAT is definitely BIG news.

Seventh-we have hints of contracts in the wind for Catuity.NPC is right behind this initiative and is quoted in the announcement.Second largest processor in the States and mega clients.The Visa exec reference to two product programs as well. "


The case against the Defendant Catuity is becoming rather strong.The inferences one can draw as to the future activities it will conduct in stealing the US market are compelling.The witnesses have spoken.You be the judge