ABOUT PAYMENTFLEX®

1.  Paymentflex®, what is it?
2.  How Does It Work?
3.  What performance results have been achieved?
4.  What programs show quick wins?

CUSTOMER IMPACTS

5.  What is the value of Paymentflex® to customers?
6.  How does Paymentflex® affect customer behavior?
7.  How do customers respond to Paymentflex® in market research?
8.  Who is the target customer for Paymentflex®?

TARGET PRODUCTS/GEOGRAPHICAL MARKETS/ISSUERS:

9.  What products/loans can be leveraged with Paymentflex®?
10.Can Paymentflex® be used with a 0% and/or Reward Programs?
11.Can Paymentflex® be used with a fixed or variable interest rate product?
12.What are the target geographic markets for Paymentflex®?
13.Which issuers are best candidates to deploy Paymentflex®?

GENERAL REQUIREMENTS:

14.What are the technology requirements?
15.What are the licensee/issuer usage requirements?
16.What are the statement and disclosure requirements?
17.What are the patent, trademark, copyright, logo and general reference requirements?
18.What additional information is available about the patents and trademarks?
19.What does the Paymentflex® program cost?

PRICING/RISK/MARKETING/FINANCIALS

20. How are interest income, net interest income and yield impacted by Paymentflex®?
21. How does Paymentflex® improve credit quality and the charge-off (loss/default) rate?
22. How does the issuer balance pricing, risk and payment level?
23. How does the issuer model alternative payment and interest charge savings benefits?
24. What are examples of marketing communications pieces for bank card deployment of Paymentflex®?
25. What tools are available from Paymentflex Technologies, LLC to assist in business case development?
26. What additional information is available from Paymentflex Technologies, LLC?

REGULATORY AND CONSUMER ADVOCACY ENVIRONMENT
27. How does Paymentflex® align with the current regulatory and consumer advocacy environment?
28. How does the state of the credit card industry correlate with the relevancy of Paymentflex®?

GENERAL

29. What is the inspiration for Paymentflex®?
30. Why is Paymentflex® such a WIN-WIN-WIN for customers, issuers and regulators/consumer advocates?
31. Why haven't we seen Paymentflex® before?
32. Why is the Paymentflex® team so passionate about their solution?

1. Paymentflex®, what is it?
Paymentflex® is a customer-friendly, patented credit system that rewards customers with interest charge savings and payment flexibility. Two alternative deployment methodologies are available to deliver the interest charge savings (both based on the cardholders' payment amounts), depending on product and country: 1) cash back savings on monthly interest charges applied and posted as a statement credit; 2) interest charge savings as lower interest rates next month.

This transformational product allows customers to CHOOSE their interest charge savings benefit EACH month simply by paying their bill; the more they pay the more they save the next month. No other action is required by the cardholder or the issuer. The Paymentflex® system manages every part of the transaction and its results.

ALL customers can have a substantial interest charge savings benefit ALWAYS. Customers are rewarded for responsible use of credit. Issuers have a compelling product to attract responsible customers carrying balances. Paymentflex® is simple, transparent and seamless to users. It is positively aligned with the current regulatory and consumer advocacy environment.

In general, Paymentflex® is an "aspirational" product that provides for powerful marketing and risk advantages. The card issuer controls and sets the payment tiers (alternatives) and corresponding interest charge savings (cash back savings statement credit or lower interest rate) with strategies that can be program, segment and account-specific.

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2. How does Paymentflex® work?
Each month, CUSTOMERS CHOOSE their payment amount, which DETERMINES their interest charge savings benefit. No other action is required by the customer or the issuer. The transaction is totally systemic. The tables below, Figures 1 a & b, illustrate scenarios of a customer's payment alternatives. Note the relationship of the payment percentage, payment amount, and interest charge savings, expressed as a cash back savings statement credit or lower interest rate in each alternative tier.

[Note: the payment and interest percentages are illustrative only. The issuer sets all rates according to their risk management and pricing guidelines.]

Figure 1a - Illustration of Paymentflex® Alternatives - Cash Back Savings Statement Credit benefit expressed as a percentage of monthly interest charges

Figure 1b - Illustration of Paymentflex® Alternatives - Lower Interest Rate benefit

All elements are determined by the issuer, including the middle alternative tier, if utilized. The issuer can use the
Paymentflex® technology as:

   • a universal enhancement feature for existing reward or value programs
   • as a unique product offering, including replacing more costly reward programs
   • the payment percentage and interest charge savings benefits can be modified by the issuer for different customer segments
     based upon their profitability and risk profiles and/or priorities

The issuer sets the minimum payment contractual interest rate based on the risk profile of the customer, as it does today. The issuer may maintain existing penalty fee and re-pricing strategies affecting the minimum payment contractual interest rate, while always allowing the customer to access the Paymentflex® program interest charge savings benefit(s) whenever the required payment(s) is made.

Customers see the interest charge savings benefit opportunity as something they can always get if they make the larger(est) payment(s). Each month, customers choose their payment and corresponding interest charge savings benefit based on their current financial situation. The customer is more accepting of the result since they can always choose and control their payment amount. Research shows, for revolvers, a "permanent low interest charge savings benefit opportunity" outranks all other product features including no annual fees and reward programs. An impressive 70 percent of surveyed revolvers reported that they would be likely to apply for a Paymentflex® credit card (based on five independent research studies in North America).

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3. What performance results have been achieved?

Financial models are available from Paymentflex Technologies, LLC to quickly help the issuer understand the key drivers
and outcomes of using Paymentflex®. [See Pricing/Risk/Marketing/Financials FAQ #'s 20-26]
Financial institutions that have worked with Paymentflex® have reported:
• Published KeyBank USA actual in-market results:
   - KeyBank promoted the Paymentflex® methodology (KeySmart) exclusively as their only credit card product for 4 years.
   - They publicly communicated results in their annual report and the press as follows:
     • Direct Mail Response Rates 3 times higher than industry average
     • 20% higher revolve rate
     • 20% higher balances
     • Better credit quality
     • Source: The New York Times, October 13, 1996, Pay Bills Early? Now It Can Pay
   - Credit Industry Marketing Award - 1st Place - Direct Mail (1997)
   - Sale of Credit Card Receivable at record premium of 26%.
     • Source: The New York Times, December 29, 1999 Company News; Associates First is Buying Keycorp's Credit Card Unit

• The interest yield with Paymentflex® may be slightly lower dependent on an issuer's pricing and payment strategy.
   Lower yield from customers stretching to reach the higher payments and interest charge savings benefits are partially offset
   with an increase in the overall revolve rate. In general, the normalization of the payment choices occurs quickly as the
   balances build resulting in a drift of the payments toward the lowest tier. Overall balances generally increase.

• The response, activation and revolve rates in general are higher for acquisition and activation/retention programs.

• Credit quality improves since Paymentflex® attracts higher-quality revolvers. This is the converse of adverse selection.

• Results depend on excellence in execution:
   - The degree of success achieved with Paymentflex® is directly proportionate to:
     • the logic of the targeted portfolios
     • segments or customer group targeted
     • quality of the communication in each medium
     • the appropriateness of the message to the channel selected
     • the degree of commitment to Paymentflex® overall
   - Paymentflex Technologies, LLC is available to provide non-confidential knowledge, experience and examples of
     successful deployments across all media alternatives and channels.
   - Paymentflex Technologies, LLC assistance can significantly reduce the time required to familiarize all functionally involved
     areas in the successful deployment of this methodology/technology.

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4. What programs show quick wins?

Paymentflex® performs best with a marketing and distribution strategy that includes a "high customer touch" environment.
Customer contact with trained customer service representatives optimizes the Paymentflex® marketing communication
and performance. Past deployment approaches include:

1.Branch acquisition programs have driven increased application volumes with higher applicant credit quality and activation
rates than prior programs.

2.Direct mail programs with back-end telemarketing have driven higher response rates and - most importantly - higher
overall activation rates than traditional programs.

3.Customer retention/anti-attrition programs, utilizing customer service contact, drove "save-our-customer" performance
better than control offers. High-potential targeted segments included:
   - existing cardholders who are currently "purchase" and "revolve" inactive
   - existing cardholders who are "purchase" active but "revolve" inactive (transactors) but do revolve with other institutions
   - existing cardholders who are "revolve" active but not "purchase" active

4.Using Paymentflex® as a collections tool encourages delinquent cardholders to give higher priority to meeting their
credit obligations to the issuer. An additional advantage is that the payment percentage choice of customers can be
leveraged within existing behavioral scorecards to help predict future delinquency. Finally, Paymentflex® can potentially
support issuers attempting to address negative amortization situations with delinquent customers.

Figure 2, below, highlights easy-to-implement and quick wins leveraging the Paymentflex® methodology core value
propositions of real choice, control, flexibility, and savings:



Figure 2 - Paymentflex® Implementation Alternatives

Any deployment requires an accurately focused pricing strategy. The interest charge savings promoted should align with marketplace offers available to each customer segment. The minimum payment/contractual interest rate credit terms should be as good as customers can get from the competition.

When the lower interest rate benefit deployment alternative is utilized, the highest payment interest rate should be as good as they can get for short-term (secured or unsecured) credit lines and/or low introductory or special promotional financing interest rates. The impact of "low interest rate always" should not be underestimated. "Prime always" is especially compelling.

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5. What is the value of Paymentflex® to customers?

The value of Paymentflex® to customers is threefold:

1.They are given more real choices and control of their credit.
2.They can save money (interest charges).
3.They no longer need to be distracted by competing credit card offers (Paymentflex®-powered card goes to top-of-wallet).

These three factors intertwine to give customers new and incremental value from their credit card.

• To the extent that customers make higher payments, they are rewarded with lower interest charges and accelerated
debt "pay down." The immediacy of the reward is very clear to customers.

• They have the choice of maintaining the lower debt level or reusing the resulting additional "open to buy" on their
credit line. Cash constraints may require customers to make minimum payments from time to time.

• When the customers' choice is to pay the minimum amount, they are more accepting of the related minimum payment contractual interest rate, because it is a consequence of their decision.

• Cardholders look for choice, flexibility and real value - not gimmicks. Paymentflex® delivers on all of these in ways that are visible to them every month. They are less inclined to look at other competing credit card offers.

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6. How does Paymentflex® affect customer behavior?

Customers have responded to the Paymentflex® payment choices in one of three ways:

1. Some cardholders will adjust their monthly credit card payments and purchases to take full advantage of the Paymentflex® card reward features. They will make the larger credit card payments to take advantage of the interest charge savings and correspondingly increase their monthly credit card purchases to balance their overall cash resources. These customers typically spend to maintain the level of debt they are comfortable carrying. Additional aggressive marketing efforts targeting these customers, such as balance transfers and convenience checks (and line increases when warranted), should yield dramatic increases in balances, as cardholders transfer/consolidate their outstanding debts from other financial institutions.

2. Some customers will use the Paymentflex® reward program as a tool to reduce their overall debt levels. The card will be the customers' debt consolidation tool of choice as it allows them to achieve interest charge savings without giving up financial payment flexibility (especially when offered balance transfer or cash advance options). They understand that they have the ability to make smaller payments whenever the need arises.

3. Some customers have the desire to make larger payments when their monthly cash flow permits, but will typically make their historical minimum payment. Because the minimum payment/contractual interest rate is competitive with their other credit alternatives, they will value the Paymentflex® card for its monthly payment/interest charge savings choice, regardless of whether it is used or not.

Small Businesses will similarly respond and use the Paymentflex® capability to assist them in managing their "working capital" as follows:

• Manage cash flow by spreading costs over several months at lower interest rates or by saving interest charges
• Handle the cost of unexpected equipment replacements
• Cover receivables versus payables gaps
• Spread travel and sales expenses over time
• Budget for recurring expenses like maintenance, rent, etc.
• Use as a short-term business loan without having to apply separately (with all the paperwork and waiting) through their Bank.

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7. How do customers respond to Paymentflex® in market research?

Detailed research is available. Here are some highlights. The Paymentflex® product/methodology was surveyed* to
gauge:

• If the ability to save money on interest charges compares favorably to other credit card value propositions, such as
rewards programs.
• Do credit card users find the Paymentflex® functionality attractive and would they apply for such a product were it
available?

Results:
The ability to save money on interest charges was judged VERY IMPORTANT by:
• 60% of all credit card users
• 63% of respondents with university or college education
• 67% of those in Professional or Executive occupations
• 88% of those that revolve

Paymentflex® functionality appeals to the most profitable cardholders.
 • 71% of those who revolve a credit card balance would be VERY or SOMEWHAT interested in Paymentflex®.
• 57% of respondents with university or college education and Professional or Executive occupations indicated they
would be VERY or SOMEWHAT interested in Paymentflex®.

The above results are consistent with five other earlier proprietary North American studies.

* Available Quantitative Research

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8. Who is the target customer for Paymentflex®?

Paymentflex® is attractive to revolvers at all income levels around the world and resonates favorably with people's
cultural expectations of fairness.

• Convenience users can also be incented to revolve on a "Paymentflex® Powered" product if the offered lower interest rates or cash back savings on their monthly interest charges are competitive with customers' credit alternatives.

• Non-or-occasional revolvers can be motivated to carry a balance (even for a short period of time) with a Paymentflex® program which gives them the opportunity for a low interest rate or cash back savings on their monthly interest charges, always, any month they choose. Making a higher payment stimulates spend velocity, and increases open-to buy for customers with reward programs. Any revolving activity within this cardholder group will result in incremental profitability to the portfolio.

• Inactive customers (both purchase inactive and purchase/balance inactive) can be motivated to reactivate and move the card to top-of-wallet (particularly when extended cash advance and/or balance transfer offers).

• Small Businesses will use a Paymentflex® - powered card as a short-term business loan versus having to apply for one separately through their Bank (with all the paperwork and waiting)

• [See FAQ # 9: "What products/loans can be leveraged with Paymentflex®?"] to gain additional perspective on target
customer segments.

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9. What products/loans can be leveraged with Paymentflex®?

Paymentflex® can be leveraged with the following:

Credit Card:
• Bank branded (segmented by: lifestyle, general, new family, movers, convenience versus revolvers, etc.)
• Small business (working capital loans understood by entrepreneurs)
• Co-branded
• Agent bank branded
• Affinity branded
• Young Adults
• Private label retail (an opportunity to reactivate convenience users and match bank card rates)

Consumer Lending:
• Debit (ATM) card and checking account overdraft protection lines (an attractive reward that does not cannibalize interchange
   revenue and creates incremental net interest income opportunities).
• Unsecured revolving lines of credit
• Home equity (card and non-card loans)
• Installment loans

Small business non-credit card loans

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10. Can Paymentflex® be used with a 0% and/or Reward Programs?

The issuer can use the Paymentflex® credit system as a universal enhancement feature for existing reward or value programs, or as a replacement for more expensive rewards programs as a unique stand-alone product offering.

Paymentflex® can easily be integrated into any 0% program as the "go-to" rate(s) or a cash back savings on their monthly interest charges program after the 0% expires, thereby creating the opportunity to retain the balances versus losing them to competitive offers.

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11. Can Paymentflex® be used with a fixed or variable interest rate product?

The issuer can use the Paymentflex® credit system without any changes to their existing policies/strategies regarding variable and/or fixed interest rate pricing, re-pricing and penalty pricing that is compliant with current regulations.

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12. What are the target geographic markets for Paymentflex®?

The United States is a market that has already demonstrated a favorable response to Paymentflex®. The United Kingdom, Canada, Europe, Africa, Middle East, India, China, Australia New Zealand, the Philippines, Southeast Asia, and Central and South America are opportunities since Paymentflex® plays to cultural expectation of fairness in these countries.

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13. Which issuers are best candidates to deploy Paymentflex®?

The target ideal issuer characteristics for deploying Paymentflex® include:
• Multiple loan product issuer (credit card, home equity and unsecured lines of credit)
• Multiple acquisition/distribution channel capability (direct mail, telemarketing, branch)
• One-to-one marketer that is experienced with super-prime, prime and non-prime risk groups.
• Expertise in risk management, pricing and account management are important.
• Customer and small-business-owner focus.
• Values its brand and personality to reflect a pro-customer image
• Provides innovative, customer-friendly lending products.
• Aggressive bank-branded, co-branded, agent bank and affinity branded issuer.
• Credit Unions.

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14. What are the technology requirements?

Paymentflex® is currently programmed and readily available on the TSYS and First Data processing systems. Issuers can also easily add the functionality to their in-house proprietary systems.

Paymentflex Technologies, LLC can assist in expediting deployment by directing issuers to knowledgeable professionals within their respective processor organizations.

Disclosures and regulatory requirements are easily met and require only minimal changes to existing documentation.
[See FAQ # 16: "What are the statement and disclosure requirements?"]

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15. What are the licensee/issuer usage requirements?

• Licensee/Issuer Methodology Flexibility:
   a.  Issuer shall have the ability to use two, three or more payment/interest charge savings tiers.
   b.  Issuer shall have the ability to use their existing variable and/or fixed interest rate pricing and re-pricing and penalty pricing
        policy that is compliant with current regulations.
• "Use as Intended" as a Pro-Consumer Product Requirements:
   a.  The higher/highest Paymentflex® payment tier percentage payments must always be aligned with lower/lowest interest
        rates or higher/highest cash back interest charge savings benefits
   b.  The originally promoted Paymentflex® lower/lowest interest rates or higher/highest cash back interest charge savings
        benefits based on the higher/highest payment tier percentage must always be available to an active customer
   c.  The originally promoted Paymentflex® higher/highest payment tier percentage aligned with the lower/lowest interest
        rates or higher/highest cash back interest charge savings benefit must always be available to an active customer
   d.  When using the lower interest rate Paymentflex® program, It is highly recommended that the interest rate on the first
        balance of a newly issued credit card (or on a re-activated dormant credit card with a zero balance) be set at the lowest
        interest rate offered by the issuer as a demonstration of how the program works and as an initial incentive for them to
        continue using the card and paying more when they can
   e.  Paymentflex Technologies, LLC will be informed on an on-going basis, in advance, of all new deployments as well as
        modifications, changes, additions, or variations to existing deployments

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16. What are the statement and disclosure requirements?

Statement Message Requirements:
Each month the customer's statement displays the required minimum payment and, in a separate message, reminds the
customer of the Paymentflex® alternative payment and interest rate or cash back interest charge savings benefit tiers.

  1. Customer statement message of Paymentflex® payment and interest rate/cash back interest charge savings benefit tiers are required (including dollar payment necessary to get the Paymentflex® interest charge savings benefits. Alternative messaging can be discussed with representatives of Paymentflex Technologies, LLC.

Examples utilize three payment/interest charge savings benefit tiers;
purchase and cash advance interest rates are the same.

Deployment Option using Benefit as Cash Back Savings on Monthly Interest Charges:

With the ABC Bank Paymentflex® Card, the more you pay, the more you save!
Congratulations! You saved $XX this month, and $XX since opening your account.

Based on your new balance:
Pay $XXX(1) or more and you will save 50%(2) on your interest charges shown as a credit on your next statement.
Pay at least $XXX(1) and you will save 25%(2) on your interest charges shown as a credit on your next statement.

[(1) The credit issuer's billing system calculates the amount based on each customer's current outstanding balance. (2) The customer's Paymentflex® percentage savings of interest charges are determined by the credit issuer. It is recommended to always promote the highest available interest charge savings benefit(s).]

Deployment Option using Benefit as Lower Interest Rates:

Make a larger payment on your Paymentflex® Powered Card
And be rewarded with a lower APR.
Save money on interest charges and pay off your balance sooner.

---------- Paymentflex® Payment Options----------
Pay $XXX(1) or more and your APR next month will be X.X%(2)
Pay at least $XXX(1) and your APR next month will be X.X%(2)

[(1) The credit issuer's billing system calculates the amount based on each customer's current outstanding balance. (2) The customer's Paymentflex® interest rate(s) are determined by the credit issuer. It is recommended to always promote the lowest available interest rate(s).]



  1. Alternative Paymentflex® marketing messages can be discussed with representatives of Paymentflex Technologies, LLC.


General Disclosure Requirements:
 Paymentflex® offers simple, seamless & transparent disclosure & messaging

Disclosure Example for Paymentflex® Interest Charge Savings Benefit

ABC BANK | © 2011 Paymentflex Technologies, LLC. When we receive qualifying payments of at least 5% of your Statement balance on or before the payment due date, you will receive a Paymentflex Savings Credit. The Paymentflex Savings Credit is calculated as follows: when you pay 5% to 9.99% of your Statement balance, you will receive a credit of 25% of the interest charged on your next Statement; and when you pay 10% or more of your Statement balance, you will receive a credit of 50% of the interest charged on your next Statement. The Paymentflex Savings Credit will be applied to your Statement balance, and post to your Account on the Statement cycle date of your next Statement. Your Account must be open to receive the Paymentflex Savings Credit. Qualifying payments do not include Paymentflex Savings Credits, other credits, adjustments, refunds or similar Account transactions. The ABC Bank Paymentflex® Credit Card is Powered by Paymentflex Technologies, LLC. ABC Bank is an authorized user of Paymentflex® US Patents #5,933,817 and #6,836,764, and of the Paymentflex registered trademark pursuant to license from Paymentflex Technologies, LLC. ABC Bank is the card issuer/creditor of the credit card program described in this offer.

Disclosure Example for Paymentflex® Purchase APR Benefit:



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17. What are the patent, trademark, copyright, logo and general reference requirements?

a. Licensee/Issuer must reference patent(1), trademark(2), and copyright(3) notes on all program materials as detailed below.
b. Licensee/Issuer must use one or more of the following associated Paymentflex® logos:



c. Customer/Issuer must use one or more of the following associated Paymentflex® references:
   - Powered by Paymentflex®
   - Paymentflex® Powered Cards
   - Powered by Paymentflex Technologies

d. Licensee/Issuer must provide prominent visibility of Paymentflex® relationship via the following venues, including
     but not limited to:
   - Initial and On-Going Joint Press Releases to: Public, Industry, Governmental and Investor Audiences
   - Paymentflex® Branding/Name of Product

e. Licensee/Issuer must provide Licensor with:
   - Permission to reference relationship
   - Endorse the validity of Paymentflex® to other potential licensee/issuers. Degree of detail provided is at the
      discretion of the licensee/issuer.
   - Blind Performance Information (marketing acquisition and portfolio management metrics/measures) to be
      blended with other data for the proprietary use of Paymentflex Technologies, LLC.

(1) Paymentflex® has been issued US Patents #5,933,817 and #6,836,764 and has patents pending in other international
markets; Licensee is a licensed user of Paymentflex® US Patents #5,933,817 and #6,836,764.

(2) Paymentflex® is a registered trademark in the United States (Registration No. 2550671), Canada (Registration No. TMA743862) and the European Community (Registration No. 001600956) and is pending in other international markets.

(3) Copyright markings must be used if referencing and distributing Paymentflex Technologies, LLC materials (© 2011 Paymentflex Technologies, LLC).
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18. What additional information is available about the patents and trademarks?

Paymentflex® has been issued US Patents #5,933,817 and #6,836,764 and has patents pending in other international markets. Paymentflex® is a registered trademark in the United States, Canada and the European Community and is pending in other international markets. Additional inquiries can be directed to Paymentflex Technologies, LLC.

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19. What does the Paymentflex® program cost?

Paymentflex® patent and trademark licensing fees and terms are available only after executing a mutual non-disclosure agreement with Paymentflex Technologies, LLC or its representatives.

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20. How are interest income, net interest income and yield impacted by Paymentflex®?

Paymentflex® deployments generally lead to higher balances, increased number of revolvers (revolve rate) and greater interest and net interest income.

To optimize returns (grow balances and win market share), the issuer should evaluate all profitability metrics:
   • on an incremental per account basis, as well as
   • the combined volume/market share profitability lift

The issuer can use the Paymentflex® credit system without any changes to their existing policies/strategies regarding variable and/or fixed interest rate pricing, re-pricing, and penalty pricing.

The issuer controls the desired yield. The issuer will wish to protect the yield with an appropriately risk-based priced minimum payment contractual APR. The issuer can alternatively target a lower or higher yield (net interest income), based on their strategy (acquisition, reactivation, reissue, etc.), by adjusting the lowest payment/contractual interest rate.

Paymentflex Technologies, LLC recommends that the issuer set the contractual APR at what the customer normally sees in the marketplace from competitors in order to:

1. optimize response, and
2. reduce adverse selection credit quality issues.

While this may result in a slightly lower yield (net interest income), it is more than offset by all the other positive performance metrics (response rate, activation, balance build, retention, spend/utilization, credit quality, etc.).

Of course the highest payment interest charge savings reward (or lowest interest rate) is also important since it is the primary motivator for response by and utilization of the credit line by all customer segments, especially the occasional revolvers.

Interest income is impacted by customers stretching to reach the higher payments and interest charge savings reward (or lowest interest rate) and is offset with an increase in the overall revolve rate. In general, the normalization of the payment choices occurs quickly as the balances build resulting in a drift of the payments toward the lowest tier.

Overall balances generally increase.

The interest rate yield impact is dependent on the issuer choice of:
• Strategy [See FAQ # 2: How does Paymentflex® work?]
• Product [See FAQ # 9: What products/loans can be leveraged with Paymentflex®?]
• Program [See FAQ # 4: What programs show quick wins?]
• Customer segment (balances and/or account segment) [See FAQ # 8: "Who is the target customer for Paymentflex®?"]
• Desired customer behavior [See FAQ # 6: "How does Paymentflex® affect customer behavior?"]
• Pricing strategy [See FAQ #23: "How does the issuer model alternative payment and interest charge savings benefits?"]
• Payment tier and corresponding APRs [See FAQ # 22: "How does the issuer balance pricing, risk and payment level?"]

Paymentflex® can also be used as a re-pricing tool in a rising interest rate environment. Issuers can adjust the offered contractual interest rate and protect yield while offering a positive Paymentflex® interest charge savings benefit.

Paymentflex Technologies is available to provide financial tools to assist issuers in optimizing their strategies and results
[See FAQ # 25: "What tools are available from Paymentflex Technologies to assist in business case development?"].
Also see past performance results [FAQ # 3: What performance results have been achieved?"]

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21. How does Paymentflex® improve credit quality and the charge-off (loss/default) rate?

Paymentflex® improves credit quality and the charge-off (loss/default) rate, (whether used in acquisition or for existing account management), and offers a low-risk growth alternative.

Paymentflex® is a payment methodology that allows the customer to choose self-directed, risk-based pricing. Self-directed risk-based pricing leads to better correlation of risk with APR. Issuers who imbed Paymentflex® in their portfolios no longer need dramatic re-pricing initiatives. In addition, customers perceive self-directed risk based pricing as fair and within their control.

Based on the credit risk of the targeted consumer, the issuer sets the payment alternatives and associated interest charge savings benefits at levels that balance the risk inherent at each payment level. When consumers make a larger monthly payment, they represent a lower risk to the issuer and therefore have earned the interest charge savings benefit. If their payments are at the lowest alternative, the issuer is not providing any interest charge savings benefit for the added risk.

Therefore, the issuer is actually indifferent to the actual payment amount chosen by the consumer if the contractual interest rate is correctly risk-based priced.

With acquisition strategies, Paymentflex®:
• draws a higher share of low-risk/higher-quality revolvers (this is the converse of adverse selection), and
• the approval rate is higher and the credit quality of these approved customers is higher/better

Customers who can make the higher payments (and thereby earn interest charge savings benefits) have the willingness and capability to meet their credit obligations.

There is a proven correlation between higher payments and lower risk. It is a fundamental basis of behavior scoring.
There is also an established relationship between higher payments and lower customer default. [See FAQ # 22: "How does the issuer balance pricing, risk and payment level?"]

With existing accounts: With Paymentflex®, higher quality receivables begin flowing into the portfolio from the lower-risk customers (such as pay-in-full, occasional revolvers and others who pay more than the monthly minimum). The cards with the Paymentflex® product/feature, become top-of-wallet for these customers, (particularly when they are extended cash advance and/or balance transfer offers).

In addition, these customers can now consider carrying a balance with the issuer's program since they are being offered a market-competitive interest charge savings benefit (as compared to other loan products, such as home equity and other lines of credit). Since these customers have already demonstrated that they can make the larger payments, they may now consider slowing-down their payments to take advantage of the attractive interest charge savings benefit(s). They may even consider transferring balances from other loans.

Note: the high-risk customers/balances in the issuer's portfolio remain constant (unless these customers are invited out of the program or their credit lines are reduced).

Charge-off (loss/default) rate: The number of "bad" accounts and balances (receivables) will generally remain constant in the portfolio (despite aggressive credit line reductions and account closures). With Paymentflex®, higher quality receivables flow in to obtain the interest charge savings benefit offered. This in-flow of quality receivables from lower risk customers will increase the overall size of the outstanding loan portfolio asset. The calculation of the charge-off rate is positively improved since the charge-offs (numerator) on a larger loan base (denominator) is a lower ratio.

[Note: To further enhance this ratio, a selective credit line increase strategy to the lower-risk customers, should be considered.]

Using Paymentflex® as a collections tool encourages delinquent cardholders to:
• pay the issuer's loan first (encourages payment priority)
• improves collections effectiveness
• demonstrates a willingness by the issuer to "work with the customer"

Modeling and Risk: Use of Paymentflex® creates a new risk separator for future modeling.
• A shift of payments to lower payment tiers provides an advance signal of potentially increasing risk.
• An additional advantage is that the payment percentage choice of customers can be leveraged within existing behavioral
  scorecards and adaptive control tools to help predict future delinquency and to provide additional line increases to
  cardholders demonstrating capability and willingness to pay.
• Finally, Paymentflex® can potentially support issuers attempting to address negative amortization situations with delinquent
  customers.

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22. How does the issuer balance pricing, risk and payment level?

Paymentflex® is inherently a payment methodology that allows the customer to choose self-directed, risk-based interest charge savings benefits. The issuer, based on the credit risk of the targeted consumer, sets the payment alternatives and associated interest charge savings benefits at levels that balance the risk inherent at each payment level. When consumers make a larger monthly payment, they represent a lower risk to the issuer and therefore have earned the interest charge savings benefit. If their payments are at the lowest alternative, the issuer is not providing any interest charge savings benefit for the added risk.

Therefore, the issuer is actually indifferent to the actual payment chosen by the consumer if the contractual interest rate is correctly risk-based priced.

A direct correlation between payment levels and credit quality is evidenced by the attributes of the following four (A - D) real, in-market portfolios.



Figure 3 - Correlation of Payment Levels and Credit Quality

In Figure 3, above, as the monthly payment (measured as the percent of the account balance being paid) increases, the average FICO score increases, representing higher credit quality. So, it can be concluded that, with higher monthly payments, there is lower risk.

In Figure 4, below, the risk associated with accounts shows a very strong correlation to the monthly payment (measured as the percent of the account balance being paid). Customer accounts that pay a higher portion of the account balance each month are less likely to result in a charge-off.



Figure 4 - Correlation of Payment Levels and Charge-Off Rates

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23. How does the issuer model alternative payment and interest charge savings benefits?

A card issuer can model the alternative payment and interest charge savings benefit offerings, based on account specific attributes including statistical insights.

[See FAQ 22: "How does the issuer balance pricing, risk and payment level?"]

While the permutations are perhaps endless, here are four fundamental alternatives:
• Straddle: Optimize response, activation, revolve behavior and credit quality.
• Spread: Marketing simplicity, elimination of "as low as" offers, and alternative to targeted risk-based pricing.
• Spend: Target high interest charge savings benefit to boost response. Profitability drivers are "spend velocity" and revolvers.
• Retail: Target existing customers who are occasional revolvers, or who pay off in full. Profitability driver is stimulating
   revolve behavior that mirrors bankcard behavior. This is an interim step before conversion to bankcard.

Figure 5, below. Examples of four pricing strategies, two tier approach, for different product, customer, and distribution alternatives.*

[Note: all input payment percentages and interest rates are for illustrative purposes only and will be determined solely by the Issuer. When using the cash back interest charge savings benefit alternative, substitute appropriate interest charge savings %'s for the interest rate %'s.]



Figure 5 - Four Example Pricing Strategies

Issuers are not limited to setting the payment tiers and interest charge savings benefits based on the above guidelines. Situations may exist where exceptions are warranted. The above methodology is a guideline only, based on past implementation experience. Paymentflex Technologies, LLC provides consultative support to assist Issuer consideration of alternative strategies and customized approaches.

Also, it is presumed that credit lines with Paymentflex® (and other card/program features) offered are competitive with other credit card offers in the marketplace.

* Guidelines:
(1) The issuer is indifferent to the actual payment chosen by the customer. If customers make the larger payment, they represent a lower risk to the issuer, thereby earning the interest charge savings benefit. If their payments are at the lowest alternative, the issuer is not providing any interest charge savings benefit for the added risk.
(2) The contractual interest rate and associated smallest minimum payment (i.e., 3%) should be set at the same level that would be offered to the targeted customer with a traditional card offer.
(3) The highest payment level (for example, 8% to 25% range) should be aligned with a low competitive interest rate or comparable interest charge savings benefit.
(4) A third (middle level) alternative payment tier is optional. If used, the middle level payment (set between the lowest and highest payment levels) should be aligned with an appropriately attractive interest charge savings benefit between the high and low tier interest charge savings benefits. This mid-level tier is essentially a placeholder utilized by a minority of customers, unless the payment level spread is significant. It should, therefore, be considered as an option if the highest tier payment percentage is greater than ten percent. It also provides a compelling demonstration of the marketing message of choice, control and flexibility.
(5) Issuer can alternatively target a lower or higher yield, based on their strategy, by adjusting the minimum payment contractual interest rate.

The overall business imperative is to target revolvers, while balancing pricing, payment, and risk (along with all other performance measures) to meet overall business objectives, such as annual return on assets (ROA), market share, and market valuation of the portfolio.

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24. What are examples of marketing communications pieces for bank card deployment of Paymentflex®?

A central compelling theme to the Paymentflex® offering is that all customers always have the opportunity to choose an interest charge savings benefit.

It is The Ultimate Reward. Figures 7, 8 and 9, below, are examples of marketing communication (1) pieces using the low interest rate benefit to explain and offer a program in which Paymentflex® is positioned as a universal enhancement feature.

Additional deployment examples (including the cash back interest charge savings benefit) reflecting real in-market experience are available from Paymentflex Technologies, LLC to assist issuers.

(1) Examples only. [See FAQ 16: "What are the statement and disclosure requirements?"]



Figure 7 - Example Cardholder Communications - General Purpose



Figure 8 - Example Cardholder Communications - Small Business



Figure 9 - Example Cardholder Communications - Young Adults

Paymentflex Technologies, LLC's experiences and other research suggest that the marketing messages displayed in
Figure 10, below, have relevance and impact:



Figure 10 - Suggested Issuer Marketing Messages

In general, Paymentflex® is an "aspirational" product that provides for powerful marketing and risk advantages. The card issuer controls and sets the payment tiers (alternatives) and corresponding interest charge savings benefits with a strategy that is program, segment and account-specific. The issuer sets the minimum payment contractual interest rate based on the risk profile of the customer, as it does today. The issuer may maintain existing penalty fee and re-pricing strategies permitted by current regulations that affect the minimum payment contractual interest rate, [while always allowing the customer to retain access to the Paymentflex® program interest charge savings benefit(s) in any month whenever the required payment(s) is made].

Customers see the interest charge savings benefit opportunity as something they can get if they make the larger/largest payment(s). Each month, customers choose their payment and corresponding interest charge savings benefit based on their current financial situation. The customer is more accepting of the resulting outcome. Research shows, for revolvers, an "interest charge savings benefit" outranks all other product features including no annual fees and reward programs. An impressive 70 percent of surveyed revolvers reported that they would be likely to apply for a Paymentflex® credit card (based on five independent research studies in North America).

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25. What tools are available from Paymentflex Technologies, LLC to assist in business case development?

Paymentflex Technologies, LLC can assist issuers by providing proprietary financial models. These tools allow issuers to customize their inputs with pricing guidelines to set interest charge savings benefits and payment levels. The issuers can refine their strategies to optimize results relative to control programs (*). Figure 11, below, displays an example of the average per account incremental improvement over 10 years for a bankcard portfolio based on actual, in-market results. The amounts shown in the column labeled, "Delta," represents incremental per account improvements only. This "Delta" does not include the additional, positive economic value of increased customer volumes and market share improvements.



Figure 11 - Example Business Case

(*) The evaluation of test-versus-control and the resulting incremental outcomes requires the analysis of all relevant profitability drivers which include acquisition or portfolio marketing cost, active cardholders, purchase volume, attrition rate, APR on revolving balances, percent of balances revolving (yield), net charge-off rate and servicing cost per active account, because of the excellent opportunities they represent with Paymentflex®. Particular attention is given to analyzing the shift in payment behavior of customer segments that currently pay balances in full, customer segments that are currently "occasional revolvers" and customer segments that are "minimum payers." The calculation of the Net Present Value in this example utilizes a twelve percent discount rate.

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26. What additional information is available from Paymentflex Technologies, LLC?

Paymentflex Technologies can provide the following consulting support and background resources with the goal of accelerating your timeline to launch by facilitating rapid understanding of all phases of the learning curve:

• Consultative support for rapid, effective technical deployment via First Data, TSYS or internal processing platform
• Current and historical knowledge/experience regarding Paymentflex® methodology/technology/credit system/program
   deployment
• Financial Models (interactive) and Alternative Pricing Guidelines and Occasional Revolver Analyses
• Market Research (available Canadian research mirrors other countries' results)
• Portfolio Strategy Alternatives with detailed approaches (34 Deployment Options)
• Portfolio Segmentation Alternatives with message points
• Product Expertise for:
   - Value Propositions
   - Marketing Messages
   - Public (consumer and industry) Relations, Investor Relations & Government Relations Strategies
• Media: TV, Radio, Print, Branch & Internet advertising/solicitation materials
   - Past Marketing Programs including Statements and Disclosure Agreements
   - Public Relations Releases and Results
• PowerPoint Presentations: (General, Support Materials, Other Subject Areas, etc.) for Licensee Staff Training
• FAQ Manual
• Two Page Executive Overview
   - (PDF quick information sheets for branches, CRMs, product/channel managers, etc.)
• Custom developed and designed evaluations and solutions to individual portfolio challenges
• On-going, periodic (quarterly) review sessions to:
   - evaluate, analyze, adjust and/or expand
   - refine deployment variations and channels, product and/or feature alternatives, etc.

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27. How does Paymentflex® align with the current regulatory and consumer advocacy environment?

Watch for issuers to take a pro-consumer approach to align with changing market conditions. More challenges will come along with potential opportunities to responsibly address these issues.

Paymentflex® directly:
• addresses the current regulatory concerns and the profitability challenges of issuers
• allows the issuers to responsibly to meet the "low interest rate requests" of their customers
• reflects the regulators' suggestions for simplistic payment disclosures to make customers aware of the cost of only
   making minimum payments
• provides a "personal financial management tool" to assist customer in managing their debt
• gives customers an incentive to reduce their balances
• provides the customer with alternatives that THEY choose which then gives them the opportunity to achieve
   lower interest charges, accelerate debt repayment and to maintain payment flexibility. This is in direct alignment with
   regulatory and consumer advocacy initiatives
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28. How does the state of the credit card industry correlate with the relevancy of Paymentflex®?

"Real Choice, Control, Convenience and Commitment Not Gimmicks"

The above words are on every credit card marketer's lips in their branding and marketing messages? It makes for good marketing. However, do they honestly deliver on these "promises?"

Regrettably, the industry has focused on "gimmicks" to engage our customers. People, however, have woken up to the fact that credit card interest rates are not competitive. Also, the industry is relying on 0% offers on purchases and balance transfers like never before. The unanswered question is: "what happens after my 0% offer expires?" Customers who are astute shift to the next 0% offer in their mailboxes.

It is estimated that in 2010, more than 70 percent of currently-issued cards have a reward program. Cardholders want them, especially if they are free. While this is a good thing, most issuers have to price their cards above 17 percent to pay for these rewards programs. If customers are aware of this high rate, it follows that the proportion of accounts that carry a balance (the revolve rate) is declining.

Research and in-field experience continue to indicate that access to low interest charges is the primary requirement and motivation of the "revolver" segment of the credit card customer base. Minimum payers, in particular, do not shift (increase) their payment pattern until their personal financial situation changes (improves). They aspire to reduce their balances but are limited by free cash flow. They continue to make low monthly minimum payments and grudgingly accept high interest rates on their outstanding balances. They rarely qualify for the better interest rates available in the marketplace.

Occasional revolvers and transactors, however, need a competitive interest charge savings benefit in order to consider keeping a balance on their credit card. They already have established that they can pay in full or make sizable payments each month. Presented with a competitive and compelling interest charge savings benefit, they will evaluate the opportunity to "park" their balances on a Paymentflex® credit card instead of utilizing their other borrowing alternatives. If a customer can always control and choose their interest charge savings benefit each month, they will stay with the program. Remember the revolver still provides the majority of profit for issuers.

The goal is to retain all customers, to protect the yield on the minimum payers, and to give occasional revolvers and transactors a market competitive interest charge savings benefit to consider using your credit card's line-of-credit instead of alternative lending products.

Paymentflex® addresses all these aspects and leverages the opportunities to maximize returns on all measures. It can easily be integrated into all existing programs (0% and reward) and gives "All" customers the opportunity to get an interest charge savings benefit "Always."

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29. What is the inspiration for Paymentflex®?

"Choice, Control, Flexibility & Savings"

We prominently display these words to describe Paymentflex®'s benefits to customers.

The concept behind each word, and its impact on the individual customer/cardholder, was the real motivation for the creation and development of the product/credit system that is Paymentflex®'. If a person (cardholder) has choice in their life, they have some degree of control (perceived or real). Reinforce that with the "flexibility" to change that choice MONTHLY, and the feeling-of-control element gets even more amplified.

We additionally took into consideration the needs of the credit issuers to have profitable credit programs/loans. When a product is good for the customer, it provides dramatic marketing and risk management advantages that translate into improved brand positioning, increased market share and enhanced profitability.

Remember, the business of credit issuers is to make loans. If all customers, always, have attractive interest charge savings benefits requiring responsible debt repayment, credit issuers ultimately benefit with safe and sound lending products. It is an established fact in the credit industry, that credit risk (loan default) and payment levels (duration of the loan) is directly correlated. Just look at the installment loan industry which routinely provides lower interest rates for shorter term (larger payment) loans.

The challenge was creating a simple and easy technology that provided a mechanism to allow for customers to choose their payment amount and corresponding interest charge savings benefit every month. We wanted to do it so there was no burden on the customer (they simply pay their bills like they always do) nor on the credit issuer (no intervention at the branch or via customer service is needed). So we moved forward and solved these technical problems with our technical solution called Paymentflex®.

For the customer, the benefits are amplified further with the actual dollar savings (in reduced interest charges paid) and the time savings (of paying off debt sooner), and a truly powerful, winning combination emerges. At the risk of making the list of benefits too long (is that possible?), we also add "More Reward Points" when such a program is present. Here again, the positive effect is amplified by "freeing-up" the customer's line-of-credit as he/she more rapidly pays down their balance with higher tier payments (when utilized). This results in the credit program (e.g. a credit card) becoming their top-of-wallet payment method (#1 card) allowing the customer to spend again and again on the card and receiving the attendant rewards points as a result.

We believe so strongly that Paymentflex® should only be used as a consumer-friendly service to customers/cardholders
that we require licensee credit issuers to contractually commit to its proper use.

Our licensees are also discovering the benefit of Paymentflex®' with regulators and the business and consumer press.
Investor relations are positively impacted, reinforcing brand imagery and customer relationship marketing and management.

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30. Why is Paymentflex® such a WIN-WIN-WIN for customers, issuers and regulators/consumer advocates?

Very simply with Paymentflex®, all constituencies win.

• ALL Customers (not just the super-prime risk segment) can:
   - Save "Interest Charges, Always"
   - Pay off their balances faster
   - Maintain payment flexibility each month
   - Always Be in Control of their Personal Finances
   - Get the interest charge savings benefit by simply paying the required amount displayed on their monthly statement - the
      more they pay ... the more they save the next month
   - Earn more reward points if they spend incremental principal payments as new purchases on their card

• ALL Issuers can now:
   - Responsibly respond to Requests For Lower Interest Charges
   - Motivate Customers to Carry Balances on their Loans
   - Provide a Compelling and Differentiated Competitive Advantage to:
      • enhance Customer Relationships
      • support their Brand
      • improve the Bottom Line at all points:
         - Lower New Account Acquisition Cost
         - Improved Balance Build, Spend Velocity and Retention
         - Enhanced Portfolio Quality
   - Embed Self-Directed Risk-Based Pricing in portfolios without the need for dramatic re-pricing initiatives, in a way
      that the borrower perceives as fair and within their control
   - Easily integrate Paymentflex® into reward programs, introductory rate and balance transfer offers or any other
      simultaneous product promotion

• Regulators and Consumer Advocates have a Market-Based Simple Solution that:
   - Meets their concerns
   - Promotes responsible credit use
   - Appropriately balances the responsibilities of issuers and their customers
   - Specifically addresses regulatory and consumer advocacy concerns regarding:
      • minimum payment disclosure requirements that educate and motivate consumers to pay off their balances and reduce their interest charges
      • no hidden APRs as all the APRs can be disclosed at marketing stage
   - Customer-friendly risk-based pricing:
      • no bait and switch as customer has power to effect Interest Charge Savings Benefit
      • getting no interest charge saving benefit is not a punishment, but is simply cardholder-choice
   - Provides positive press opportunities:
      • promotes responsible consumer behavior
      • regulators like positive message and transparency
   - Great reception from media and industry

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31. Why haven't we seen Paymentflex® before?

If one had seen Paymentflex® earlier it would not have been "new and useful" as defined by the United States Patent and Trademark Office, and would not have been issued a patent. Once granted, patents give the inventor the right to exclude others from utilizing the invention.

Proprietary technologies also require licensing agreements to ensure they are utilized as intended. With Paymentflex® we always require that the credit system be utilized as a pro-consumer product.

Patented inventions require significant monetary, technical and time investments by the Patent holder to ensure that they are simple and easy to utilize. Paymentflex Technologies, LLC has eliminated these costs and technical hurdles by enabling the technology on third-party processor software.

With our technology partners, Paymentflex® is now wide-open for rapid deployment on either the TSYS or First Data processing systems and can be readily accessed with a simple licensing agreement. Paymentflex® can be turned on immediately, since the functionality resides in the core processing systems of both TSYS and First Data.

Market conditions must also be right for any innovation. The credit card industry has had profit success in recent years by growing in a declining interest rate environment. It has also consolidated, been distracted by technology issues, and resigned itself to a commoditized product environment and penalty pricing. Regulatory and consumer advocacy concerns have reached new levels. The credit card industry has matured with few new opportunities for innovation/differentiation. There is an apparent inability to reduce/replace dependency on:
• 0% introductory offers
• balance transfer incentives
• reward/spend/card technology programs (versus repayment rewards programs)

Credit issuers need solutions to create new opportunities. Paymentflex® is perfectly positioned to meet the needs of this new marketplace.

In today's credit environment, the more appropriate questions to all issuers are:

• "When will all credit issuers start offering Paymentflex® to their customers?"
• "And if they're not, why not, and how will they deal with the disruptive effect of Paymentflex® being deployed by one or more
   competitors in their marketplace(s)?

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32. Why is the Paymentflex® team so passionate about their solution?

It is easy to be passionate when what we are promoting is good for the customer and credit issuers, and is in alignment with consumer advocates and regulators. Observers and industry experts indicate:

Paymentflex® is the next new big idea. It is "transformational," transferring control
of interest charge savings to the customer, providing a "durable competitive advantage" on all measures.
Those who do not adopt it will need to deal with its "disruptive impact."

Research also confirms that:

Among credit card users that revolve a balance, the ability to get interest charge savings
outranks any other product feature, including no annual fees and reward programs.

And most importantly:

70% of consumers who REVOLVE a credit card balance reported
that they would be likely to apply for a Paymentflex® credit card.

So everyday we, at Paymentflex Technologies, LLC, maintain our principles and discipline of being:

      • Passionate
      • Clear
      • Taking our best shot
      • Making a difference

Our mission is to be the leader in providing the financial services industry with simple, fast, flexible and profitable solutions to current and future business challenges.

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Copyright © 2011 Paymentflex Technologies, LLC. All rights reserved. info@paymentflex.com