Credit Card

Is the grant of a loan as well as issuance of a credit card to illegal immigrants ethical, moral or legal? Is Bank of America justified in ignoring the ethical, moral and legal issues of granting loans and credit cards to illegal immigrants? What could have been the more superior reasons for granting loans and credit cards to individuals without Social Security cards and who are in fact illegal immigrants? The need for new markets for loans and credits Just like any banking institution, the mad scramble for means to increase revenues can take a number of means including unethical, illegal or immoral means.

While the interest of bank management is primarily to generate revenues to meet their compensation package for the expertise provided; shareholder value is similarly a strong interest on the part of the corporate board to prioritize revenues. Even labor would seek new benefits and salary adjustments to meet the increasing cost of living. Thus, the commonality of purpose in generating and increasing revenues is tempered by conflicting interests, resulting to further maximization efforts.

This optimizing and maximizing strategies under a tightening competitive environment encourages corporate profit takers to identify new sources of revenues. Here, the groupthink syndrome starts to set aside ethical, moral and legal issues. (Jaksa & Pritchard, 1994) Credit cards and loans provide the vast opportunities for revenues for banks in the form of membership fees, interests, penalties, service charges, legal fees and other finance terms that mean only one thing: revenues and more revenues for the credit card issuer.

In some instances, the law even protects the issuing bank and condones its usurious practices through hidden charges that suddenly appear in the card billing. In some instances, states criminalize credit card defaults. Interests are often compounded monthly at a basic rate of 3 to 5 per cent per month which translates into 60 per cent annually without even considering any form of penalty, service charges and other fees. Many cards even automatically increase the credit limit to keep the credit card user paying merely the minimum interest and leaving the principal to accumulate as means of sustaining revenues on interests alone.

The cash payback period for credit card issuer can average at less than two years with the credit card user almost permanently now tied to the principal that now hardly diminishes with the gamut of fees and charges coming. Even US President Barack Obama is concerned about this. (Feller & Aversa, 2009) The consequences Thus, credit cards are often aggressively marketed both to prime and subprime clients with varying fees. With the hundreds of different cards vying for market share, card issuers will not stop at creating markets for new issuances; and consumers take pride in having more and more credit cards in their wallets.

What then made the illegal immigrants or those without social security number a bright prospect for credit cards or loans? What opportunities and risks do credit card issuers face in this sector? Why are the requirements limited to the fact that only those with checking accounts during the last three months and without history of overdrafts are qualified? (Feller & Aversa, 2009) Illegal immigrants need liquidity to live in the United States and credit cards provide the liquidity vehicle to cope with the American dream.

A large number of illegal immigrants find jobs, even odd ones, to survive; hence their capability to earn the means to live is strong and that their struggle to temporarily live even as an undocumented alien is considered a transition to ultimately becoming a permanent resident, as an immigrant or even as a US citizen. The need hence, to establish a credible record is considered necessary to become an honorable citizen later. This sector is reasonably a good credit risk considering their need to stay safe from the clutches of the Immigration and Naturalization Service by keeping payments updated.

In general, this form of self-regulated discipline enhances the credit worthiness of illegal immigrants. On the other hand, even if person ultimately defaults and get caught by the INS, illegal immigrants are often forced to stay in the United States while his credit card case is pending. Thus, the chance that he is able to extricate himself from credit card liability might provide him time to await any form of amnesty to regularize his status. Thus, it is probably based on these market characteristics that Bank of America took the risk of identifying this sector as a good credit risk.

In fact, the Bank pilot-tested the credit card in selected areas and probably, the expansion binge to make it nationwide is a concrete indicator that it has become a reasonably good prospect for business. Business, especially banks has a way of getting in despite the ethical, moral or legal issues. In uncertain times, generating revenues more than the need for ethical, moral or legal constraints is a more primordial philosophy of management. Here again, groupthink in the organization attempts to rationalize such policy.

The Bank can anyway afford to employ or hire topnotch lawyers to fight any form of charge of illegal transaction with illegal immigrants. But is it really illegal to issue credit cards to illegal immigrants? If it is not, isn’t it that what the law does not prohibit, it allows? Perhaps, the government will only be able to assert its role in the credit impasse if Bank of America seeks government intervention to collect from past due credit card users. Otherwise, credit card transactions are can be considered global instruments that know no political boundaries. Is it unethical to issue credit cards to illegal immigrants?

Banks transact business on a global scale. If the illegal immigrant is issued a credit card in the United States, will it still be unethical or illegal or immoral in the event that if the person returns to his home country and uses his credit card therein? The global market has enabled banks and the credit card issuer to conduct businesses that transcends political boundaries. Thus, if Bank of America issues a credit card to a citizen of another country while he is in that country, then travels to the United States and overstays his visa, will it then be illegal, unethical or immoral to use the card?

Is it not that the usurious and unfair practices of card issuer in charging usurious rates and the fine print trap, might be more of an unethical practice in the industry than issuing the credit card per se? Will not Bank of America in fact be helping the Immigration and Naturalization Service (INS) with issuing a credit card which effectively gets information from the illegal immigrant making the latter more vulnerable to apprehension by the INS? Conclusion

The issue of credit cards being issued by Bank of America to illegal immigrants can be taken from the context of purely business purpose – to generate revenues. However, the ethical dimension that can be extracted from the case is the absence of ethical ascendancy on the part of Bank of America to contribute to the strengthening of the good governance, transparency practices and exemplary conduct of legitimate processes in the way revenues are generated.

In the same way that employers of illegal immigrants are made to answer for the question of hiring these undocumented people in compliance with Immigration Laws. Thus, what right will Bank of America invoke to protect itself in the event of payment default by the illegal immigrant if it seeks protection from the law which discourages such transactions in the first place? The Bank undeniably wants the best of both worlds in this case.

In addition, the groupthink syndrome in Bank of America that led to the adoption of this marketing strategy is, as usual, laced with that groupthink rationality. This makes use of the “we feeling, the illusion of morality, invulnerability with the moral, ethical and legal tone of such group rationalization and consensus leads to the excessive taking of risks without individual ethical responsibility. Hence, anyway one looks at the marketing strategy, the issue of ethics, morals and legalities can never be ignored. Has the Bank ran out of meaningful philosophy?

Reference list Feller, B. & Aversa, J (2009), Obama pledges protections for credit-card users, the Associated Press; retrieved April 10, 2009;Website: http://news. yahoo. com/s/ap/us_obama_credit_cards Jaksa, J. & Pritchard, M. (1994), Communication ethics: Methods of Analysis. Western Michigan University, Belmont, CA; Wadworth Publishing Company. Malkim , M. (2007) Bank of illegal aliens in America, retrieved April 19, 2009; website: http://michellemalkin. com/2007/02/13/bank-of-illegal-aliens-in-america/

The team thought that to be able to have a strong structure, the tower must have support on its edges (or corners). Aside from providing support, the pillars would give the tower the necessary height to lift the bricks several inches from the ground. The team came up with only one design, and was not able to conceptualize any other design because of the time constraints. The team built a brick support tower using only five (5) pieces of note cards and some of the tape. Four of the five note cards had their short end sides cut to put slits into them.

The slits were made to have a way of interlocking the cards. The note cards were then rolled in their long side to form cylinders. The fifth card was placed in the middle covering the four standing cylinders, with one cylinder standing in each corner of the fifth note card. The team didn’t have any idea as to how many bricks will it be able to support. Because of the short time allotted, the team was not able to utilize the remaining note cards to build what could have been the next layer of the tower. Conceptual Development

The design that the team utilized provided sturdy columns, supporting the weight of the fifth note card, and also, the weight of the loading. However, the design proved to be weak in the middle part because no support was provided. Again, due to the time constraints, the group was not able to come up with other designs. The team only used the first thing that came to their mind, and immediately, set out to prepare the note cards for that design. Results and Discussion The team was only able to come up with a one-level structure of a tower.

After construction, the team immediately proceeded with testing the strength and stability of their structure. The tower was only able to hold the weight of one brick. The structure turned out to be weak in the middle portion because of no added support. Another cylinder could have supported the middle part, where the center of gravity is located and thus, putting more stress and leading to eventual sagging of the middle note card. Achieving the highest performance index for a tower supporting one or more bricks was the goal of this activity.

The performance index can be computed by multiplying the distance from the floor to the bottom of the lowest brick (height in inches) with the number of bricks that was supported. The team’s design’s performance index is __, which was calculated using the height measured multiplied by 1 (only one brick was supported). Given that the tower was only single-layered. The index is relatively high. Recommendations and Closure The structure could have supported more bricks if only more of the note cards were rolled into cylinders and used as base.

Though the structure is single-layered, the performance index could still be higher because more bricks will be supported. Another approach would have been building a higher structure from the note cards (about two layers) but the number of bricks it may be able to hold will remain one. The team should have come up with several designs and thought over carefully which among their designs should they use. Of course, the design must be something that is sturdy and yet, easy to do, given the limited time allotment.

In this report, we focus on all aspects of the PayPal business. PayPal Basics PayPal is quickly establishing itself as a global payment processor with scale, facilitating nearly $60B in Total Payment Volume in 2008. It remains the largest player focused solely on online payments; however when compared to the total volume of large global players, such as Visa and MasterCard, PayPal’s volume remains fairly small: its $60B TPV was just over 1% of the total volume of payments processed last year by Visa and MasterCard combined. PayPal is an Established Payment Network and Brand.

A Rare Commodity

PayPal is in rare company, successfully creating itself into a formidable payment network and brand alongside dominant payment brands in Visa, MasterCard, American Express and Discover.Payment networks sit at the top of the value chain in payments, collecting high-margin fees for facilitating payments from participants seeking access to a network of trusted merchants and consumers. PayPal overcame the classic chicken-and-egg dilemma and now has a critical mass of users in its network, differentiated as a trusted brand for facilitating online payments with the potential to extend its presence into offline opportunities longer-term.One driver of PayPal’s growth is that, unlike traditional payment methods which developed in an offline world and have been overlaid onto eCommerce, PayPal’s platform was built with eCommerce in mind. As such, PayPal has developed tools and risk management measures to address the unique complexities of handling card not present payments over the web – one of the fastest growth categories in payments. Moreover, PayPal is elegantly structured to simplify the web of connections required in a traditional payment system, making it well positioned to penetrate the small business payments market.

PayPal payment structure

Merchant Consumer Consumer Card issuer processor Card-issuing bank Merchant bank Consumer bank We think the online marketplace, and sellers in particular, benefit from this simplification in several ways:

• Ease of Use. PayPal gives virtually anyone the capacity to accept payments, enabling a merchant to operate even at an initial scale that would otherwise be uneconomical (i. e., there are no minimum requirements for payment volume in order to use PayPal.)
• Higher level of trust. The payments system is not very transparent, and not all aspects were intended for mass use. A trusted central clearinghouse like PayPal can encourage use of online payments by lowering users’ safety concerns and raising their willingness to send money online.

PayPal Is Differentiated beyond Just Online Commerce. PayPal is different from other payment brands (e. g. MasterCard, Visa) in that it is a vertically integrated payment provider. In other words, PayPal is a single source provider of payment services. By contracting directly with PayPal Merchant Services, small merchants can get all of their payment needs, and do not necessarily need a separate merchant bank account or payment gateway services provider. PayPal is gradually expanding its presence off eBay by promoting itself as an integrated payment offering along side other payment brands (e.g. MasterCard, Visa), supported by PayPal’s own merchant services offering and alliances with payment vendors like CyberSource (payment gateway) and Chase Paymentech (largest merchant acquirer in the U. S.).

PayPal’s Product Offerings for Online Sellers

PayPal offers several different products for payment acceptance, based on the size and needs of the merchant: 

Email product. This is the offering used largely by smaller eBay merchants, who receive payments entirely via e-mail, with no site of their own on which they need to integrate PayPal. Website Payments Standard. This product allows merchants to place a PayPal button on their site, and when a user is ready to check out, the user hits the button and is taken to the PayPal site where the actual checkout occurs.

The product is intended for small- to medium-size sellers, and requires the seller to be using a compatible hopping cart vendor (most are compatible). Express Checkout. Intended for larger merchants (those already accepting include Dell and Barnes & Noble). Express Checkout is incremental to the payment acceptance service used by a vendor – it gives users an additional checkout option. When a shopper uses Express Checkout, s/he logs into PayPal, and PayPal then forwards address and other info to the merchant. This allows an existing PayPal user to bypass entering personal and shipping information again, even if it is the user’s first time using the specific merchant.

Merchant acquirer functions include: Sign up merchants to enable them to accept card payments. Enable merchants to authorize card payments via the network. Pay all network and associated fees for a merchant’s transactions Facilitate clearing and settlement of card payments Provide incremental services, e. g., sending out statements, etc. Payment network (e. g.Visa, MasterCard). As the backbone to the payments industry, networks connect various banks that need to process credit card payments with merchants and provide authorization, clearing and settlement services. Networks also set rules and interchange rates (earned by the issuing bank). Payment gateway.

In the offline world, the payment gateway is the equivalent of a point-of-sale terminal that accepts the payment type (e. g. credit, debit card) and translates it into a format that can be accepted by the merchant acquirer. In the online world, the gateway generally connects an eCommerce site with the merchant acquirer.PayPal already functions as a Payment Gateway, largely as a result of its acquisition of VeriSign’s payment business, which had 144,000 customers when acquired in 4Q’05.

These include:

• Interest earned on some customer balances. PayPal earns revenue as it receives interest on the balances of some non-US account holders. Note that US customer balances are held in FDIC-insured accounts or in a money market account; PayPal does not receive interest on these accounts. BillMeLater interest and fees. Interest and fees earned on existing BML client balances are classified as Marketing Services and Other revenue.
• • Comparing PayPal Fees to Online CompetitorsPayPal’s fee structure is similar to those of its online-only competitors; both Google Checkout and Checkout by Amazon offer a similar package of fees depending on a merchant’s monthly sales volume; Amazon differs in charging a slightly different fee level for transactions under $10 as well as minimal cross-border support: both buyer and seller must have a US-based financial instrument to use the service.

Additionally, as PayPal adds new merchant sites, users of those sites begin with a heavier mix of credit card use. The mix for a merchant site begins to resemble that for PayPal overall as users’ familiarity with PayPal grows – generally, 12-18 months. Additionally, we believe BillMeLater, which is funded entirely through checks and ACH, can help improve funding mix for PayPal down the road. Other Margin Drivers PayPal margins have historically been in the 20% range, excluding corporate expenses.We believe several factors drive the variance between the 60%+ transaction margins and the high-teens overall profitability. Primary among these are:

• Customer service costs.
• Call centers as well as a variety of employees needed to manage any problems that arise in the payments process.
• We do not expect these expenses to show meaningful economies of scale as the business continues to grow.

Sales and Marketing

As PayPal has invested in growing its Merchant Services business, we believe that segment’s growth has been fueled by higher Sales spend. When the business matures, we believe there should be some scale economies in Sales. BillMeLater Basics PayPal acquired BillMeLater in 4Q’08. The service allows users to request transactional credit, rather than a revolving credit line as is the case with a credit card. BML offers consumers rapid credit decisioning on the basis of less detailed information (date of birth and last four digits of a Social Security Number) than necessary for more traditional financing.

We view this as an important indication that PayPal has potential to be a powerful brand off eBay.We believe PayPal’s recent stated focus on larger merchants suggests this is the more likely strategic direction for the company, as PayPal may not want to jeopardize its status as a partner to the large acquirers, which make it easier for enterprise-scale businesses to include PayPal as one of several payment choices.

Can PayPal Become a Scale Merchant Acquirer?

In our view, PayPal also has the potential to become a scale merchant acquirer, which could enhance its off-eBay presence, especially among smaller and mid-size merchants. As a merchant acquirer, PayPal would handle all of the card processing needs of a merchant, including directly processing other brands like Visa and MasterCard.We believe PayPal can offer very competitive rates to small merchants (who often pay heavy miscellaneous fees to acquirers), given its scale, allowing it to deepen relationships with merchants and potentially handle offline transactions as well. Smaller merchants (especially the ~87% of US merchants with annual card acceptances under $100K) tend to pay a much higher spread to their acquirer. Whereas such merchants account for ~10% of credit card volume, we believe they represent as much as $2.

As noted above, PayPal currently partners with Wells Fargo when it comes to handling non-PayPal branded transactions. One concern about a PayPal entry into the acquirer market would be whether it could successfully maintain its relationships with the other acquirers who currently offer PayPal as an option, and who would come to view PayPal as a more direct competitor. How Much is PayPal Worth? Combining the outlook outlined above, we believe PayPal TPV will reach $100. 5B in F’11; though somewhat more pessimistic or optimistic projections for the unit’s growth yield a range of $87B-$114B.At the midpoint, our estimate is for a 19% 3-year CAGR in Total Payment Volume.