Magazine article American Banker

The Innovators Scramble for Position

Magazine article American Banker

The Innovators Scramble for Position

Article excerpt

ONE CAN MAKE A handsome living in the bank credit card business, but it is not for the faint of heart.

This special section of American Banker spotlights some o the more successful card organizations and their leaders, the key innovations, and the people behind them who have done well in increasingly challenging segments of the business.

They see competition intensifying, and coming from entirely new quarters. Profit margins are lower.

Trend-watchers warn that the credit card has nearly saturated its market. Much of the population is disenchanted with debt and its costs; many borrowers seek out home equity loans, which unlike credit cards let them deduct interest on their taxes.

The good news is that the bank card industry is growing -- receivables could be up by 10% or more by yearend -- and it will set another profit record. Joel Friedman of Andersen Consulting in San Francisco said aggregate net income could hit $7 billion, perhaps 20% to 25% better than last year.

"Competition is driving down rates and fees, but the cost of funds has dropped faster, and chargeoffs are down significantly," Mr. Friedman said.

The bad mews -- a spike in interest rates -- hasn't happened yet. Some card bankers are concerned about the lowering of that boom, but most have plenty of other things to worry about right now.

The business has become one of micromarketing and niche-seeking, which often means taking customers away from somebody else.

The rapid growth of cards bearing the names of General Motors Corp. (seven million cards in less than a year) and American Telephone and Telegraph Co. (17 million in three years) came at the expense of traditional banks. And the banks have answered with more aggressive and flexible pricing of their own.

"The intensity of the competition is not new, but it is not letting up," said Denny Dumler, president of Rocky Mountain BankCard System in Denver. …

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