National Bank of Alaska in Anchorage may barely register on the national credit card industry's Richier scale, but it has recently been shaking up its home market.
"NBA is promoting its Visa card more than any other institution in Alaska," said Richard Harp, director of marketing at Keycorp's Anchorage unit and one of several competitors taking note of National Bank of Alaska's newfound aggressiveness.
With 38,000 active accounts, National Bank of Alaska is the largest credit card issuer based in the state. But the $2 billion-asset bank's card operation remains small by national standards, and has issued fewer cards to Alaskans than the market leaders - BankAmerica Corp.'s Seafirst unit and Citicorp.
Retail Loss Leader
Like other Alaskan institutions, National Bank has viewed credit cards as a kind of loss leader for its retail business, leaving the mass marketing to national issuers.
A change in attitude has come about under Paul M. Harris, senior vice president of consumer lending, and Anne Boyd Habza, vice president of credit cards.
The pair came to the jobs with few preconceived notions. In the last two years, their efforts to stake out a claim in a market dominated by bigger, out-of-state players have begun to pay off.
Card Balances Up 21%
Outstanding credit card balances have grown 21% to $38.5 million.
The average balance on profitable gold cards has grown 15%, and balances on classic cards have grown 10%. Recent mailings have produced response rates well above industry averages, and credit line increases resulted in a higher usage of the Visa card.
National Bank of Alaska, the state's biggest commercial bank, is now positioning its card business to grow with the local economy.
"There is no doubt that there is a strong market to be had, because Alaska has a young population with high incomes," Mr. Harp pointed out.
In 1989, senior management made a strategic decision to raise its consumer loans to one-third of its $1 billion of total loans.
Mr. Harris, 38, joined the bank after graduating in 1977 from the University of Washington with a bachelors degree in business administration.
He moved up the ladder, becoming a branch manager and later a bank operations officer.
In 1992, Mr. Harris was named senior vice president and manager of consumer loans, overseeing the Visa program as well as direct and indirect lending.
"The only consumer lending background I had was what we were doing in the branches in small-town Alaska," Mr. Harris said. "The only thing I knew about a Visa card is that if you were smart, you paid it off monthly."
With his broader responsibilities, Mr. Harris brought in Ms. Habza, 42, three months after he came to the card division.
Learning on the Job
An 18-year National bank veteran, Ms. Habza had been assistant manager of item processing and made a lateral move to become vice president and manager of the card center. She, too, was a novice in credit card marketing.
In retrospect, the two say that their lack of experience may have been their most valuable asset. "There was a curiosity on both our parts," Ms. Habza said.
Poring over reports and statistics, trying to learn as much as possible about the business, Mr. Harris discovered the bank's credit card portfolio had been unprofitable for some time. there had been an unchecked runoff of both classic and gold card accounts for at least three years.
Card Products Languished
Part of the problem was the corporate attitude. NBA had long viewed credit cards as an enhancement to checking accounts.
"There was an idea that credit cards were unprofitable," said Ms. Habza.
As a result, NBA's card products were not promoted, and bank personnel were not encouraged to sell them.
Delinquencies were well below the national average - less than 1% on gold accounts and under 2% on classic cards in any given month - suggesting to Mr. Harris that the bank was being too tight in its credit criteria.
In response to the continuing runoff of accounts, Mr, Harris sent out an inquiry letter each time a customer closed an account.
Airline Perks
It turned out that the No. 1 reason people were leaving NBA's Visa program was for Seattle-first National Bank's cobranded credit card with Alaska Airlines, on which cardholders could earn mileage points.
"Because of Alaska's geography, you have to take a plane to get anywhere in the state, so frequent-flier miles are important," Ms. Habza pointed out.
The two executives realized they couldn't compete on their own with a cobranding partnership with the appeal of an airline frequent-flier program.
The second-most-cited reason for leaving NBA was the annual fee, and the third was high interest rates. This was puzzling, Mr. Harris said, "because according to an in-house survey, NBA offered the best rates and best overall credit card package in the Alaska market."
Card Deal |Underexposed'
The terms of the classic card then and now are an interest rate of prime plus 7.75 percentage points, a $20 annual fee waived in the first year and any other year in which a customer makes purchases of $5,000 or more, and a 25-day grace period.
The Visa Gold card charges prime plus three percentage points, a $50 annual fee waived in the first year and in years with $5,000 of purchases, and a 25-day grace period.
"Our product was not getting the attention it deserved. It was simply underexposed," concluded Mr. Harris.
By October 1992, Mr. Harris and Ms. Habza started to execute their strategy. In keeping with the bank's conservative philosophy, their goal was to increase market share and earnings but not expose the bank to risk.
Credit Lines Raised
"We had no desire to build totals at the expense of chargeoffs or delinquencies," said Mr. Harris.
For the first time in three years, Mr. Harris raised the credit lines on 15,162 accounts, or half the portfolio. Twenty-five percent of the new credit - totaling more than $15 million - was tapped immediately.
The following month, the duo sent out NBA's first preapproved mailing. They targeted existing customers who had a mortgage loan or installment loan with NBA for at least 18 months.
They did not expect the phenomenal 10% response rate - 670 new cards and $3 million in new credit. Out of that group, only one account is delinquent, said Mr. Harris.
Another result of the mailing was an increase in balance transfers. The amount of NBA's average cash-advance convenience check on Visa Gold cards before November was $176. That rose to $925 after the mailing.
In March 1993, confident that the new initiatives had not hurt credit quality, Mr. Harris developed two programs to get branch officers involved in selling Visa cards.
Each customer approved for a direct installment loan was offered the opportunity to shave 25 basis points off the interest rate by signing up for a NBA Visa card. Also loan officers were paid $10 for each customer whom they could convince to apply for a Visa card.
A month later came the second preapproved direct mail solicitation. This time, NBA targeted people outside its customer base, offering only Visa Gold.
A total of 775 new accounts - a 6% response rate - and $3.9 million in new credit were garnered at a cost of $25 per account.
"The No. 1 reason we offer it is the Community Reinvestment Act," said Mr. Harris.
The card has a 17% interest rate, based on the prime plus 11 percentage points, as well as a $30 annual fee and a minimum security deposit of $300. Cardholders can borrow up to 75% of the deposit.
The bank saw the secured card as a way to reach out to communities that were devastated economically when oil prices collapsed in the 1980s. Many Alaskans were forced to declare bankruptcy and experienced credit problems.
Remote Villages Targeted
In addition, the secured card was seen as a way to reach into remote villages in northern Alaska, where a cash-only society has developed.
"We saw the secured card as a way to teach people how to use credit," said Ms. Habza. While people may not have a need for a credit card in their own village, Ms. Habza pointed out, they could find one necessary when they travel to larger cities like Anchorage.
The card is currently being advertised on radio and in publications statewide.
All NBA Visa cards are marketed with the theme, "Buy Alaska." The message NBA wants to drive home is that doing business with the bank is an act of loyalty to the state. Promotional material for the classic and gold cards emphasizes the bank's Alaskan roots. "Part of our message is that Alaskan consumers will get more tender loving care with us than from some issuer that is thousands of miles away," said Mr. Harris.
Sales Contest
Mr. Harris and Ms. Habza's latest effort to increase card accounts is a contest to encourage branch employees to sell the cards.
This time the rewards for success are greater than in the earlier branch programs. And all bank employees, not just loan officers, can participate.
The big winner, the person who generates the most applications, receives a one-week trip for two to Hawaii, with $1,000 spending money and paid time off from work.
The goal was to generate 1,500 new Visa accounts between July and yearend 1993.
Through October, Ms. Habza said, the program had resulted 990 new accounts.
