After a year on the market, Mellon Bank Corp.'s Cornerstone MasterCard has surpassed bank expectations and surprised some industry analysts.
Targeting revolving cardholders with a rebate offer on interest payments, the card has attracted more than 600,000 accounts, said Kerry J. Ryan, senior vice president and head of the Pittsburgh-based bank's card division.
"We had high hopes of being successful and we have been," said Mr. Ryan.
Not seeking publicity, Mr. Ryan almost grudgingly admitted to the unique program's appeal.
Cornerstone, with a prime plus 11.9% interest rate, offers 100% of the cardholder's interest payments back after a period of 20 years. But consumers can opt for a more timely rebate schedule.
After two years, consumers are eligible for a 10% interest rebate. In three years, they can receive 15% of their interest payments back, continuing at 5% increases per year, through year 20.
"Our hope is to attract loyal customers," said Mr. Ryan.
While a number of industry experts predicted that this card would catapult Mellon Bank onto the national stage, giving it major player status, detractors, like consultant K. Shelley Porges, of Porges/Hudson Marketing in San Francisco, were skeptical. "I didn't think people were into delayed gratification," she said.
She wondered how long consumers will remain with the program, considering the lower rate offers on the market.
When the program debuted last January, Robert B. McKinley, president of RAM Research, a card-tracking company in Frederick, Md., said that the card was a bad deal for consumers because the interest rate was too high, even if charges are returned in the future. He recently acknowledged that the card has been embraced by the public.
"It's a pretty darn creative message," he said, "and apparently they're having success with it."
RAM found that Mellon's outstandings had increased from $1.5 billion in the last quarter of 1993 to $1.9 billion in the third quarter of 1994, a 25% gain. Overall, card accounts grew from 1.6 million to 2.5 million during the same period.
Mr. Ryan said that while Mellon, the 26th-largest issuer in the country, had run national programs in the past, they were not as aggressively promoted. Management put greater resources behind Cornerstone, a card they believed would stand out in the crowded marketplace.
Mellon Bank's research indicates that 66% of cardholders carry revolving balances. The bank says Cornerstone is the first to rebate all the interest paid over time, directly targeting revolvers, the most profitable segment of the card-carrying population.
Still, Mr. McKinley expressed concern about a 20-year commitment. "It's a forced savings account, but it's expensive," he said. "You're paying an exorbitant interest rate."
With interest rates rising steadily, Mellon now charges over a 19% variable rate for the standard card, compared with the present industry average of about 16%.
"Clearly, they've been successful in marketing the benefits and minimizing the perceived downside -- the long waiting time for the rebate," said Ms. Porges.
"It's a powerful consumer proposition to get all your interest back, if you take it on the surface," said Karen D. Harragan, managing associate of the Auriemma Consulting Group Inc., Westbury, N.Y. "I would guess there are a fair amount of customers who aren't over-analyzing it."
"I think Mellon's success shows people are willing to wait the 20 years," said Noreen P. McCaffrey, vice president of member relations for MasterCard International. "It gives consumers a choice -- if they're going to pay interest, at least they're getting it back."
Mr. McKinley suggested that a better deal for consumers would be to apply for a low-rate card and invest the difference, but Mellon pointed out that there are no taxes paid on the Cornerstone rebate, making it more profitable in the long run.
Mr. Ryan can't predict the future, but he hopes consumers will continue to use Cornerstone for the full 20 years to take best advantage of the card.
"This is the first year of the program -- we'll know a lot more two or three years from now," he said. "We believe we'll be as successful in future as we have been in past."
