AAA Driving To Become Bigger Force In Banking

The American Automobile Association, which has been offering credit cards through banks since 1978, is taking steps to become a more complete source of financial services.

The AAA plans to announce today that its board has approved formation of a financial services company that will own a federally insured banking institution and enter into a "strategic partnership" with an established player.

Such services as personal credit lines, travel loans, vehicle financing, mortgage loans, and home equity loans are in the offing. AAA said it might later acquire accounts owned initially by its partner, which is to be designated by the summer.

Like the AAA's pioneering entry into Visa and MasterCard co-marketing, the new strategy seems to break new ground in affinity marketing of financial services. Mortgage companies, in particular, have been seeking out prospects through associations and credit card issuers, but few groups like AAA have pulled together a range of services including lending and deposit-taking.

"There are only maybe three or four organizations large enough to attempt what AAA is planning," said Carl Novotny, managing partner at Affinity Partners Inc., a consulting firm in Wellesley Hills, Mass.

The aim is to "enhance the value of the AAA membership and help solidify our long-term relationship with members," said assocation vice president Graeme Clark. Even though a bank can be an AAA marketing partner, bankers may be wary of a competitive threat.

That was the reaction in 1988 when the American Association of Retired Persons, through its own credit union, began offering financial services to its 30 million members. AARP declared failure in 1990, closed the credit union, and left its credit card accounts to Banc One Corp.

Mr. Novotny said bankers will be most concerned if AAA's venture is not- for-profit and exploits tax advantages. "If it's for-profit, then it's just another variation on partnership marketing, and I don't see why that wouldn't be fair competition," he said.

The auto clubs intend to rely on what James J. Gudinas, managing director of AAA Financial Services, calls "nontraditional distribution" via mail, telephone, and electronic methods.

The United Services Automobile Association, which began in the 1920s as an insurer for military officers, built a broad-based financial services enterprise around mail-telephone relationships.

AAA, which is based in Orlando, said it was concerned about increased competition from companies building long-term relationships with auto club members. Examples are the Ford, General Motors, and American Airlines credit cards.

Mr. Gudinas said the advent of interstate banking and the public's growing preference for nonbranch delivery channels creates an ideal opening for AAA, using its U.S. clubs' 950 offices "to supply product information."

In the credit card program, which Mr. Gudinas launched, nine banks have issued 3.8 million cards, equal to about 10% of North American auto club membership.

AAA is also the largest single seller of American Express travelers checks, at $2.5 billion annually.

Jeffrey Kutler contributed to this article.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER