The Father of the GM Card Toots Another Horn

Despite his reputation as one of the credit card industry's most outspoken executives, Ronald N. Zebeck has lain low for the past two years.

The former general manager of the General Motors MasterCard program has been busy building from scratch a card program for Fingerhut Cos., a multimedia marketing company with $2 billion of annual sales.

People who know Mr. Zebeck have been wondering when he would break his silence. "I think he was lying low at Fingerhut so he could make a splash," said one. Keeping quiet is "so unlike his personality."

As president of Fingerhut Financial Services Corp., Mr. Zebeck orchestrated the creation of Direct Merchants Credit Card Bank in Salt Lake City in 1994.

The bank began issuing cards last April and by yearend had opened 775,000 accounts with more than $500 million in receivables.

In an interview, Mr. Zebeck, 40, said he kept quiet about his work at Fingerhut because he didn't want his track record to set up false expectations.

He was "building a business that has a long-term strategic platform," he said, and did not want people to think it a failure if it didn't match General Motors' record of a million cards in the first four weeks.

But now, he said, the Fingerhut business "has grown to the ... size and the success level that we can't be quiet about it."

"We have shareholders, and we have to talk about it," he said. "We're a public company."

Minnetonka, Minn.-based Fingerhut announced last week that it intends to spin off the financial services unit this year. Mr. Zebeck expects to have close to $1 billion in card receivables by that time.

He also anticipates steady growth in the unit's other products: extended warranty services and insurance products, such as secondary auto insurance.

In addition, Mr. Zebeck is looking for partners to enter into cobranding relationships with Direct Merchants bank.

To build the card program, Mr. Zebeck dug into Fingerhut's data base of 10 million customers.

Over two years the program has attracted 1.2 million cardholders - half holding the cobranded Fingerhut MasterCard and the others a Direct Merchants general purpose credit card.

"When I came to the company, we had a very good engine for extension of credit and a good engine for access and communications to the core group of customers that we service, which is basically the low to middle-market sector," Mr. Zebeck said.

Fingerhut says this segment - households earning $25,000 to $30,000 a year - is underserved. The company is making a variety of card offers, with annual fees ranging from zero to $35 and interest rates between 15% and 22.9%.

The cobranded Fingerhut card comes with a 60-day interest-free offer, plus a preferred shopping service to facilitate catalogue purchases.

"This is a fairly good group, especially for the kinds of products Fingerhut sells," said Steven Szekely, who runs the credit card research program at Payment Systems Inc., Tampa, Fla. "Presumably, the main reason to sell the card is to sell Fingerhut products to those people."

Fingerhut, the nation's second-largest general-purpose catalogue provider (after J.C. Penney), sends out 500 editions a year marketing general merchandise, electronics, home furnishings, household goods, men's and women's apparel, and jewelry.

Fingerhut's primary business is retailing, but it also markets Montgomery Ward Direct's catalogue in a joint venture and markets products through television in an alliance with Guthy Renker named USA Direct/Guthy Renker Inc.

There are 10 million U.S. households that earn $25,000 to $34,000, Mr. Szekely said. These people represent 10% of the credit card market, 7% of card sales volume, and 12% of credit balances. The researcher said 54% of them are chronic credit users who tend to revolve balances - which promises significant profit to the card issuer.

Even so, Michael Auriemma, president of Auriemma Consulting Group Inc., Westbury, N.Y., noted that so far Fingerhut accounts have average balances of only about $645, less than half the industry average.

"I completely applaud his strategy of going after a very interesting, very underserved market," said Mr. Auriemma. "It has a high propensity to borrow and a high probability for profit, but only if you get those balances up."

With its consumer data base, Mr. Auriemma said, Fingerhut should have racked up twice as many accounts as it has, and quadruple the outstandings - unless Mr. Zebeck has "restricted to a low-credit-risk pool, and target returns on assets are high."

Now that he's talking again, Mr. Zebeck noted the differences between the Fingerhut venture and the other product he helped put on the map - the cobranded GM card from Household International.

The latter "was there to really help General Motors sell cars and trucks, and the lion's share of the revenues went to Household," he said.

The Fingerhut program, by contrast, is "the access platform to enable us to talk and have a logical, rational reason to be in (consumers') mail boxes," he said. It is also billing mechanism for other programs, "whether they're core programs, shopping programs, travel programs, or insurance programs."

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