Advanta In Rewards Partnership With Amex

Advanta Corp. has added fuel to one of the credit card industry's raging controversies by forming a marketing partnership with American Ex- press Co.

Advanta, one of the largest issuers of MasterCard and Visa cards, introduced a product Thursday that lets cardholders accumulate points in American Express' Membership Rewards program. The points can be redeemed for travel on numerous airlines, among other benefits.

The Advanta program, Rewards Accelerator, edges American Express closer to its goal of cooperative marketing with MasterCard and Visa banks.

American Express has campaigned - unsuccessfully - for changes in U.S. MasterCard and Visa rules that currently prevent banks from offering the Amex brand. In Advanta, with which it previously co-marketed business- equipment leases, American Express has found a bank card company willing to test the limits of the cross-marketing ban.

"An alliance with American Express makes perfect sense," said Alex W. Hart, chief executive officer of Horsham, Pa.-based Advanta. "This will strengthen Advanta's brand awareness (because) American Express holds a powerful position in the minds of consumers."

Only American Express charge card customers are eligible to participate in Rewards Accelerator. They will earn one Membership Rewards point for each $10 of their month-end balances on the Advanta-issued MasterCard and Visa cards.

"This alliance proves that two companies can team up to get new business they wouldn't get alone," said American Express vice chairman Kenneth I. Chenault. He called Advanta a "leading card issuer" that wanted "thefreedom to choose who they work with."

At a press conference, Mr. Hart said it was "a very exciting day, a first for both companies and the industry.

Mr. Hart, who was MasterCard International president from 1989 to 1994, said he had spoken Thursday morning with his successor, H. Eugene Lockhart, who was reportedly "very supportive" and had "no concerns, pending detail."

A MasterCard spokesman said later it would have no further comment. Visa U.S.A issued a statement saying it encouraged each member to test marketing alliances, but it expressed concern about "the arrangement's potentially negative effect on intersystem competition."

Mr. Chenault and Mr. Hart said Rewards Accelerator does not violate Visa and MasterCard bylaws. Industry observers said American Express has more cooperative marketing plans in the works.

A banker who asked not to be identified said the "Visa and MasterCard bylaws will go the way of the prohibition by Visa against MasterCard issuing business cards." The banker was referring to an earlier flap over Visa's requirement that a bank choose between Visa or MasterCard for business products.

James L. Accomando, president of Accomando Consulting Inc., Fairfield, Conn., said Rewards Accelerator is "an excellent alliance. American Express can close the loop tighter than in the past."

He said the Accelerator card would be useful for American Express card members who use bank cards at places that do not accept American Express.

Most unique about it, he said, is that it is a mileage program at no fee. But participants must be enrolled in the American Express Membership Rewards Program, which costs $25 a year.

Advanta's no-fee card has an introductory rate of 8.9% for six months. It then jumps to prime plus 9.65%, currently 17.9%. Unlike similar programs, it rewards purchases, balance transfers, cash advances, and revolving balances.

"It rewards revolvers rather than punishing people with a finance charge," Mr. Accomando said. "Current cardholders can be activated through this program, and it will also stimulate usage."

Customers who transfer a balance of $500 or more get 1,000 bonus rewards points. American Express Membership Rewards participants can redeem 25,000 points to get an airline ticket.

American Express Optima cardholders are not eligible to transfer balances to the Advanta card.

Mr. Accomando compared the new card to other airline cards, like Citibank's AAdvantage Visa card with American Airlines, which costs $50 a year with an annual percentage rate of prime plus 9.4%.

"It's more exciting for the industry than for the consumer," said Michael Auriemma, consultant, Auriemma Consulting Group Inc., Westbury, N.Y.

He called it a "first step of banks in the U.S. looking at what American Express has to offer without violating bylaws."

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