Investment banker Bob Hammer has his finger on the jumpy pulse of the credit card industry.
His company, R.K. Hammer Investment Bankers, in Thousand Oaks, Calif., founded over six years ago, has carved a niche for itself, selling credit card portfolios in the $10 million to $100 million range.
Mr. Hammer, 47, has spent 25 years in the credit card industry, working everything from collections, customer service, and marketing, to finance, operations, agent banking, and merchant services.
He managed First Interstate Bank's credit card portfolio. In charge of the acquisition strategy for the since-acquired California bank, he also assisted in the selloff of its massive $450 million portfolio to Associates National Bank in 1990.
Mr. Hammer has the reputation for being fair and thorough when it comes to portfolio sales.
"Because Bob has been involved in the operations of portfolios, he brings a great deal of experience in operating a portfolio. " said James Ahearn, chairman of Boatmen's Credit Card Bank. "He's not just a broker. He understands it inside and out."
Mr. Hammer is also known for being slightly offbeat and quirky, and his recent career has taken some unusual turns.
In 1994, he left business and decided to run for the House of Representatives against Republican incumbent Richard Sybert. He came in second in the primary, running on a platform of fiscal conservatism.
Mr. Hammer recently chatted with the American Banker about his company, trends he saw this year, and what he expects for the credit card industry in 1997.
How did you identify the niche you went after when you started R.K. Hammer Investment Bankers?
HAMMER: What I saw on Wall Street, and what I saw in larger blue-chip firms, was the tendency to take larger transactions, the $100 million, the $200 million, the $1 billion deals. The smaller deals, between $10 million and $100 million, many issuers were left to sell themselves to people who are professional at buying. So they were really left unassisted to sell.
What are some of the things that bankers ask you about most when they come to you today?
HAMMER: Most of them come by saying they want to have a segment of their portfolio identified or valued. They want to know how they should structure it as a potential sale, and if they do sell it, then go forward with the sale.
Others call in and say there are issues operationally they want to try to understand, how to operate more profitably. They want a complete review of their total operation, looking for efficiencies, for marketing opportunities, and things like that.
What concerns card issuers the most today?
HAMMER: Fifteen of the top 20 banks in America have been my clients, and (I have) clients in a number of foreign countries as well. And they are all aggravated over the same thing - cardholder attrition and how to generate loyalty.
What's behind the numbers is increased competition, which means pressure on prices and yields, worry about allegiance of cardholders which seem to have less loyalty to the card product than almost any other retail banking product.
What are some of the major trends you saw in the credit card industry in 1996?
HAMMER: It was a difficult year for some, but a fabulous year for others.
It is a $1.5 trillion industry. The volume of purchase transactions and cash advances - something on the order of 40,000 transactions every minute - it's an enormous business.
Banks earned about $50 billion. Cards earned about $5 billion of that for them. Here's an industry that has roughly 5% of the banking assets, generating 10% of banking profits, notwithstanding the bankruptcies. This is an enormously attractive business from the standpoint of potential profit if its done right.
Overlay the good news with some bad news. Bankruptcies are up again.
As a result of rising delinquency and chargeoffs, the credit criteria have been tightened again, new-applicant cutoff scores have been raised. Some of that necessary tightening is being done, but at the same time, our (technology) is better as well and we are able to understand profitability quite a bit more than we ever have before.
That is why we are seeing some partial portfolio segments being shed, because they understand which segment may not be the contributor, may be a drag on earnings and they are able to divest a specific piece. That trend will probably continue this year.
And you think applications of technology are becoming more important in the business?
HAMMER: Absolutely. It certainly will from the standpoint of the Internet and the World Wide Web. Normal card transactions represent only 15% of the total consumer purchase transactions, most are still cash and check. But on the Internet, use of the card is about 90%. You have 40 million Americans with PCs; 24 million of those are modem ready. It's an enormous market for advanced technology. It's not fully developed, even though it's maturing.
This industry has a lot to go, even though it's $1.5 trillion, it's only 15% of total transactions.
I foresee the time when reinvestment in software and Internet preparation will need to be made again in technology that we think is satisfactory today.
The implications are that the simple plastic that accesses credit or debit is probably going to be combined some day sooner rather than later when you can you access a full variety of services from any institution anywhere in the globe with one piece of plastic.
You travel frequently and do a lot of international work. How will international markets affect domestic markets?
HAMMER: International growth is going to be absolutely enormous. I think Asia-Pacific and Latin America represent two of the most terrific opportunities.
Asia-Pacific is at about 30% growth rate in cards today. That is an enormous jump compared to other regions. Three countries come to mind: China, Korea, and India.
How large is the potential credit card market in China?
HAMMER: Well, it's got 1.2 billion people. Up to about 500 million people are the potential market. Any way you slice it, it is a big number. Plus, keep in mind Asia-Pacific has some very advanced countries as well. China has the potential to be as large or larger than the United States over its history, but that will be a generational thing. Probably three generations of bankers will develop this over our careers.
What about Latin America?
HAMMER: Clearly, Brazil comes to mind immediately because of its sheer size; it is the largest contributor to card growth in Latin America - something like $20 billion in purchases. In terms of cards, probably something like 13 million cards, split evenly between MasterCard and Visa. Argentina is probably about half that, I would say probably $7 to $8 billion in purchase volume.
If you had some advice to give to American bankers involved in the credit card markets about international markets, what would that be?
HAMMER: I'd look at a couple of examples. MBNA is in the U.K. They have been there since 1993. They have already begun to expand. Associates (Corporation of America) has got operations in the United Kingdom, Puerto Rico, Canada, Mexico, and probably will be in other countries as well. Those are just two examples, There are many others, Most of the nonbanks, most of the survivors of the large-scale players, I believe are going to have a presence in a lot of these countries. So my advice would be to consider, not just leap into it. The key is to understand these countries. It is not just one region, it's an enormous collective of individual local markets.
What other things do you think 1997 holds for bank card companies?
HAMMER: I'll give you an example of something that I think is destined to happen, and that is the alliance between strange bedfellows. Advanta and Amex is an example. I think it is an example of forward thinking, of sharing resources, where no one institution could do what the combined could together.
Household and Barnett are the second I would point out. Instead of buying an institution's assets, they are sharing the resources. I see joint ventures and unusual alliances as being the watchword for the next year.
