Banc One Corp.'s First USA unit has begun pursuing agent bank relationships as a way to bolster its credit card portfolio growth.
First USA has decided that this type of outsourcing-it manages the accounts and loans but puts the smaller banks' names on the cards-can make more sense than booking new accounts through traditional methods like direct mail.
"The slowdown in receivables growth and the increasing level of competition have made it more reasonable than ever to have banks consider outsourcing," said James Stewart, a senior vice president at First USA in Wilmington, Del.
Receivables growth for the top 50 issuers slowed to 8% last year from 15% in 1996, according to The Nilson Report.
First USA has accumulated 1,000 agent bank relationships over the past several years, but only this year has it started putting significant energy into the strategy.
Two weeks ago, First USA purchased the $31 million Visa portfolio of Webster Bank of Waterbury, Conn. As part of the deal, Webster will keep its brand name on the cards, statements, and applications, and will earn a fee for each account. First USA has taken over marketing and operations and assumes liability for the portfolio.
Accounts through agent banks can be less risky than others because the banks being serviced have established relationships with their customers.
Large issuers like Banc One are courting agent deals because they find it "harder and harder to attract and retain customers," said Robert Hammer, president of R.K. Hammer Investment Bankers of Thousand Oaks, Calif.
A few years ago, Mr. Hammer said, bank card executives looked "more skeptically" at agent contracts because they preferred to market directly under their own brand names. But with changes in the competitive environment, "people are now revisiting agent bank relationships," he said.
The agent phenomenon is not new. Marine Midland Banks, Norwest Corp., and First Bank System Inc. (now U.S. Bancorp) have all pursued the strategy.
In the 1990s, MBNA Corp. and First USA refined the concept. Both are known for issuing affinity cards, and industry experts said parallels could be drawn between those and the agent approach, in which the client bank retains its name but sheds nearly everything else.
Last year, the Independent Bankers Association of America established a limited credit card bank to manage card portfolios for community banks.
Agent credit card issuing "has fallen in and out of favor" over the decades, said Stanley Anderson, president of Anderson Associates, Arvada, Colo. "This is a time when delinquency is high and technology is pushing the issuer."
The trend is "going to continue," he said, "because of the economies of scale and competitive pressures in offering viable card programs."
