Aiming to bolster its presence in the card industry, Mellon Bank Corp. has hired a new division chief and allied itself with an outside marketing and management firm.
The Pittsburgh banking company recruited John L. Klink Jr., 34, who had run Signet Banking Corp.'s credit card program before the company was bought last year by First Union Corp.
It also retained Infistar-formerly known as Card Issuer Program Management-an Atlanta consulting group led by Jerry D. Craft. Mr. Craft had run Wachovia Bank Card Services before setting up his firm, which helps banks operate and market their credit card portfolios.
Before making these moves, Mellon, a mid-tier card issuer with $1.8 billion of managed receivables, had found itself in an increasingly common quandary: whether to remain in the card business. Like many peers in the $1 billion to $3 billion managed loans category, it had seen larger issuers bulk up and wondered whether it could compete.
"Everyone in that size range has been accused of wanting to get out," said Michael Auriemma, president of Auriemma Consulting Group, Westbury, N.Y. "Mellon needs to find new products and programs" to be a "long-term player," he said.
David Robertson, president of The Nilson Report, an industry newsletter, called Mellon "a very strong bank." But he said it must "figure out a way to narrowly define what it wants to do in the card business."
Mellon would not disclose its plans, but Mr. Klink, senior vice president and manager of credit card operations, said his mandate is to "grow a profitable business."
"Mellon did not feel comfortable exiting the business," he said.
Mr. Klink succeeds Ray Duggins, a risk management expert who was hired from Sears Credit Group in August 1996. Mr. Duggins left in September to join GE Capital, said Mellon spokesman Ron Gruendl.
Infistar will be responsible for helping Mellon acquire accounts. The company also works in this capacity for Webster Bank of Waterbury, Conn., and First American Corp., Nashville.
But unlike its role in those alliances, Infistar will not perform back- office functions for Mellon. Infistar will, however, absorb marketing costs for the accounts it originates and bear some credit liability.
In 1994 Mellon hoped to make its mark in the credit card world with a novel product. The Cornerstone card was designed to build customer loyalty by giving cardholders partial rebates on interest charges for 20 years and a total rebate after 20 years, but it failed miserably.
Instead, Cornerstone cost Mellon $106 million in unpaid debt the bank was forced to write off.
"They lost their shirt on that product," Mr. Robertson said.
Now Mellon is more aware of spotting high-risk accounts. Within the past year, it began charging fees-and raising others-on accounts it deemed risky.
For example, in September, it began charging cardholders $15 to $20 for not using their cards during six consecutive months. It also raised its cash advance fee from $2 to $3.
Mellon has a number of affinity card products, including one with the American Dental Association, but no major cobranded card. In 1996 it lost an aggressive bid to win the exclusive right to offer financial services to the 38-million-member American Automobile Association.
