At its zenith in the mid-1990s there were hardly enough superlatives for people in the credit card business to heap on Advanta Corp., the monoline that was always named in the same breath as MBNA Corp., First USA, and Providian Financial Corp.
In those flush times the bulk of Advantas business came from consumer credit cards, and the company rose to become the nations eighth-largest issuer, with $12.4 billion of card loans.
In 1994 Advanta, which also did a sizable business underwriting mortgages and equipment leases and selling automobile insurance, even hired a former president of MasterCard International, Alex W. Pete Hart, who later became its chief executive officer.
But the Advanta family empire built in the living room of the late Philadelphia high school teacher Jacob R. Jack Alter, who used $30 and his frustration over banking hours to start a credit union that made loans to teachers has been sold off piecemeal since 1997, when unexpected losses and executive turnover prompted the sale of the consumer credit card operation to FleetBoston Financial Corp.
This year the Spring Hill, Pa., company has disposed of other parts of its business mortgages, equipment finance, and auto insurance leaving only one crumb: a $1.78 billion portfolio of credit cards issued to small businesses.
However, Dennis Alter, Advantas chairman and CEO, remains upbeat about the family business, which has been central to his life since he was a boy helping his father stuff envelopes.
We are experienced hands, and weve been through all the cycles, Mr. Alter said. When we started in [the consumer credit card business in] 1983, they said, How can you complete against Citi? Well, no one gets all the business.
Only a few of the major card issuers target the small-business market, which is generally considered a low-margin business with perhaps more risk than reward. American Express Co., Citigroup Inc., and U.S. Bancorp are among the more prominent issuers with card products for small businesses; then again, many small-business owners do not bother with such products, and instead use their personal credit cards to finance their businesses.
These drawbacks do not daunt Mr. Alter, who says that there are 40 million potential customers for Advanta Business Cards, and they tend to be entrepreneurial, Internet-literate, and ignored by large issuers.
He is targeting companies with fewer than 100 employees and less than $1 million of annual sales, and vows that Advanta which was founded in 1951 as Teachers Service Organization and changed its name in 1988 will once again rise from anonymity, this time to become the first small-business credit card specialist, or monoline.
Our focus is to help small businesses finance their growth, Mr. Alter said. It is a fragmented business, though there are a number of players offline and online who are seeking to establish a relationship.
Advanta can get years of profits from small businesses, he said. We can get our 30% to 50% growth per year in a prudent, sound, and responsible way and have very good returns. At some point there will be a trend toward consolidation, but not for some time.
In announcing first-quarter earnings on Tuesday net income on Advanta Business Cards was $8.3 million, and the company signed up 70,000 new business card accounts Mr. Alter insisted that shutting down the noncard businesses would brighten the financial picture, which included a $29 million net loss on revenues of $64 million.
He attributed the losses to the continuing costs from shutting the leasing business, as well as other losses.
This quarter we completed Advantas repositioning, Mr. Alter said. We will now focus all our operating activities on our very profitable business credit card operation and small-business market. We believe this market remains relatively unsaturated, unlike the consumer card business.
Advantas journey to becoming a business card pure-play has been a roller coaster ride filled with controversy and false starts.
In 1995 it made a deal with American Express (which was halted by lawsuits from Visa U.S.A. and MasterCard International). Two years later it posted a colossal first-quarter loss of $20 million, which aggravated customer delinquencies and attrition and led to at least two lawsuits alleging that management misled shareholders about the deteriorating quality of the consumer card portfolio. At that time the company said it was considering a sale.
By the end of 1997 a year the company featured a rising sun on the cover of its annual report its brightest light, the $10.5 billion consumer card portfolio, had been sold to Fleet for a $500 million premium, and Mr. Hart among others had resigned. The business card operation was not among the assets sold to Fleet.
Advanta still wanted to be a leader in the mortgage business, and used the analytical marketing methods it pioneered in the card business to try to stake out an advantage in mortgages and leasing.
It did not work out that way for either of the units. Since January the company has sold its mortgage business to Chase Manhattan Mortgage Corp., a subsidiary of J.P. Morgan Chase & Co.; discontinued its leasing business; and arranged an early termination of its strategic alliance to market auto insurance.
Advantas card offerings attempt to accommodate business owners desires for a frequent-flier card. Interest rates average 19% to 20%, much higher than most consumer cards, and perhaps indicate the risk involved in lending to that sector.
During its first-quarter conference call, William A. Rosoff, vice chairman and president, said it would beginning buying up to 1.5 million shares of its own stock, with additional purchases possible as cash is freed up as its leasing business winds down.
During the consumer card consolidation from 1987 to 1997, Advantas stock price went from $2 to $60, Mr. Rosoff said in an interview. Whatever ultimately happens, given the stage of this business today, consumer experience could repeat itself, but that is not a bad thing.
From Our Archive
- Advanta Says It May Sell Mortgage, Leasing Divisions to Focus on Cards - May 18, 2000
- Mortgage Unit Deal Will Focus Advanta - October 25, 2000