The bank card brands' two most prominent competitors have growth on their minds - and aggressive though contrasting strategies for achieving it.

Those competitors, American Express and Discover, have had a hard time cutting into MasterCard's and Visa's market shares, according to data from The Nilson Report. American Express had 17.58% of first-quarter 1999 card spending, and Discover had 5.43%, down from the comparable 1998 period.

The companies' own numbers, however, show positive trends. Morgan Stanley Dean Witter & Co.'s Discover Financial Services unit reported a 23% rise in second-quarter net income, to $211 million. And the Discover card's chargeoff rate declined to 5.55%, from 6.58% a year earlier.

Similarly, American Express Co.'s Travel Related Services unit, consisting largely of the card and travel businesses, had record net income of $411 million, up 14%. The net writeoff rate declined to 5.3% from 5.9% a year before.

Amex attributed its performance to higher spending on its cards. Discover said improved credit quality was a major success factor.

This year, Discover launched a merchant signing campaign, which during the second quarter alone brought in 138,000 new establishments that accept its cards. Discover is taking aim at Visa and MasterCard, sending letters to merchants that point to the bank-owned associations' higher fees.

David W. Nelms, president of Discover Financial Services, said in the letter that Discover does not "nickel-and-dime" merchants as Visa and MasterCard do. A former MBNA Corp. executive, Mr. Nelms was brought on board last September to lift Discover's sagging market share. In an interview, he said his top accomplishments so far have been the merchant strategy, the January launch of a platinum card, and a redirection of the marketing focus toward the Discover brand.

Another high point for Discover was its record growth in transaction volume - $16.3 billion in the second quarter, a 23% increase over the period last year. "A lot of it is simply more aggressive marketing," Mr. Nelms said. "We are one of the top five mailers and we are much more price- competitive."

Discover took its first strong overseas steps, opening a call center in the United Kingdom and obtaining a bank license that will allow it to issue credit cards in Europe, Mr. Nelms said.

Internationally, American Express is well ahead of Discover. Its strategy of aligning with banks overseas has yielded 52 comarketing agreements in 50 countries over the past couple of years. Like Discover, however, Amex has had to play catch-up with Visa and MasterCard in merchant acceptance.

In August, Amex announced a deal with Costco Wholesale Corp. to issue cobranded consumer and small-business cards. The warehouse retailer, with 290 stores nationwide, brings a membership of 12 million households and four million corporate accounts - and a policy of accepting only Discover and American Express, not Visa and MasterCard.

Amex is making a strong play to capture market share on the Internet, starting an Internet-only bank in July that won good notices from analysts.

"The American Express brand should give it a leg up over other issuers in convincing consumers to trust the Internet for purchases," said a Morgan Stanley Dean Witter report by Kenneth A. Posner.

American Express, he wrote, is "exceptionally positioned to capture more than its share of this on-line spending." n

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