Despite challenges from Citigroup Inc. in the Puerto Rican credit cards market, Banco Popular has been generating its best gains from a tool that Citi does not have at its disposal - the right to issue American Express cards.
The $30 billion-asset, San Juan-based institution became the object of U.S. banks' curiosity and envy during the antitrust trial two years ago, in which the Justice Department challenged exclusionary rules by Visa USA and MasterCard International. Those rules prohibit U.S. member banks from issuing American Express or Discover cards.
Because it is based outside the 50 states, Banco Popular is exempt from those rules.
Popular, Puerto Rico's leading card issuer, now says that one-quarter of the 400,000 accounts in its bank card portfolio are American Express accounts. Popular has more Amex accounts than MasterCard accounts, which make up 23% of the portfolio. The remaining 52% are Visa accounts.
The breakdown of Popular's $760 million of receivables is roughly the same. (The company also has 100,000 private-label card accounts.)
According to sources, Citibank issues the second-highest number of cards in Puerto Rico, and an executive shuffle this month, in which Citigroup's president, Robert Willumstad, was put in charge of Mexico and Puerto Rico, was one indication of its designs in the region.
According to the company, Citibank has operated in Puerto Rico for 84 years. It introduced the first MasterCard to the region in 1969. "We are very committed to this marketplace," said a spokeswoman.
"They're not hiding their intentions, but we have a long-term strategy we're going to follow," Fabio Garcia, the vice president in charge of Popular's cards division, said in an interview last week. "Smaller issuers will probably be the ones who suffer the most."
In addition to a handful of large banking companies like Popular, Citi, and Santander Bancorp, several community banks issue cards in Puerto Rico.
According to The Nilson Report, Visa and MasterCard transaction dollar volume in Puerto Rico last year rose 13%, to $2.6 billion, as did the number of transactions made, to 29.6 million. Visa cards represented 62% of that volume, but just over half of the island's 1.6 million cards carried the Visa brand.
American Express would not disclose its market share, but only three companies issue its cards in Puerto Rico: Popular; Santander, which began issuing in May 1999; and American Express Co. itself.
Local institutions do well in Puerto Rico, "partly because they understand their own market," said Felipe Korzenny, a principal and co-founder of Cheskin, a Redwood Shores, Calif., research and consulting firm that specializes in multicultural marketing.
However, Citigroup might not face a disadvantage there, Mr. Korzenny said. When Citi bought Banamex last year, "from an emotional point of view, it was hard for Mexicans to think that an American bank just bought their major bank, but practically, many consumers felt more confidence in Citibank and the prestige of a U.S. institution."
Ronald Rios, the vice president of credit cards at Santander, the island's fourth-largest issuer, with 75,000 cards, said Citi cards are popular for at least one other reason. "They have a really good program with the American Airlines card."
And while Citibank may benefit from Puerto Ricans' confidence in a U.S. brand, Popular's relationship with Amex also gives it an edge. In June 1999 Popular introduced its "blue box" American Express Platinum del Banco Popular, the island's first platinum card. ("Blue box" refers to the Amex logo that appears in a corner of the card.) Popular developed flashy promotions for the card, including the ability to move to the front of the line in bank branches and various shopping extravaganzas.
"When they launched the card, they wanted to differentiate themselves by being the first platinum issuer in the Puerto Rican market," said Robert Glick, an Amex spokesman. "They developed a package of services unique to them."
Popular now says American Express is the fastest growing segment of its cards business. "The portfolio has stabilized in the last year, although American Express is still growing in terms of accounts," Mr. Garcia said.
A Citi spokeswoman said the company has no intention of establishing a Puerto Rican subsidiary that could issue Amex cards. She pointed out that Diners' Club, a competitor of American Express, is owned by Citi.
As a "global network service partner" of American Express, Popular oversees all the operations that support the cards, including billing, customer service, credit management, advertising, and promotions.
Global network partnerships "are a way for American Express to maximize the availability of our products in one market," Mr. Glick said. "We get strong local expertise from institutions like Banco Popular. There are more American Express-branded cards in the market and greater transaction volume on the merchant network."
American Express has 76 such partners, Mr. Glick said, including Canadian Imperial Bank of Commerce, which issues the co-branded "Entourage" smart card. CIBC is also the largest Visa issuer in Canada.
Banco Popular, which became an Amex partner in August 1997, has issued Visa cards since 1978, and MasterCards since 1989. Two years ago it sold its U.S. card portfolio, with $180 million of receivables in 283,000 accounts, to Metris Cos.
Mr. Garcia said that Popular does not intend to sell its remaining business. "Our strategy is to grow. It's a very profitable business for us. We have many plans in line."
Popular plans to launch cards for college students on all three brands, and it will work more closely with Visa in the coming year, he said.
