First National Bank of Omaha, which for many years has kept a relatively low profile as one of the nation's largest privately held credit card issuers, this year is churning with activity from an unprecedented growth streak.
In a year when many other issuers are retrenching, First National is rolling out several cobranded programs, and it recently became one of only three U.S. banks with contracts to issue credit cards on all four major card networks. The others are General Electric Co.'s GE Money and HSBC Holdings PLC, according to First National.
First National, which was been in operation since 1953, signed agreements in October that will allow it next year to add Discover Financial Services and American Express Co. to the lineup of network brands it issues in conjunction with MasterCard Inc. and longtime partner Visa Inc.
First National is also expanding in other areas. This year it began capitalizing on a joint merchant acquiring deal with Total System Services Inc. that analysts say could help fuel a series of cobranded card deals it is pursuing with smaller and regional merchants.
And business is brisk in the bank's sideline of issuing credit cards on behalf of other banks.
First National, which has 2.5 million of its own cards in circulation, this year will take on a record number of other banks' credit card programs as an agent issuer, said Stephen Eulie, president of its credit card division. The issuer's parent company, First National of Nebraska Inc., has assets of $17 billion.
The bank manages credit card programs for roughly 700 financial institutions, putting it "second or third" among firms handling other banks' card programs on an agent basis, Eulie said.
"Last year was our biggest year so far in terms of signing up new agent-bank partners, and 2010 looks like it will be even bigger," Eulie said. In the next couple of months the bank expects to land "at least 10" additional deals to issue cards on behalf of other banks, he said.
More-difficult times for smaller issuers, which have experienced significant setbacks this year from regulatory and economic shocks, have helped spur the increase in First National's agent-bank partnerships, Eulie said.
"Banks see a need to increase fee income, and credit cards are a good source of that. And while some are getting out of directly issuing cards, we are willing to do that for banks on an agent basis and give them back a part of the revenues we earn," Eulie said. "A lot of financial institutions whose cards we issue were also recently asking for more [network] products, especially relative to Amex."
Eulie also is betting that credit card spending will improve next year for the issuer's core card-issuing business, and that cobranded credit cards present growth opportunities despite saturation in that category.
"It's true that spending on credit cards has been down, and people are hesitant to put a lot of money on plastic," Eulie said. "But we think that when unemployment rates improve, if we give the right value proposition to customers, they will begin using credit cards again, including cobranded cards."
Eulie said he is particularly focused on smaller, regional and specialty merchants that are entering the cobranded credit card market. Such merchants often have strong in-store and online customer traffic that can provide rich, targeted marketing opportunities that are far more effective than general direct-mail credit card solicitations, he said.
"The thing that really attracted us to Discover and Amex was the strength of these two brands, their strong networks and existing merchant partnerships," Eulie said. "Both Discover and Amex can provide us access to merchants we'd like to partner with in cobrand deals."
In both deals First National will issue the cards, manage the customer relationships and handle marketing, billing, charge authorizations and credit management. Discover and Amex will process the transactions through their respective networks. The bank has similar arrangements in other cobranded deals it has announced recently.
Adding the Discover and Amex brands may help accelerate the bank's cobranded credit card program growth, Eulie said. It plans to announce "a few large" cobranded card programs in coming months, he said.
Adil Moussa, an analyst with Aite Group, said, "By offering both Discover and Amex, First National of Omaha is leveraging the power of other brands in order to capture more market share, spending volume and total transactions."
Bolstering First National's recent deals with Discover and Amex was another strategic move it made earlier this year when it joined forces with TSYS for its merchant-acquiring operations, analysts said.
The bank in March announced plans to sell a 51% stake in its merchant-acquiring arm, First National Merchant Solutions, to TSYS. The $150.5 million deal made TSYS, of Columbus, Ga., a force in the acquiring industry while providing First National with the opportunity to develop products and services "that were unavailable prior to the joint venture," First National said.
First National's acquiring partnership with TSYS is a "very interesting relationship" that gives the bank more options in card marketing, said Brian Riley, senior research director at TowerGroup.
"The TSYS connection makes it more natural for First National of Omaha to expand its merchant scope in various ways that can only enhance its cobranding opportunities," he said.
The TSYS deal apart, First National has a robust cobranded card program it has expanded this year, and it is exploring several more deals, Eulie said.
In September the issuer announced a cobranded MasterCard program with the online merchant Overstock.com. Another First National cobrand partner is Murphy USA, a petroleum merchant with 1,000 outlets mostly in the South. In July the merchant launch the first Murphy Oil-branded Visa card.
First National's other cobrand partners include the National Rifle Association, Japan Airlines, All Nippon Airways, Sinclair Oil Corp. and the Midwest chain Scheels All Sports Inc.
Smaller merchants are a good fit for First National because they can design cobranded card rewards programs around specific product offerings with incentives for customers to make frequent or higher-ticket purchases, Eulie said.
"The reason smaller and midsize merchants with solid brands are so interesting to us is that we have a lot in common in that we're a large issuer, but we're not one of the top five," he said. "That gives us a lot of flexibility, and we don't have to book as many millions of accounts as the biggest issuers in order to show healthy growth."
Plenty of people are willing to carry more credit cards in their wallets if the rewards programs are strong, Eulie said.
"They may use one card to get a discount with a gasoline merchant and turn around to use another card to get a discount at their favorite sporting goods store," he said. "The average consumer probably has four or five cards in their wallet, and they are happy to pull out different ones if they are getting a good deal there."
Not all observers agree that consumers want to stuff their wallets with more cards to get more deals. Indeed, certain new "targeted" cobranded rewards card programs show potential, said Beth Robertson, director of payments research for Javelin Strategy and Research.
But Robertson said she is skeptical that many consumers want to carry several different cobranded cards to capture rewards from favored merchants.
"A top-of-wallet focus is more prevalent today," she said.
Though there's "a lot" of untapped merchant interest in launching cobranded credit card programs, Robertson said, at the same time there are "definitely specific focused opportunities that might leverage unique brand-value ties with either Discover or Amex."
