Third in a Series

Bankers have ridden their Visa and MasterCard brands to dominance in the credit card business, but some are wondering if the victory might be a bit hollow.

That dominance showed through once again in the 1997 American Banker consumer survey.

Visa penetrated 69% of households and was most used by 45% of all cardholders; MasterCard came in at 54% and 21%, respectively.

Four-fifths of U.S. financial-consumer households had at least one MasterCard or Visa card, and such a card was used most by 66%, according to the data gathered in October and November by the Gallup Organization of Princeton, N.J.

American Express cards and the associated Optima brand were most used by only 8%, Discover by 6%.

What's not for a banker to like?

The problem lies in customer relationships, or deficiencies in them. Credit cards have tended to be mass-marketed, without a lot of regard to where prospects do most of their banking. Air-mile points and other incentives give customers many reasons to rely most on cards that may not be packaged with their "home" financial accounts-and many reasons to accumulate multiple cards that can dilute loyalty even further.

Almost as many heads of household reported owning at least one retail store card-66%-as a Visa card. Oil company cards' household penetration, 33%, exceeded Discover's 27%, American Express' 19%, and Optima's 8%. (Eliminating double-counting of American Express and its Optima offshoot, that company would have 21%.)

More and more bankers are reciting the "relationship card" mantra. The idea is to tie a Visa or MasterCard more closely to a cardholder's deposits, loans, and investment products under a single institutional umbrella.

Visa has been particularly vocal about the relationship strategy. It stands to do well if Visa banks can build on that brand's current market- share advantages.

The American Banker/Gallup survey of 1,001 adult heads of household with at least one type of financial service account showed that 56% of Visa cardholders use that brand most. For MasterCard this number is 34%, for American Express 32%.

The probability is less than 20% that the holder of a Discover, oil company, or retail store card will use that card most.

Visa is preferred by a plurality of any type of institution's customers: 47% of those who primarily use commercial banks, 49% at credit unions, 37% at savings institutions, and 45% at others such as brokers and mutual funds.

American Express does disproportionately well in the last group, which tends to be upscale, with an 11% loyalty factor. MasterCard is underrepresented there, at 15%. Both bank card brands do relatively poorly in the savings institution population, where store cards do better than their average.

There are signs that depository institutions are becoming effective at integrating credit cards with other account relationships, exploiting an advantage that a mass-issuing monoline company like MBNA Corp. or Capital One Financial Corp. would lack.

PSI Global, the Tampa-based research firm affiliated with NFO Worldwide Inc., said 39.5% of the 2,248 households it tracks had either a MasterCard or Visa credit card this year from their primary banks. That was up from 36.8% in 1996.

Industry experts said advances in technology will make it easier and essential for banks to build closer, card-centered relationships with customers.

With a computer chip embedded in it, the card of the future will be able to store several products and services, and promote the notion of having all financial information consolidated and accessible in one place, said Stanley W. Anderson, president of Anderson & Associates in Arvada, Colo.

"The relationship card gives us the opportunity to add more information to a single piece of plastic," said Visa U.S.A. vice president Diana Knox. "Chip technology can carry as much as 80 times the information on a card with a magnetic stripe."

Major credit card banks are looking to the smart card future. Ms. Knox said Visa is working on pilots, for example, with BankAmerica Corp., Citicorp, and U.S. Bancorp.

"The single-product credit card will be greatly enhanced as a result of chip technology," she said. "It could potentially become almost the cornerstone of the banks' relationships with customers."

Wells Fargo & Co., the lead U.S. investor in MasterCard's Mondex smart card venture, is planning to test that assumption by loading credit, debit, stored-value, and digital certification services on a single card.

But "relationship banks" are not waiting for smart card technology to migrate to today's credit and debit cards-a process Ms. Knox said might take 5 to 10 years in the United States.

When Citibank in New York recently revised its retail product and pricing structure, which takes effect in the new year, it used credit as a relationship-strengthening lever. Credit card and mortgage balances will count along with deposits toward the $6,000 minimum required to avoid service charges.

"We have always offered other bank products to our credit card customers," said Maria Mendler, a spokeswoman for the Citicorp subsidiary. "Credit cards are a good example of a product that introduces a relationship between the customer and Citibank."

Citibank-soon to boost its industry-leading U.S. receivables total to $61 billion with the addition of $15 billion from AT&T Universal Card Services-markets cards all over, but it has branches in just eight states and the District of Columbia.

But Ms. Mendler said with the spread of banking via the Internet, "U.S. customers who are outside of our markets can now bank with us" and could see cards as a natural relationship-extender.

Similarly, at Minneapolis-based Norwest Corp., "We view the credit card as a core account (and) pivotal to the customer's relationship," said Brian J. O'Hare, who retires Dec. 31 as head of card operations.

"At Norwest there is a tremendous focus on cross-selling-building a deep relationship as opposed to a single-threaded relationship that you might find with, say, the Discover card," he added.

"American Express does not have the same disadvantage (as Discover) because they have a financial services arm," Mr. Anderson said. "But those that are in the bank card world have the greatest opportunity to take advantage of technology."

"Bank of America has introduced a reward program on one of its credit cards, where the cardholder can earn discounts on retail banking services," said Jeffrey Baxter, principal of S.J. Baxter & Associates, Forest Hill, Md. Also, "the acquisition of First USA by Banc One Corp. is another first step into trying to turn the card into more of a relationship business."

In the traditional MasterCard-Visa rivalry, the American Banker/Gallup data showed little movement this year. But in its bigger sampling of U.S. consumers, PSI Global found MasterCard in 48% of households, up from 39% in 1996, while Visa was unchanged at 60%.

The Gallup survey did show that MasterCard closed the gap with Visa in the over-$75,000 income segment. MasterCard was most used in 22% of those households, trailing Visa's 39%. In 1996 MasterCard registered 19%, much further behind Visa's 48%.

But in the $40,000-$75,000 bracket, Visa increased its lead over MasterCard to 29 percentage points (50% to 21%) from 18 (43% to 25%).

"We target different programs to each segment of consumers, and the over-$75,000 consumer is a very important piece of the puzzle," said Nicholas Utton, MasterCard's senior vice president of U.S. marketing.

MasterCard's golf sponsorships, aimed at an audience of 25 million aficionados who spend $150 billion a year on the sport, had something to do with that, Mr. Utton said. The upscale-oriented World MasterCard may begin to have the same kind of impact next year.

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