Secured credit cards are piquing the interest of more banks, particularly bigger ones.

In 1994, MasterCard International says, secured credit card accounts grew 114% to 1.5 million. And the association estimates that by the end of this year the number of accounts will exceed two million.

The once shady product, well on its way to shedding its past reputation, was the focus of a small conference last week in New York sponsored by Executive Enterprises.

About 40 bankers, some with secured card experience, gathered in New York for encouragement from MasterCard and others on marketing opportunities.

The New York-based association's director of new market development, Brian J. Schwartz, chaired the conference, which was touted as the industry's first such symposium dedicated exclusively to secured cards.

Executives from major card players that do not have secured card programs, such as Chemical Bank, American Express, Banc One, and AT&T Universal Card Services, attended the one-day affair.

Chemical Bank's experience is limited to a small secured card portfolio the bank acquired when it merged with Manufacturers Hanover.

Some of the newer and bigger entrants are attracted to the secured card market because research indicates that there is a large untapped base of people who have never had credit, a MasterCard spokesman said.

MasterCard claims that the greatest opportunity for secured card issuers is in identifying such consumers.

According to the association's research, there are 26 million people in the United States who do not have a credit card and could be eligible for one.

Of the 26 million, 17 million to 20 million would be prime candidates for a secured card. Among those consumers there are 13 million to 14 million who do not have a credit history, while four million to six million people have impaired credit records.

Secured cards have traditionally been marketed to people with credit problems. But over the past few years the associations, primarily MasterCard, which has been in the forefront of promoting secured credit cards, have been emphasizing the unimpaired credit segment of the market. Widows, divorcees, immigrants, and young adults, particularly those enrolled in two-year colleges, fall into this category.

People who have followed the secured card market over the years, however, believe that all secured credit card portfolios are composed primarily of people with credit problems.

A handful of smaller banks, like Key Federal Savings Bank of Owings Mill, Md., have been issuing secured credit cards since the product was introduced about 15 years ago. These bankers contend that the pie of consumers is a lot smaller than MasterCard claims.

Moreover, they say, attracting people with no credit history is difficult because they are simply too hard to find, unlike consumers who have had problems with credit and are easily spotted by their credit bureau files.

Robert M. Bouza, president of Key Federal Savings Bank's credit card operations, in Havre de Grace, Md., said that only 8% to 10% of Key Federal's secured card portfolio is made up of people with no prior credit.

"I may have a small corner of the world," said Mr. Bouza, "but I have 14 years of experience with this product."

Key Federal has 74,000 secured card customers, representing about $50 million in outstanding receivables.

Mr. Bouza speculates that the potential customer base is closer to 10 million than 26 million.

"MasterCard's numbers include all of the people who don't care about credit, immigrants who don't want credit because they come from cultures (that are resistant to credit), and people who have had credit but have had such bad experiences that they don't ever want it again," said Mr. Bouza.

Irving Levin, chief executive of Renaissance Bankcard Services of Portland, Ore., another longtime provider of secured credit cards, concurred with Mr. Bouza on where the greatest opportunity for the product lies.

"Historically, the credit-impaired have made up the bulk of the files," said Mr. Levin, adding that "20 million is wishful thinking."

Mr. Levin believes that larger credit card issuers are turning their attention to secured cards for several reasons.

As the unsecured card market tightens, making it more difficult to find new customers, secured cards offer an alternative. Also, the increased competition makes it difficult to reject customers simply because they don't qualify for an unsecured credit card, so offering a secured card with a rejection letter keeps the door open.

Another attractive feature is the belief, shared by many bankers, that offering secured credit cards can enhance a bank's rating under the Community Reinvestment Act, because issuers are offering credit to people who would not ordinarily qualify.

Although Mr. Bouza and Mr. Levin disagree with some aspects of MasterCard's research, both agree that the association's involvement to generate interest in the product is beneficial.

MasterCard's research, primarily over the past two years, highlights how managing a secured card portfolio is different from a traditional unsecured business.

For example, secured card profits are driven by ancillary fees like late and over-the-limit charges rather than interest rates. Secured card holders will pay such fees 2.5 times a year.

Issuers also have to be prepared to spend more money servicing a secured card account, which averages six customer service inquiries a year, versus one inquiry annually from customers with standard credit cards.

Secured card holders default on their payments two to three times more than other customers, though because of the deposit feature, issuers' losses are not as great.

Mr. Schwartz, who heads up MasterCard's secured card marketing, believes that interest in secured cards will continue to grow.

In fact, Mr. Schwartz predicts that in a few years card issuers will provide secured business and corporate credit cards to small business owners.

Mr. Schwartz said that some MasterCard members are already interested in such a product, targeting entrepreneurs who have not been in business for two years, which is what the associations require before their brands are issued to start-up operations.

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