CHARLOTTE, N.C. -- First Union Corp. may be the second-largest bank in the Southeast, but it was never a major player in credit cards. That is, until Fred M. Winkler came along.
Mr. Winkler, 51, joined First Union in April 1993 from AT&T Universal Card Services, where he had been chief operating officer.
While at AT&T, he introduced combined statements for calling cards and credit cards, reflecting his view that the different elements of the card business form a unified whole.
Before joining AT&T, Mr. Winkler
had been president and chief executive of Citibank South Dakota, Citicorp's largest credit card center.
Mr. Winkler has already made his impact felt at First Union, where he runs the card products division as a senior vice president.
Since April 1993, he has nearly doubled the Charlotte-based company's credit card receivables, from $2.3 billion to $4.3 billion. The surge contributed about 24% of First Union's overall loan growth this year, boosting that percentage increase into double digit territory (10%) by the third quarter.
During a recent interview with American Banker, Mr. Winkler explained how he accomplished this feat. He also outlined some of his plans for the future, which include making First Union a national player in credit cards and transaction' processing
Q.: Why did First Union hire you last year? What's your mission?
WINKLER: To assist First Union in maximizing its opportunity in the marketplace with reference to payment and transaction products. I'm responsible for the merchant processing business, the ATM product, the debit card/check product, and the credit card product.
We clearly understand we're not in the credit card business per se. We're in the payment. and transaction business.
Q.: What's the difference?
WINKLER: If you focus strictly on the credit application of the credit card and see the business as merely one that builds receivables, you greatly limit the market segmentations for which you can find utilizations.
People really use credit cards to do payments and transactions. To them, the convenience or the utility of the product is that it's a payment and transactions device. They don't conceptualize it as just a credit vehicle.
To the extent you conceptualize it as a credit vehicle, you limit your profitability potential. It's a much more expansive view to look at the business you're really in.
It's like the old story about whether the railroads were in the railroad business or the transportation business. Well they lost market share and ultimately came close to dying because they thought they really were in the railroad business.
The reason there's more and more focus on the merchant processing business is that people are starting to become aware of the transaction importance of the handling or transportation of information or knowledge for a fee.
For example, we make a considerable amount of money just doing things like transferring knowledge for Medicare and Medicaid eligibility.
A doctor's office comes to us and asks us whether Patient X is eligible for Medicare and we report back "yes" or "no." In that case, we haven't sold anything except knowledge and we charge a fee for that. That's a transaction.
Q.: In terms of credit cards, First Union has been only a regional player. Are you looking to be more of a national player?
WINKLER: Yes. We're clearly broadening our marketing to the nation.
Q.: And how will you do that, since you'll be going beyond your franchise customer base in the Southeast?
WINKLER: We've built sophisticated relationship data base technology that allows us to do market segmentation on a national basis to very refined segments. And that allows us to target profitable payment and transaction customers, regardless of their location in the 50 states.
Q.: Since other companies are doing that, how can First Union make a difference?
WINKLER: Our competitive advantage exists in the expertise and skill we have in finding market segments which other people, who think of themselves as only being in the credit card business, tend to overlook.
Additionally, the national market is not saturated, particularly if you understand market segmentation and how to find segments that are underserved.
If you look at yourself as being in the payments and transaction business, it opens your thinking to where these segments are and what profitability there exists.
Q.: Can you give me an example of an overlooked segment?
WINKLER: It's generally felt that people who are in the 730 FICO [Fair Isaac & Co.]-scores-and-above range are transactors as opposed to revolvers.
And people who have segmentation technology tend to not put them in their targeted data base because they believe they're transactors and they can't find the revolvers and leave the transactors out of the picture. We have the ability to find the revolvers in the 730 range and not solicit transactors, if we decide that's what we want to do.
Q.: What's a FICO?
WINKLER: It's an abbreviation for the company that developed the credit scoring modeling which is generically in use by credit card companies that do targeted solicitations.
What it does is statistically quantify the likelihood that some will go to writeoff. And the higher the score, the least likely it is they will go to writeoff.
So if you're at 730, that's a very good creditworthy customer, generally one who doesn't revolve. You find your revolvers down in the 700 or lower range, which is a greater risk customer.
Most companies pick a cutoff score of, say, quite often it's 680, and don't go below that because they don't have the sophistication to find customers who are good and going to stay good as opposed to those who are going to go bad.
Another edge we have is we can go into the lower scores and identify those who are going to be good as opposed to go bad.
Q.: So all this is a way of using your technology to become more focused in selecting customers?
WINKLER: Well, it's an ability to go into much more refined market segments and try to deal with households on a much more individual basis, as opposed to an approach which is generally followed, which is large category segmentation with mass mailings.
We go to much more refined segments and send out fewer solicitations.
We, for example, can grow our receivable, and did this year. We basically doubled our receivables and the active account base for 50% of the expense much of our competition operates at.
When I came aboard in April 1993, the portfolio was $2.3 billion and starting to run off because they weren't competitive on their pricing and so on and were losing customers at a fairly rapid rate to other competitors.
What we did is put together a strategy to stop the runoff, to start building the receivable, and put on more accounts than we were losing.
We started our first solicitation program in the fall of 1993. We'll end 1994 with around $4.3 billion. And within that, we'll about double the active account base.
Q.: How can you say the credit card market isn't oversaturated when so many companies are doing national solicitations?
WINKLER: Well, MasterCard and Visa receivables are growing around 20% to 25% a year. The losses are lower than they've ever been before.
And even during tough economic times, like the recession of 1981-82, the losses did not go to any level that caused a material impact on the profitability of credit card companies.
The market is growing. One, there are more people, of course. Two, the numbers of places where payment transaction products can be used is increasing: gas stations, convenience stores, hospitals, doctors, all kinds of places.
What you find shrinking is the retail credit. Your bank-related payment devices, like Visa and MasterCard, are taking substantial market share away from retail.
So you can continue to make inroads on that source of receivable.
Q.: What have you done to integrate your area into the rest of First Union's retail operation?
WINKLER: We've automated the branches so that a customer who wants a payment device can apply for and find out on a real-time basis whether they qualify for that product.
We have automated the application process for a number of other credit vehicles, which also, at the same time, qualify you for the credit cards that we're cross-selling.
We have a number of things like that going on, many of which are proprietary and we wouldn't share.
Q.: Is working for a bank like First Union much different from a nonbank financial institution like AT&T Universal Card Services?
WINKLER: At this point in time, it's not very different because First Union views itself as a financial services business, not in the traditional mode of a bank.
What we're doing is redesigning huge portions of our company in order to allow us to compete with financial services businesses, whether they are banks or non-banks.
What we view our competition to be are companies like Merrill Lynch & Co., Fidelity Investment Co., Prudential Securities Inc., and so on.
Q.: In your previous jobs, you never had responsibility for a total operation. Are you enjoying your enlarged responsibilities?
WINKLER: I'm having a great deal of fun. First Union has given me full play to look at the payment-transaction services area and to develop a strategy and an approach that will allow us to optimize our profitability and market share growth and has pretty much suppotted everything that we've done.
So it's been a very career-broadening experience for me.
