Buyer Protection Losing Appeal As Check Perk

Bankers are looking more skeptically these days at buyers protection programs, last year's hottest checking account add-on.

Citing poor customer response, BankAmerica Corp. and U.S. Bankcorp of Portland, Ore., recently became the first major banks to drop free insurance coverage for theft, loss, or damage of goods purchased with checks.

BankAmerica also ended the program on credit cards, and banking experts suggest that other institutions may follow suit.

"Buyer protection was a flavor of the month," said Anne Morgan Moore, president of Synergistics Research Corp., an Atlanta-based banking research company. "Banks are stepping back and reevaluating the economics of the program."

Buyer protection has generally consisted of two services: casualty insurance and extended warranties for covered purchases. For example, BankAmerica provided up to $50,000 insurance against loss for 90 days and doubled the manufacturer's warranty on covered items.

Many banks say they are happy with the offering. Citibank, for one, intends to keep buyer protection features on both checking and credit card purchases. "It's one of the things customers say they want most," a spokesman said.

But marketing specialists predict that banks will use buyer protection more selectively and reshape the programs to fit their needs better. For credit card purchases, Citibank has already dropped coverage on lost items and lowered the limit on individual claims to $500 from $50,000.

Premiums May Be Charged

Banks will offer buyer protection only when it fits their overall marketing strategy and successfully distinguishes an institution's products from those of competitors, marketing specialists say. And banks may start charging customers premiums for coverage.

In the spring of 1990, in the first flush of publicity for buyer protection on check purchases. 33% of people polled in the American Banker's annual consumer survey said they would be willing to pay for it. The survey showed 48% expressed some interest in buyer protection, but 63% preferred low-cost checking accounts to those that offered insurance or other perks.

"It's going to be a market-by-market thing," said Diana P. Knox, senior vice president at U.S. Bank of Oregon, a unit of U.S. Bancorp. "For some, this could still be a very nice enhancement."

First Offered with Cards

The program was introduced in the late 1980s as an add-on to charge cards and credit cards.

Valley National Bank of Arizona extended coverage to checking customers in January 1990, and hundreds of banks followed suit. Hailed as an innovation, the Phoenix-based bank's Shopper's Assurance program won the Bank Marketing Association's 1990 Golden Coin award for product marketing.

Valley National says its program remains successful. "We view it as a product differentiation tool," said executive vice president Robert D. Sznewajs.

All the same, the bank is continually reexamining the program's worth. "It's the kind of thing you always look at," Mr. Sznewajs said.

Even insurance brokers who sell buyer protection packages to banks admit that interest in the program for checking accounts has slackened. "Growth will be modest on the checking account side," said Robert V. Conte, president of Cardholder Brokerage Services Inc., Harrison, N.Y.

But vendors say there is still great interest among credit card issuers.

Indeed, banks have more incentive to keep the program on credit cards than on checks. Customers tend to use cards rather than checks to make the kinds of big-ticket pruchases they want insured. And banks collect a fee on each card transaction, gaining income if they can persuade buyers to use their cards more often.

Card Program Works

U.S. Bancorp is a case in point. The company is happy with the program on credit cards.

"This service may cause customers to pull our card out of their wallets," said Rick Comandich, senior vice president at U.S. Bank of Oregon.

But on the checking side, U.S. Bancorp believes that buyer protection failed to drum up enough added business to justify program costs, even though the company met most of its checking growth targets. Branch managers reported little customer interest in the program.

"We simply didn't see the kind of customer response we had hoped for," Ms. Knox said.

When its buyer protection contract with Tampa-based Telecredit Marketing Services came due at the end of September, U.S. Bancorp did not renew, ending coverage for checking customers at units in Oregon, Washington, and California.

Eye on the Competition

BankAmerica launched buyer protection on checking in California and Nevada with great fanfare in March 1990, but it was never enthusiastic about the program, sources close to the company said. Consumer banking group chief Thomas E. Peterson and other senior managers had strong reservations but were afraid other big California banks might roll out the service first, the sources noted.

The program did not draw enough new checking and credit card accounts to warrant keeping it, sources said.

The company stopped offering buyer protection to regular credit card customers at the end of September and will suspend the service on check purchases on Oct. 31 when its contract with Cardholder Brokerage Services expires.

Coverage will continue for California and Nevada gold credit card customers. And BankAmerica's Seattle-First National Bank affiliate, which makes its own marketing decisions, will keep purchase security and extended warranty programs on its checking accounts. BankAmerica subsidiaries in other states have not offered the program.

Minimal Claims

Neither U.S. Bancorp nor BankAmerica had losses due to higher than anticipated claims. "Claims experience was minimal," said Ms. Knox of U.S. Bancorp.

Insurance brokers underwriting bank buyer protection programs, who have an obvious interest in promoting the service, said buyer protection flopped at BankAmerica and U.S. Bancorp because the companies failed to back the programs with sustained advertising.

"When [BankAmerica] launched the program, they made a huge splash. And then they didn't do anything," said one vendor.

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