As viewed by competitors to the north, U.S. credit card issuers are a bit uncouth. They clog the mails, impose nuisance fees, and offer flashy teaser rates that jar some sensibilities.

But incursions by U.S. card companies have only stiffened the resolve of Canada's largest card issuer, Royal Bank of Canada. The company says the strength of its brand-and its understanding of its home market-are ample protection.

"We welcome competition, because it provides more choice," said Jane S. Fershko, senior vice president of card products at Royal Bank, which is based in Toronto.

Four of the 10 largest U.S. issuers are pushing hard on the Canadian market: Citigroup, Capital One Financial Corp., MBNA Corp., and the First USA division of Bank One Corp.

Even the smallest of those portfolios-Capital One's-dwarfs the $2.7 billion of card loans outstanding at Royal Bank of Canada ($4.1 billion Canadian). Capital One had $17.4 billion of managed loans at yearend.

Size may not equal might, Ms. Fershko said. Despite U.S. competitors' marketing muscle, they could have trouble applying their formulas in Canada, where people have been more receptive to debit cards and less in the habit of revolving their balances.

"Demographically, our countries are similar, but psychographically, Canadians are more risk-averse and conservative," Ms. Fershko said.

Mark K. Tonnesen, executive vice president of card services and point of sale at Royal Bank, points to Canada's lower loan default rates as evidence of a gulf in attitudes toward credit. According to Royal Bank, the Canadian loan default rate is about half the 6% that prevails in the United States.

Mr. Tonnesen, who is Ms. Fershko's supervisor and, like her, a U.S. native, also says the card products of Canadian banks are more attractive.

"In Canada, we have the best-priced products in the world," he said. "There are no late fees, no nuisance fees, no hidden costs for the consumer."

Canadian regulations forbid late fees, which are rampant to the south, though they allow over-limit charges and other fees. U.S. issuers have "come in and put these (permissible) fees on their cards," Mr. Tonnesen said.

"At Royal Bank, we allow our best customers to go 50% over limit before we consider it to be an issue," he said. "For us, over-the-limit is a privilege. I think it will be a surprise to people when they get their first over-limit fee" from an American card issuer.

Half of Royal Bank's six million credit card customers do not revolve a balance, Ms. Fershko said, so they would not be interested in U.S. issuers' teaser rates. Customers who do sign up for U.S.-type low-rate offers will balk once they start incurring fees, she predicted.

"Canadians are fee-phobic," she said. "There is a tremendous resistance to fees, more than interest rates."

Canada has six nationwide banks serving a population of 30 million-about one-10th that of the United States. In contrast to the card-issuing duality that rules the U.S. market, Royal and four of the other Canadian leaders offer Visa cards exclusively.

Last year, Royal Bank wanted to merge with the lone MasterCard issuer in the bunch, Bank of Montreal, a move that would have raised questions about duality and brand loyalty. But regulators scuttled the deal for antitrust reasons.

To make the most of its home field advantage, Royal Bank is emphasizing customer service. This year it is enhancing "everything we do that interfaces with the customer-our branches, call centers, the Internet," Mr. Tonnesen said.

New card customers tend to come in through branches, another difference from the usual practice in the United States.

Royal Bank is getting more card applications than ever by Internet and telephone, and relying more heavily on direct mail. Bank officials say the familiarity of their brand makes a Royal Bank Visa offer more attractive to a Canadian than would a Visa offer from a U.S. issuer.

According to a study by BAIGlobal Inc. of Tarrytown, N.Y., MBNA and Capital One accounted for 65% of the solicitations sent out in Canada last September.

Those issuers are "changing the mail system," Ms. Fershko said. "I don't know if they've made inroads, because they don't have all the other channels of distribution that Canadians are used to, and they don't back it up from a service delivery standpoint. It's basically all remote service and access."

U.S. companies say they are making headway. MBNA Canada Bank of Ottawa reported having $400 million in receivables and 800,000 customers in December 1998, the end of its first year.

Replicating its U.S. marketing thrust, MBNA Corp. of Wilmington, Del., said it has signed up 140 Canadian affinity partners. The two other newer entrants, Capital One and First USA, would not give statistics.

Royal Bank, meanwhile, said it signed up 50% more new accounts last year than in 1997. It would not disclose exact numbers.

"We had one of our strongest growth years in cards last year, even going head-to-head with MBNA and Capital One, so we feel very good about the way consumers have reacted," Ms. Fershko said.

James L. Accomando, a financial services consultant in Fairfield, Conn., predicted U.S. card issuers will "change the way credit cards are sold in Canada," as they have done in the United Kingdom.

"Ten years ago in the U.K., the U.S. banks were preaching revolving lines of credit to a country that was primarily debit," Mr. Accomando said. It turned into "a huge success story for U.S. banking and for the citizens of the U.K."

He said Canadian banks are not used to heavy competition, because there are fewer issuers, and each must legally commit to a single brand. Bank One is issuing Visa in Canada, MBNA and Capital One are issuing MasterCard.

Ms. Fershko said Visa cards represent 65% of the Canadian market, MasterCard has about 25%, and American Express Co. 8%.

Canadian debit cards do not use Visa or MasterCard branding at all. Ms. Fershko said Canadians spent $44 billion on debit and $70 billion on credit in 1997 (Canadian dollars).

She attributed debit's success in Canada to a "concentrated marketing approach and introduction," which the entire financial industry embraced. When the Canadian national debit system, Interac, was established in 1990, all point of sale terminals were wired to accept cards from any Canadian bank.

Ms. Fershko is a New Jersey native who moved to Toronto in 1986 to become a planning manager in Royal Bank's corporate banking group. From 1991 to 1994, she was manager of deposit and investment products and vice president of retail marketing and sales.

In 1995, she was promoted to her current position, responsible for business, debit, and credit cards.

Before moving to Canada in February 1997, Mr. Tonnesen, 47, was senior vice president of electronic delivery strategies at Bank One. He ran Bank One's credit card business from 1990 to 1995.

Royal Bank relies on loyalty programs to differentiate its products. It has 40 cobranded cards-all can be applied for at its Web site-and last year it became the first platinum issuer in Canada, Ms. Fershko said.

Royal Bank has been at the forefront of electronic commerce development and was the first bank in Canada to conduct a transaction using the Secure Electronic Transaction protocol. On-line bill payment for credit cards is in the works.

Royal Bank has been active in smart card technology since 1985. With Canadian Imperial Bank of Commerce it founded Mondex Canada, now a national joint venture similar to Interac, and it participated in the country's first smart card pilot in Guelph, Ontario.

Royal Bank is getting ready to test a combination debit/stored value chip card in the second Mondex pilot city, Sherbrooke, Quebec.

"We learned an awful lot about the merchant experience" in Guelph, Mr. Tonnesen said. "We are positive there are strong economics for the merchant to get rid of physical cash, but that's dependent on the scale. We need to eliminate most cash to get to those economics."

Another lesson of the Guelph experiment, which ended in December after almost two years, was that "consumers like the product, especially the ability to load cash at home," Mr. Tonnesen said. There was "significantly more usage when people could load at home through the phone."

To "tie a bow around the economics of e-cash, we need to be able to add value enhancements, whether that's in terms of transport or building access or loyalty programs," Mr. Tonnesen said. "We need the multi-application capability of the future."

Banks need to get more involved in developing and promoting chip technology, or other companies such as telecommunications firms will capture the business, he said.

Mr. Tonnesen said Canada is in a good position to implement smart card programs because the few large banks can come together on a unified action plan. He added, "All of the Canadian banks will choose a way to go with smart cards and will make that happen if the business case suggests that it's a good thing."

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