Jerry D. Craft, who sent copy-cats scurrying three years ago by offering low interest rates to Wachovia Corp. credit card customers, has moved to the forefront of another big industry trend.
After a brief, headline-making stint at First Data Corp., Mr. Craft has started a consulting business that is tapping into a growing demand for outsourcing of a broad array of card-related services.
Through his company, Card Issuer Program Management Corp. in Atlanta, Mr. Craft offers to support client issuers in such areas as processing, customer service, collections, and marketing.
"We have been predicting for the past five years that outsourcing of customer service and marketing will be big, big business," said Michael J. Auriemma, president of Auriemma Consulting Group.
Similarly convinced, and working in an alliance with First Data, Mr. Craft has created a full-service portfolio that some observers have described as a "virtual" card operation.
PNC Bank Corp. has bought into the approach as Mr. Craft's first client, moving toward an aggressive growth strategy that, if successful, could make PNC look a lot like Wachovia when Mr. Craft brought it from nowhere into the card industry's top 25.
"When we committed to bringing our card unit (up) to the size of our bank, we didn't have the necessary marketing expertise," said PNC executive vice president A. William Schenck 3d. "Jerry Craft is one of the handful of people in the country at the top of the industry. We have brought in a world-class executive."
Mr. Craft's career has taken some interesting turns in the past year. He resigned last May from Wachovia after nearly 12 years to join First Data. He set up an office in Atlanta, where Wachovia's card operation is based, to broaden and strengthen the card processor's relationships with financial institutions.
Then, without fanfare, he formed Card Issuer Program Management Corp. late last year, where he has the titles of president and chief executive. He is maintaining close ties to First Data, relying on its processing and other resources when client demands dictate.
While at least half of card issuers outsource their processing, they have tended to perform customer service, marketing, and account management in-house. These functions were traditionally viewed as ways to gain a competitive edge.
Mr. Craft, however, is counting on his reputation and experience to convince card issuers of the benefits of outsourcing such work.
Last week, Pittsburgh-based PNC launched the first product of its venture with Card Issuer and First Data - a low-rate credit card called Prime Value.
PNC expects Prime Value to double the size of its card portfolio, which ranked 42d in the country at the end of last year with $816 million receivables, according to The Nilson Report.
PNC wants to bring its credit card size more in line with its overall asset ranking, currently 12th at $62.1 billion.
As a condition of working with Mr. Craft's firm, PNC had to agree to let First Data handle its credit collections, customer service, and card processing.
In its relationship with First Data, any company that works with Card Issuer must also use First Data's Tulsa, Okla., unit, First Data Card Program Services, which offers pre-chargeoff collections, customer service, application processing, and telemarketing services.
The relationship is exclusive in only one way: While Card Issuer can work only with companies that are clients of First Data - typically for credit card processing - First Data will be free to work with any consulting company.
"That is something we are comfortable with," Mr. Craft said in a recent interview.
First Data officials were not available for further comment.
Typically soft-spoken, Mr. Craft divulged in the interview a few facts about his company, but left a strong impression that he wants to stay in the background.
"We are not attempting to be a highly visible company," he said. "We think our clients belong out front, not us."
But he is a big enough name in bank card circles to attract attention, regardless of what he says or does.
He is still working out of the Atlanta offices that he used while on First Data's payroll, but Card Issuer will be moving to new digs in about six weeks, he said.
The new venture employs nearly 40 people, 25 of whom came from PNC and who, in the fashion of outsourcing, are focused entirely on that bank's portfolio. Those employees make up a self-contained business unit, Mr. Craft said, and he intends to repeat this pattern with subsequent outsourcing deals.
Joseph Gonczi came to Card Issuer from PNC to head the outsourced unit.
Mr. Craft also has designated five principals of his company: Andrew Mathieson, formerly a private consultant in Illinois; Ray S. Costner, former senior vice president and manager of cardholder operations at Wachovia; Dan Kreis, who will be joining on May 30 after serving as regional director of relationship management at Fair, Isaac & Co.; and Clay Glenn Battle, formerly senior vice president of Wachovia's merchant services.
"We see no reason why this relationship should ever end," Mr. Schenck said of PNC.
Though Card Issuer handles a variety of functions including marketing, portfolio management, and operating support, Mr. Craft insists that his clients are in control of their card programs.
"We simply support our clients," he said.
Industry observers believe the launch of Card Issuer reflects a trend, but they say it won't be an automatic sell.
Such services fill a need, particularly for small to medium-size banks that are not able to compete with the biggest players but still want to stay in the business.
John R. Soderlund, a principal of First Annapolis Consulting in Maryland, said Card Issuer and companies like it can save a lot of portfolios from being sold to larger banks.
"This is a very attractive alternative for issuers who don't see cards as a strategic business, but still see them as important to the bottom line," said Mr. Soderlund.
He predicted that four or more major players in the industry will begin offering servicing and marketing to other issuers. Advanta Corp. or First USA could be prime candidates because of their strong investment in the business, he said.
Mr. Craft said he knows of at least one other company, which he declined to name, that wants to offer similar services. This summer, Capital One Financial Corp. expects to inaugurate a separate business offering portfolio management functions.
"This is one of the megatrends that I believe is going to exist in the credit card business," said Nigel Morris, president and chief operating officer of Capital One. He cited consolidation and "the sophistication of scale" as factors that will separate "the people who will make it in the long run and the people who can't."
Capital One plans to deliver back-office services like card processing, customer service, and collections. But its primary focus will be on portfolio management to help small and midsize issuers enhance the profitability of their existing accounts.
"Originating new business or marketing is something that we probably would not want to engage in as much, because we are in the solicitation business ourselves," said Mr. Morris.
Mr. Morris and his Capital One colleagues acknowledge that it will take some time for their service to be accepted in the market, because for many issuers, handing over such historically in-house functions raises emotional issues.
"It is a difficult thing to swallow - allowing another financial institution to chart and execute a strategy," said N. Andrew Cohen, senior business manager of Capital One.
In PNC's case, Mr. Schenck describes the contract with Card Issuer as a partnership, with the consultant engineering marketing strategies and the bank imposing its own criteria for granting credit. Mr. Schenck said that in the long run PNC will spend more money on marketing, but it will save on operating costs by using First Data's services.
While on the surface it appears that Capital One and Card Issuer will be direct competitors, Mr. Morris pointed out significant differences in their approaches.
For example, Card Issuer is helping PNC identify new customers, while Capital One will focus on making its clients' existing customers more profitable.
Also, unlike Card Issuer, Capital One will not be restricted to having clients that are using First Data's, or any other single processor's, services.
"I think there is plenty of room for Jerry Craft and us to be in this," Mr. Morris concluded.