The mention of such industrial companies as Allied Signal, Phillips Petroleum, and Merck & Co. will get a stony silence from American Express Travel Related Services Co.

Each of these organizations was lured last year from American Express' corporate card program by First Bank System Inc.

A pesky David up against the corporate-card Goliath, the Minneapolis-based banking company has become the top issuer of Visa business products including corporate, small-business, and procurement cards.

Attack on Travel Front

Through an alliance with Carlson Travel Network, a leading business travel agency, First Bank also challenges American Express' travel-planning component.

"First Bank has made an effort and is out there with a Visa card," an American Express spokeswoman said. "But it's not been the overwhelming success that First Bank would like everyone to believe.

"Our biggest competitor is really no card at all," she said, adding that many companies still rely on their employees to use personal credit supplemented by cash advances.

American Express began its corporate program in 1970 and now has 5.4 million cardholders and 89 of the top 100 U.S. companies. Most market research shows the company owns a majority of the total corporate card business.

Major U.S. Contract

Last week, American Express added nearly a million corporate cardholders by winning the federal government's General Services Administration contract. The contract was held for the past 10 years by Citicorp's Diners Club International.

American Express and Diners long led this $130 billion travel and entertainment market. Banks were slower to get into the game, many wary of giving up their traditional money-making feature - the revolving debt on credit cards that do not require full and immediate repayment.

First Bank's Corporate Payment System competes head-on with a nonrevolving Visa corporate card. Since it began its corporate card program in 1989, First Bank has issued 410,000 cards through 71 Fortune 500 companies.

Added Credibility

Anytime First Bank lands a Fortune 100 client. "it brings credibility to the program," said Fred Gumble, senior vice president of First Bank System Card Services.

Along the way, First Bank has lost some clients to American Express, including Consolidated Railroad Corp., portions of Procter & Gamble, and Scott Paper. But the bank is not disheartened.

"Our side of the ledger is a whole lot longer than Amex's," said Rob Abele, vice president of corporate card sales.

Even though American Express officials scoff at the idea that First Bank is a real threat, the New York financial services giant has taken a keen interest in corporations the bank has courted, offering rebates to retain some of its clients. Amex claims to have retained 99% of its clients.

Lured with a Rebate

In one case, Mr. Gumble said, a major oil company committed to First Bank, but American Express came back and said, "What would it take to keep you?" The oil company's board of directors responded by asking for a rebate of 1% of sales. With $300 million of travel volume, that amounted to $3 million.

American Express won the account, but First Bank likes to tell the story to potential clients anyway - often to the benefit of the company. Honeywell, for example, thanked First Bank for telling the story because it saved them money on its contract with American Express.

"Suddenly people are being questioned for making an American Express decision," something that was unheard of a few years back when Amex was the uncontested corporate card leader. Mr. Gumble said.

Advanced System

He and Philip G. Heasley, executive vice president of First Bank System, came from Diners Club. In the 18 months after they joined the Citicorp subsidiary, the corporate program grew from a couple of million in sales to $3.5 billion, Mr. Gumble said.

From Diners, they brought detailed knowledge of how to create behavior-based algorithms, which allow First Bank to offer a nonrevolving card with no spending limits. No other bank has this ability, Mr. Gumble said. Instead, banks wait to gather pertinent information from point-of-sale transactions.

As a result, First Bank's management information system captures, and therefore can report on, 95% of travel and entertainment expenses, compared with the competition's 60% to 75%.

First Bank also offers electronic data interchange, which allows companies to send expenditure reports to employees electronically on a dally basis.

First Bank has garnered 40% of the Visa corporate market, and 11% of the total market. Bank officials say they may add MasterCard International's business cards to their portfolio as a way to increase growth in the program.

MasterCard issues one million corporate cards in the United States, and Visa two million corporate cards.

Leading Visa Banks

"First Bank is clearly the leader" among Visa banks, said Robert Levaro, the California-based card association's vice president of commercial card products. "We owe a lot of our thinking to what First Bank has done."

Companies with $50 million or more in sales or 1,000 or more employees generally use corporate cards for business travel and entertainment. The corporate programs typically have higher annual spending per card than consumer credit cards. issuers derive higher than average interchange fees and have lower loss rates.

First Bank reports that average annual spending on a corporate card is $6,000, versus $3,000 to $4.000 for an average gold card. Annual fees are determined by the corporation's transaction volume and range from zero to $30.

"We price it in a way that makes sense. If you pay your bill and you don't write off, there's really no cost to you," said Kathy Marinello, general manager of First Bank Corporate Payment Systems. "But if you don't do those things. you pay a fee. That makes sense."

Low Chargeoffs

Ms. Marinello said low losses make a huge difference in corporate card profitability. For example, with $2 billion of purchases a year, an issuer might charge off $4 million, she said, whereas with consumer cards the chargeoff would be closer to $40 million.

First Bank enjoys a 4% to 8% return on assets with smaller corporations and 2.5% for larger ones, compared with the 3.5% to 4% return from the conventional card program.

"It's a scale business," Mr. Gumble said, estimating that banks need 320,000 corporate cards to break even. "That's a barrier to many banks. We're over 400,000 cards now. We've broken through to profit."

While First Bank is in a position to invest more to build on its strong base, "anyone else will be spending millions of dollars up front." the executive said.

Other Participants

First Chicago Corp., Citicorp Commerce Bank of Kansas City, MBNA America Bank, Mellon Bank. Seattle-first National Bank. Bank One Arizona, and Wells Fargo Bank are among those that have taken the plunge into the corporate card market.

"I think it can be beneficial [to banks] because there is a service you can provide to the customer that broadens that relatioship," said William Glascock, senior vice president of NationsBank Bank Card Services Charlotte, N.C. NationsBank offers business cards to smaller companies and is considering a move into the large-corporate market, Mr. Glascock said.

"The more banks that begin corporate programs, the better the advantage against Amex," said Mr. Levaro of Visa. "The competition tends to drive down fees."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.