If USAA Federal Savings Bank executives had any initial doubts about going into the credit card business in 1984, they were quickly dissipated by the results of the thrifts first attempt at direct mail.

A pre-Christmas mailing of 240,000 preapproved applications to military officers from the client list of the bank's parent, the United Services Automobile Association, resulted in about 125,000 new credit card accounts in less than two months.

"We were hoping for maybe a 10% response rate, so we were taken a little aback by what happened," said Jack Antonini, president and chief executive officer of the consumer banking unit. "It took us another year and a half before we could catch our breath and do another offer."

In succeeding years, San Antonio-based USAA grew to become the largest thrift institution in the card business, with almost two million cards and $2.7 billion in credit card loans.

Like its insurance-company parent, USAA Federal receives consistently high marks for its pricing and customer service. The financial grades are correspondingly high from the likes of Sheshunoff Information Services Inc. and IDC Financial Publishing Inc., as well as from commercial bankers.

"I think USAA sets an example that commercial banks should emulate," said William Randle, senior vice president and director of marketing and strategic planning at Huntington Bancshares in Columbus, Ohio.

Mr. Randle, a USAA customer, said it is highly efficient, with nearly all its operations based on mail and telephone contact with customers. He also said the bank's "intimate" level of customer service is a clear indication that USAA puts a wealth of updated information in the hands of its service representatives.

While acknowledging the benefits of technology investments and solid strategic planning, USAA attributes much of its success in credit cards to the marketing focus on military officers, veterans, and their families -- a group that Mr. Antonini said has a higher median income and better credit history than the average member of the U.S. population.

USAA is so reliant upon this group for credit business that Mr. Antonini classifies the bank as "almost an affinity card player."

However, USAA is not insulated from competitive pressures. Ten years into the credit card business, it has arrived at a stage where it needs to pause and position itself for the future.

The most obvious sign of a change is the bank's move to bring processing facilities together in its headquarters city of San Antonio.

For most of its existence, the USAA bank relied on a Tulsa, Okla., site for transaction authorization, customer service, and collections. The Tulsa facility became available in a ready-to-operate condition just as USAA was trying to cope with the outsize returns of its first cardholder mailing.

"It was right time, right place," Mr. Antonini said. "First Tulsa was merging with Liberty in Oklahoma City, and the were basically laying off the whole staff up in Tulsa.

"So we hired [those staff members] to come into their same desks at the same office as USAA employees."

In addition to seasoned employees, the Tulsa facility also featured a data connection to First Data Resources, the provider of the technical services behind USAA's card operations.

Mr. Antonini said the Tulsa facility served the company well. However, by relocating those operations to San Antonio -- a process that began last year -- USAA will be better prepared to manage its back office for the long-term.

One of the manifestations of this improved management control is a systems innovation that will enable employees of the card processing facility to work in other areas of the bank during slow times in the credit cycle.

Despite the relocation, USAA's commitment to work with its original card processor, First Data, has not changed.

USAA has a contract with the Omaha-based card processing giant that extends through 1997, according to Mr. Antonini. It considers its relationship with the processor a solid one.

Reinforcing the strength of the relationship was First Data's receptiveness to the idea of taking over the Tulsa facility and offering jobs to those USAA employees that chose not to move to San Antonio. More than half of the Tulsa site workers decided to relocate with USAA. Each of these was provided with relocation services from USAA, Mr. Antonini said. The majority of those that did not move to San Antonio were picked up by First Data. At several times, USAA had considered severing its ties to First Data. In fact, in the late 1980s, the bank was serious enough about installing its own system that it retained Andersen Consulting to compare prospective in-house costs with those of its FDR contract.

"We eventually concluded that the [First Data] relationship was a good one, but as a result of the [Andersen] study, we were able to negotiate an even tighter contract," said Mr. Antonini.

Accompanying the move of the card center, USAA is changing the way it solicits new business. Like many of the top players in credit cards, USAA has concluded that niche marketing is the future.

The bank is working to use the information in its data base to identify small pockets of customers it can target with customized card offers.

Mr. Antonini declined to be specific about groups USAA will be targeting. He did say many of the tailored products will be based on information from USAA's behavior scoring system.

The products will be cross-marketed on card usage and payment histories. Offering a simple example of a product that could be created by such data base exploitation, Mr. Antonini said, "It's reasonably easy to grant secured credit in a preapproved manner to unsecured credit card holders."

In terms of goals, Mr. Antonini indicated that he is eager to begin some programs that will increase USAA cardholders. The bank scaled back its solicitations this year to allow for a smooth operational transition to the new San Antonio facilities.

"Each of the last few years, we've grown mainly from the new accounts that we've put on the books," said Mr. Antonini. "This year, we've curtailed that. We didn't want to book new customers in a way that would disappoint them."

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