He doesn't do the conference circuit, he doesn't talk to the press much or give a lot of speeches, but everyone in the credit card business knows who he is and what he has done.
Even the changes that Richard J. Srednicki has made since taking over Chase Manhattan Bank's credit card business two years ago have been relatively quiet ones. Neither the public nor the banking industry would be likely to notice, for example, that a new collections system has been installed, or that the division now boasts extra-strength technologies to predict loss and prevent fraud.
Mr. Srednicki said he is focusing efforts on the "six or eight things that you have to do well to be a world-class competitor," and aims to make Chase tops in each of them. The list includes growing the business, offering great service, maintaining good credit predictability and control, keeping acquisition and revenue channels open, and making sure there are "great collections when customers decide that they're not going to pay."
He left Citi in 1996 for AT&T Corp., where, as the president and chief executive officer of AT&T Universal Card Services, he was credited with lowering the portfolio's chargeoff rate and raising receivables in record time. After he had been at that job for two years, AT&T abruptly decided to sell its Universal Card business, and Mr. Srednicki oversaw the portfolio's transfer to the buyer, Citibank.
After a brief stint in a noncards job at Sears Roebuck & Co., he jumped at the chance to take over Chase's cards shop, which had been headed for three years by Michael Urkowitz, a longtime Chase Manhattan executive who was perceived by industry analysts as doing a steady, if unremarkable, job. Mr. Urkowitz, who was trained as a mortgage banker, retired in 1999 at age 58.
Mr. Srednicki, 53, indicated in a recent interview in his office at One Chase Manhattan Plaza that there was much mop-up work to do when he arrived. The card-issuing division, he said, wasn't doing all it could in a number of disciplines, from cross-selling and credit predictability modeling to fraud prevention and collections. On top of that, "I think it would be fair to say that we didn't have a very good new product process," he said. "I think we've put out more new products this year than we have in the last four or five."
The most recent new product is the I-Card, an Internet-oriented credit card that gives consumers a 1% reward on all purchases. Awards are paid in the form of "Webcertificates," or reloadable prepaid online debit cards.
Two card products from the last regime that do not exist anymore are the cobranded card with Verizon ("They basically have a whole bunch of their own internal issues with all the acquisitions and integration, and we agreed to part company," Mr. Srednicki said. "We weren't making any money on the product.") and the Chase Lens card, which came with a built-in magnifying glass ("We've probably got a pretty big store of those lens cards. I don't think I've ever met anybody who owned one, except somebody internal.").
When asked to compare the Chase card operation today to how it was two years ago, Mr. Srednicki said, "It has more confidence in its ability to grow, it has better process management."
After some growing pains with a new collections system - a national system that replaced a regional system in which things were done differently in different places - Mr. Srednicki is satisfied with that part of the business. Improvements in the way the division anticipates bankruptcies and handles credit forecasts have pleased him. And changes he set in motion have gotten Chase to the point where "we think we've got the best fraud process in the country," he said.
In another new development, "We are selling things to customers again," Mr. Srednicki said. "From credit insurance to travel products to insurance products. We brought in some people who have done it before successfully; we looked at the way our customers use the products; we've targeted fee-based services to customers; and so far it has worked successfully." He knocks on wood.
Fee-based services had been a big piece of business until about three years ago, when New York Attorney General Eliot Spitzer began taking a disapproving look. The upshot was a January 2000, settlement in which Chase agreed to stop sharing personal customer account and credit information with non-affiliated third-party marketers. Under the deal, Chase could still supply names, addresses and phone numbers. Though the bank was not fined, it had to pay the $101,500 cost of the attorney general's investigation.
After that, the bank discontinued selling fee-based services for a while. Then, in the second half of last year, the program resumed, "to kick that revenue stream in a little bit," Mr. Srednicki said. "The most successful competitors, they all sell things to customers, some of them better than others. It's also pretty well known that the more relationships you have with a customer, the stickier you are with that customer."
He said Chase is quick to offer refunds or cancel subscriptions to services customers say they don't want. "You're never going to always satisfy everybody, but I think the vast majority of our customers are OK with the way we sell products, and we try to make sure we follow their wishes," he said.
At AT&T Universal Card, Mr. Srednicki was credited with taking an operation that had seen two years of declining receivables and a chargeoff rate of 6.51%, and turning it, by September 1997, into an operation that had enjoyed an 8% rise in card loans receivable and a 5.34% chargeoff rate. Under his stewardship, Chase's card portfolio has made some gains along those lines, but Mr. Srednicki emphasizes that he has been focusing on "strengthening the things that make us a world-class competitor," in other words, putting the plumbing in place to make the house run better.
People who know his reputation are still anticipating great things. The last Chase cards regime, they say, was characterized by more talk than action, and the current one seems slowly to be putting talk into action. There is also some slight disappointment that there have been no ostentatious displays of wizardry from Mr. Srednicki yet.
"We would have expected to see some more noteworthy announcements or product launches," said Michael Auriemma, president of Auriemma Consulting Group Inc. of Westbury, N.Y., a credit card consultant who has done some work for Chase. But "we'll take his word" that some excitement is forthcoming.
"We have a lot of respect for Rich and his team, and would expect him to come up with some innovative thinking and some breakthrough products," Mr. Auriemma said. "The industry can certainly use them."
Donald Berman, another card consultant who has done some work for Chase, said that Mr. Srednicki has "done a very good job of changing the culture of the Chase business to one that is much more action-oriented than the previous group."
Mr. Berman, who is the president of Cardholder Management Services of Plainview, N.Y., said that Chase's corporate culture dictates that people move in a fairly measured way, which is perhaps different from the way things worked for Mr. Srednicki at Citibank or AT&T.
"Although you may not see dramatic changes in terms of their positioning and growth at this point, I think he has positioned them in such a way that they are far more disciplined, far more decisive," Mr. Berman said. "Probably in the next 12 to 24 months, you'll see some more substantial growth and product impression."
Mr. Srednicki, he said, is "one of the most capable people in the industry," but "can't go from zero to sixty" right away.
Mr. Srednicki himself points to ways in which the operation has been moving deliberately to lay the groundwork for future growth. Instead of spending more money to acquire new customers, for example, Chase cut back on acquisition spending in the first half of last year, and began trying to create a "better acquisition capability," Mr. Srednicki said.
"By that I mean that from the time you get your information sorted out and targeted and out of the bureaus and to the customers, you collapse that timetable, you improve your loss rates, you improve your response rates, and we were ready with that in the second half of last year, and started investing a lot in that."
The housekeeping efforts seem to be paying off in some ways. "We've done a lot more with cross-selling of cards to our other retail and middle market customers than we have in the last couple of years," he said. "In order of magnitude, our numbers went from 150,000 accounts through cross-selling to double that number last year and we expect to double that number again this year."
So far, the J.P. Morgan/Chase Manhattan merger has had little impact on the cards business, but "there will be some new products coming that will take advantage of the merger," he said. In all, the card unit acquired three million customers in 2000, and now has more than 20 million.
According to J.P. Morgan Chase's 2000 annual report, Cardmember Services contributed 29% of the cash operating earnings of the retail and middle market financial services group, and ended the year with $36 billion in receivables, up from $34 billion at yearend 1999. Operating revenues were down 1% from 1999, to $3.7 billion, and cash operating earnings were up 3%, to $489 million.
The latest portfolio number puts Chase fourth in terms of Visa/MasterCard issuers, significantly smaller than the three leaders (Citigroup, MBNA Corp., and the First USA division of Bank One Corp.) and in rough parity with two monoline issues, Capital One Financial Corp. and Providian Financial Corp.
Though Mr. Urkowitz used to vow to grow the Chase portfolio into the biggest in the land, Mr. Srednicki has no such aspirations. "Our goal is to grow," he said. "Our growth strategy involves a bunch of initiatives, but it will include both organic growth and portfolio acquisitions based on the availability."
Chase bid on some portfolios this year, but did not get any of them. "But organic growth will be significantly higher year-over-year," he said. "It was significantly higher in the second half of last year."
Mr. Srednicki is circumspect about the products he is testing with an eye toward introduction. He is always on the lookout for a new cobrand partner, for example, but does not anticipate any near-term launch of a Chase smart card.
"To be honest, so far the smart card hasn't had much smart utility," said Mr. Srednicki, who sits on the board of MasterCard International. "We're talking to people about smart cards, but if and when we go with a smart card, it will probably be with a partner with some functional utility to the smart card, i.e., to track the rewards, to give them access to other benefits or services."
The American Express Co. Blue card, which made such a splash, "was not really a smart card. It didn't really work, even on the PC, the way they originally designed it. But the marketing success that it caused was great," he said.
Chase recently trotted out a new electronic bill payment and presentment service for its credit card customers, the Chase Bill Management Center, and Mr. Srednicki said he is "high on the potential for using the Internet in a lot of different ways." The Internet is just now becoming a good customer acquisition channel for Chase.
"Two years ago we probably got 20,000 accounts [through the Web], last year we got 100,000, and this year we'll get 200,000 to 250,000," Mr. Srednicki said. "That's not big yet, but we're learning."
In other developments, the Cardmember Services unit - which issues credit cards and commercial cards but not debit cards, and houses Chase Merchant Services - has dropped its international ambitions. A Hong Kong cards operation was sold last year, and one in the Virgin Islands is being sold now.
The corporate card business, which issues purchasing cards and travel and entertainment cards, is "beginning to leverage J.P. Morgan Chase's corporate relationships better." Chase Merchant Services, the 50/50 joint venture with First Data Corp. that handles merchant processing and acquiring, is profitable and growing, according to Mr. Srednicki, who says he has an ambitious four-year plan for the operation.
One new market Chase is targeting for credit cards is what Mr. Srednicki calls the "low prime" market. The definition? "They have lower credit scores, they are perhaps new to the credit universe, they are perhaps new to the work universe, but they certainly haven't built up good credit histories yet," he said. "We are interested in expanding to underserved populations, and we've got a test that's going to produce this year probably about 280,000 customers in the low prime segment. It will make us some money this year and quite a bit more next year."
That said, "low prime" does not mean subprime. "We're not out to extend credit to people who are formerly bankrupt, who are severely delinquent, and we're never going to take the Chase name into a product with high application fees, very low lines, very high fees - OK? We're not going to do that."
Mr. Srednicki began his management career in the U.S. Army, where he served from 1966 to 1969, graduating from the Army Officers Candidate School and serving in Vietnam as a first lieutenant platoon leader and company executive officer. After graduating from Ripon College in Wisconsin and earning an MBA from Kellogg School of Business at Northwestern University, he held marketing positions at Colgate-Palmolive from 1975 to 1983, and then joined Citibank.
At Citibank he fell in love with the credit card business, and has only deviated from it once, during his short stint at Sears before joining Chase. "I had an interesting piece of the home services business for Sears, which is the guys who come fix your appliances," he said. "I had a roofing business and a pest control business and a windows business and the warranty business. An interesting business. But when this came up ."
When he starts talking about why he likes the credit card business, his face breaks into a smile. "I think the credit card is probably the greatest product the banks have ever invented," he said. "Really. It's a bank win, it's a consumer win, it's a merchant win. It still makes me crazy, standing in a food store behind somebody writing a check - you don't understand why they wouldn't use somebody else's money for 30 days and keep their money earning interest."
