First USA's retrenchment in credit cards has already eased some of the pricing pressures in the market and paved the way for a few issuers to grab market share and cobranding deals.

Analysts have identified MBNA Corp., Capital One Financial Corp., FleetBoston Financial Corp., and Citigroup Inc. as the banking companies poised to benefit the most as the Bank One subsidiary works its way back from its troubles. However, others say the time has already passed in the fast-moving market to capture customers because of aggressive moves by American Express and Discover.

First USA has already started repricing some of its portfolio, and changing the terms on new mailings. The company has raised its introductory rate from 2.9% to 6.6%, and reduced the intro rate period from 12 months to six months on average.

Most significant for the rest of the industry is First USA's move away from the fixed 9.9% interest rate it has been touting for more than a year. Analysts have long said it is nearly impossible to make a profit with a low fixed rate, especially as the prime borrowing rate inches up.

"It will give other issuers the chance to pull back also and not have to match that low rate," said Jeffrey Baxter, principal of S.J. Baxter & Associates in Forest Hill, Md. "Capital One, Citi, and Fleet are all still doing it, and it takes some of the pressure away from them to stick with that pricing now that First USA is out of that game."

Wilmington, Del.-based MBNA, First USA's main competitor in the cobrand and affinity card sector, is viewed as particularly well-positioned to snatch the lion's share of those deals now, and at a lower price. However, industry experts say there is opportunity for issuers with smaller cobranding portfolios, like Capital One, FleetBoston, and Citi, to step in and become major players.

"MBNA is the next-biggest player in this space, but it opens up opportunities for smaller players also," said Lee A. Spirer, head of financial services at Mainspring, a Web strategy consulting firm in Cambridge, Mass.

"With the pace of cobranding and affinity deals, particularly with the Web companies, where First USA has been so aggressive, any pullback from this is going to create a window for other companies to step into, no question," Mr. Spirer said.

Industry sources said First USA recently pulled out of at least three new cobranding deals. First USA declined to comment about specific deals, but a spokesman said its commitment to the partnership business is still "very strong."

The second-largest card issuer had energetically bid on and won several expensive marketing agreements with major Internet portals in the last two years, some of which proved disappointing.

"We have a number of partnerships that are extremely profitable and a large share that need care," said William Boardman, vice chairman and head of First USA.

Mr. Baxter said First USA is becoming more discerning in choosing affinity partners, and that the company will only consider agreements in which the customer base would likely revolve a balance.

"They're pulling away from deals that they don't feel are going to be profitable, given the way they want to price their cards today," Mr. Baxter said.

Analysts say they expect First USA to begin growing again in 2001 at the market average of around 6% a year, and that it will resume aggressive pursuit of cobranding and marketing partners. But many say a year is more than enough time for other issuers to leap way ahead of First USA.

"MBNA and Citibank are well positioned to strike hard, and I think you're going to see First USA really feel the effects of what those two companies can do," said David Robertson, president of The Nilson Report, an industry newsletter in Oxnard, Calif.

David Spartin, vice chairman at MBNA, said First USA's actions have no impact on MBNA.

"Whether they are in retreat or not really makes no difference to our strategy at all," Mr. Spartin said. MBNA signed on 400 new affinity partners in 1999 and has 4,500 endorsing organizations.

Gary Gordon, managing director at PaineWebber Inc., said the market share left open by First USA's slowdown last year has already been filled by the two non-bank-card issuers - American Express Co. and Morgan Stanley Dean Witter's Discover.

American Express has done heavy-duty marketing for its Blue credit card with a chip. Discover came out with a new advertising campaign and has been actively signing up merchants.

Mr. Gordon pointed to the continued decline in direct mail response rates, even after First USA's mail volume dropped 27% in the third quarter of 1999 against the year-earlier period.

"When Bank One pulled back on mailing, which should have helped the response rates, Amex and Discover zoomed forward, which put pressure on response rates," Mr. Gordon said. Response rates in the second quarter of 1999 reached an all-time low of 0.6%, and a secondary low of 0.9% in the third quarter, with mail volume only reaching 817 million and 710 million in those quarters respectively.

"I think that it's underappreciated how much Amex and Discover have ramped up," Mr. Gordon said. "Both were fairly quiet in 1998 and were very aggressive in 1999. The hole Bank One left, these guys filled it and maybe more than filled it."

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