First Union Corp. sent shock waves through the industry in June when it trumpeted its $5.4 billion merger agreement with First Fidelity Bancorp., but behind the scenes, Fred M. Winkler's card products division was well into some equally radical changes. Casting aside the historical debit-credit separation common to many of its peers, First Union has aligned credit cards very closely with its retail bank. It thinks of a card credit, debit, automated teller machine, or one that combines functions as the customer's key to the bank. And that is just the beginning of a long-term business approach that puts First Union at the forefront of banking innovations and technologies ranging from smart cards to the information superhighway. The No. 1 thing that the consumer is asking for at this juncture is time, said Mr. Winkler, who is senior vice president of the Charlotte, N.C., banking company's card products division. The only way we can sell them time is through convenience. The card is an access device that facilitates all remote delivery of banking products and services. Cards can be used to initialize, facilitate, enhance, and validate the whole process. The bank currently ranks 18th among U.S. credit card issuers and eighth among debit card issuers. Both rankings reflect rapid growth in the last few years, but the real story is how they come together strategically. The first hint that First Union Corp. was doing things out of the ordinary came when it joined the Smart Card Forum in September 1994, placing the bank in a forward-thinking elite among banks and other companies promoting the idea of putting microprocessor chips in plastic cards. In early 1995, the superregional trotted out a collection of remote banking products and services, slapped the name Cyberbanking on the effort, and promptly registered that trendy word as a service mark. In March, First Union became the first bank to sign with Open Market Inc., a Cambridge, Mass., firm working to create an electronic infrastructure for secure buying and selling of products and services over the Internet. First Union, which is to grow from $83 billion of assets to $118 billion after completing its proposed merger with First Fidelity, also posted 150 pages of information about its products, services, and corporate community involvement on a computer billboard on the Internet, thus disseminating its message to any consumer with access to the network. Less than a year into this unconventional form of marketing, the bank said its World Wide Web site had attracted 8,000 to 10,000 hits per week from consumers in 70 countries. We've picked up new customers, said the 51-year-old Mr. Winkler. We had one person who was moving a business from Australia to North Carolina, and he contacted us through the Web site and gave us all of his personal and corporate banking business. That wouldn't have happened if we didn't have the electronic bulletin board. Mr. Winkler, who joined First Union in 1993, said the bank is issuing about 400 new credit cards a month to people who fill out the application form on the bulletin board. In March, First Union laid out an aggressive plan to issue more than one million smart cards in time for next summer's Olympic Games. First Union said it would issue not only the disposable type of cash card but also rechargeable chip cards, which will replace current ATM cards and enable their cash, or electronic purse, values to be replenished at ATMs. First Union is trying to get a leg up on NationsBank, which claims there are still technology issues to be resolved. I don't think technology is the issue in these tests not only the Atlanta Olympics test but also the Delaware test that Electronic Payment Services Inc. is planning for next year, said Robert P. Barone, chairman and chief executive officer of the Electronic Funds Transfer Association, Herndon, Va. The only real issues to be dealt with are standards, said Mr. Barone, and that might not be an issue because the ones who get out there first may, in fact, set the de facto standards. Mr. Winkler admits his bank is out to secure a leadership role in setting smart card standards. He isn't, however, spending a lot of time worrying about it. He is more interested in signing up customers and merchants. And his history before joining First Union, Mr. Winkler was chief operating officer of AT&T Universal Card, where he helped launch one of the country's most successful new card programs bodes well for First Union. We are being called every day by merchants who want to work with us on this smart card project, said Mr. Winkler. We've been talking to fast- food places, convenience stores, newspapers, and beverage vendors and are now in the final stages of working out the contracts. First Union's goal, he said, is simple. Issuing disposable cards for out- of-town visitors to use during the Olympics is one thing. But it's a whole different ball game to issue a microprocessor-based, multifunction card that combines credit, debit, and ATM access for customers, as well as home banking capabilities. We're talking about a card with a lot of horsepower, and one that can be uploaded and downloaded for much more than use at Olympic merchants, said Mr. Winkler, who anticipates putting value-added programs on the cards' chips. A First Union customer would no longer have to carry around and fill out a check register, since that function would also be stored on the card. First Union even says it may rent out space on the chip for advertising and promotions by merchants. The idea of a hybrid card, with all of the consumer's accounts packaged within the chip, is a strong strategy, said Stephen P. White, managing director in the Atlanta office of Dove Associates, a Boston-based consulting firm. The card would be the consumer's ID to the bank, to the payment system, to an on-line seller of products or services, said Mr. White. The card could even be the vehicle that gets the consumer into the Cyberbanking area, whether it's through a screen phone, a remote kiosk, or a box on top of your interactive TV. From the time of the initial announcement regarding its plans for next summer's Olympic Games, First Union has characterized the chip card as a full program rollout, not a mere pilot. Atlanta, the initial phase of the rollout, will be closely monitored. Then the bank plans to roll out smart cards to Washington, Charlotte, Miami, and other selected southeastern cities. We don't have the First Fidelity merger built into our business plan yet, but after the merger is finished, we certainly expect to introduce (the smart card) to market segments in First Fidelity's territory, said Mr. Winkler. First Fidelity's operation spans five northeastern states, taking in the wealthy New York, New Jersey, and Connecticut suburbs of New York City. Meanwhile, First Union continues to build its ramp to the information highway. It has created an on-line service, which it calls First Access Mall, and is now installing merchants in their electronic storefronts. Merchants already operating in this virtual mall include PC Travel, a travel agency; Universal Studios, the Florida theme park; and the Durham Bulls minor league baseball team. The bank is also working with gourmet food and bottled beverage firms to set up storefronts. It's a great source of fee income for us, said Mr. Winkler, though he would not disclose figures. We charge for designing their pages, for renting the mall space, plus the normal fees for processing the merchant transactions. At least one consultant said First Union is likely to accomplish its goals with a combined chip card/Cyberbanking strategy. Dove Associates' Mr. White pointed out that, while other organizations had introduced remote banking, computer shopping, and the like, First Union can exploit an inherent advantage. Our research shows that consumers trust banks more than other organizations, he said. Banks and money go hand in hand in consumers' minds. Consumers think that banks are experts at managing money and that they won't be cheated. Any bank that uses that consumer perception to its advantage is, I think, in a really good position.

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