After 25 years of growth, the credit card market is close to saturation. There are still huge opportunities for increased usage, but we are approaching card saturation -- just about everyone who is credit-eligible has a card, and in most cases several cards.

This has resulted in a significant change, from growth to share competition, segmentation, and customer retention. Many understand it and are investing in customer data bases for segmentation, marketing for differentiation, and customer service and total quality management for retention.

Each card must earn a place in the wallet by being better than the other cards that are there.

Issuers and Acquirers

Another change is the continued separation of card-issuing and acquiring [of transactions from merchants]. These businesses used to be done by the same institutions, but now they are increasingly different. Even the recent alliance between Wells Fargo Bank and Card Establishment Services continues to concentrate [merchant] processing outside of the banks.

We at MasterCard don't believe we can influence this trend, which is the result of major strategic or financially driven decisions. Nor do we think we should be in the acquiring business.

What's needed is integration, developing common goals among issuers and acquirers, building a strong system. We must find ways to work as partners and make our cardholders and merchants prefer our products.

Economic uncertainty and unsustainable levels of debt have led to a changed, more pragmatic consumer. He has lower expectations, and more concern about credit.

The aging of the population has led to a shift from spending and borrowing to saving and investment. The philosophy of "the more expensive, the better" is gone. The consumer is ... looking for value. Making smart choices is the new prestige.

Credit cards, formerly a prestige product, are judged by their functionality, their usefulness. We need to figure out what consumers want and give it to them.

An explosion of technology is facilitating more convenience, more options, and time-starved consumers are hungry for them.

Automated teller machines created a debit card base, which is making point-of-sale debit a reality, giving birth to the card-base POS payment option. Data bases make segmentation possible down to the individual customer level.

Currently we have touch-tone phones and personal computers in the home. Soon we'll have screen phones and interactive television. The consumer electronics industry has realized that information into the home is the next battleground. Purchasing and money management will be revolutionized by the new electronic highway into the home.

Decrementing, or stored-value, cards are appearing, to replace travelers checks, in small-change systems such as telephone cards, as vending machine cards, or for transit systems. Many use magnetic stripe technology, but the lower cost of chip cards will accelerate these opportunities.

Payment systems are not only changing but interacting. When MasterCard bought Cirrus in 1988, some may have questioned the relevance to our credit card business. Cirrus ownership enabled us to add one of the most important benefits to MasterCard -- ATM access.

Last year at this conference, you heard cobranding criticized as "pizza cards." We saw it as a wonderful opportunity to add value by partnering.

Sure, you had to split your revenue stream. But you have created a better product. If the consumer is better off, you've got to be able to make more money.

How would we have felt if all the cobranders had made alliances with American Express and Discover instead of us?

There are hundreds of successful cobranded programs. Now, nearly everyone is looking at cobranding, and there are still plenty of opportunities to convert single-purpose cards, such as store cards and gas cards.

Some people were reluctant to accept that change, but if we are going to keep ahead of change, we must challenge the old orthodoxies.

Competing in Payments

Let me tell you about MasterCard's direction -- how we are going to keep ahead of change.

We are going to compete not just in credit, but in the payments business. We look at payments this way -- pay before, pay now, pay later -- and must have products in all these categories.

In pay later, we have credit. In pay now, POS debit is taking off, to a forecast $120 billion by 1997. We must start to think about new pay-before products such as decrementing cards to add to the mature travelers check business.

A further dimension is added as these away-from-home products move into the home. Home payment systems will handle credit, debit, and reloading of your decrementing card. As we learned [in an earlier speech], there may be a whole new dimension of "knowledge cards" beyond this.

This market has plenty of opportunity for innovation. We can get onto a new growth cycle in which our credit card competitors. American Express and Discover, will find it extremely hard to compete.

We are leading the way to a new type of relationship with members: partnership.

In a more competitive market, members must differentiate more to compete. The [card] association must contribute to this, not to standardize conformity but to help you innovate. The association's relationship with members is changing from "one size fits all" to working to help youu develop unique programs and improve your profitability.

In that framework of partnership, we must maintain a strong, unified system between issuers and acquirers. We all have the same goals. ... Our challenge is to work together to create programs that will serve cardholders better at the point of sale and make merchants prefer our products. That's where we need to innovate.

We must use technology to create value, opening new markets. We must use it to facilitate change, and not let it drive us.

Consumers are time starved and looking for ways to improve the handling of their finances. Being the first to maket is something we should strive for.

At MasterCard, we are leveraging technology to get ahead of change -- upgrading our systems, leveraging the availability of new in-home technology with Master Banking. MasterCom is a leader in image technology, and MAPP is using the newest satellite and radio technology to reduce costs and authorization times.

Let me tell you who we are by defining out mission:

"To be the world's best payments franchise by enabling members to provide superior value and satisfaction to their customers, thereby building member profitability."

In our core credit card business. MasterCard is leading industry growth. We are building preference by building the best brand. The new "Smart Money" advertising campaign is successful. In fact, all of our payment products are "smart money."

Don't let anyone tell you our brand isn't as strong as theirs with some proprietary study. The Auriemma Consulting Group study shows MasterCard is rated "most valuable" by consumers. Our [mail] response rates are the best in the bank card industry, and we're on Discover's tail. Our response rates are better because we've worked with members to add value. That's partnership.

The fact is, we couldn't be leading industry growth if our brand wasn't strong. It's strong and getting stronger.

We are making Master Values stronger. It is one of the most successful card promotion programs, and has become a feature of the brand. Nearly 90 merchants have committed to participate in the 1993 holiday program.

We are alo a sponsor of the World Cup in 1994, the world's biggest sporting event. It has twice as many television viewers as the Olympics, and it is in the United States for the first time. It is one of our fastest-growing sports, and a major economic opportunity in the nine host cities, with a projected economic impact of $1.4 billion. In Dallas alone, the impact will be equal to six Super Bowls.

Look at the simplicity of our branding system. It leverages the high recognition of the interlocking circles.

Our Maestro [debit card] launch has been very successful. After one year, 100 million cards are committed around the world, or approximately 20% of the worldwide potential, making Maestro by far the leading brand. Added to 28 million offline debit cards, that makes MasterCard the leading POS debit system worldwide.

Starting from scratch in the United States, we've come a long way in just one year.

Don't let anyone fool you that the game's over with charts based on bank deposits. What counts are cardholders. Sixteen million, or 8% of the 200 million ATM cards in the United States, are committed to Maestro, and seven million are live. Over 75% are still uncommitted, and we expect the majority of those to sign up with us.

Acceptance is also building nicely. Seven thousand merchants currently accept the cards, and a wave of new acceptance is coming from a broad variety including supermarkets, fast-food restaurants, post offices, discount stores.

Are we worried about the consolidation of regional [ATM/POS] switches? No, we've always seen them as partners. We are perfectly happy to be the brand that adds value to other brands, if that's best for our members.

Remote Banking

Let me tell you about our newest innovation -- remote banking.

Financial institutions have been trying to develop it for over 10 years, but the volume was too low. No individual bank could gather the scale needed to be profitable. The technology wasn't ready, and the consumer wasn't ready.

But the time for remote banking is now, and consumers are ready. Over half of checks are written at home, and 50% find check writing a chore. Time is becoming more precious, and consumer-friendly technology is hitting the market. It is priced right for the consumer, starting with screen phones.

MasterCard is providing the scale and electronic infrastructure, so members don't have to build them. And it's flexible enough so you can customize the delivery of the end product to your customers.

Master Banking is out in front and ready to implement. Touchtone and PC products are ready to go as a result of a strategic alliance with Checkfree.

Don't believe any nonsense about Master Banking losing control of the business to non-banks. It's designed precisely to make our members more competitive. To prove the point, Chemical Bank, one of the nation's leading remote banking providers, signed up this summer. Signet Bank, Capital Bank of Miami, and Space Coast Credit Union of Melbourne, Fla., just signed up, and many others are close to signing.

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