"Don't get caught up in the consolidations," veteran credit card executive Ronald N. Zebeck told an industry conference this week.

The president and chief executive officer of Metris Cos., a spinoff of Fingerhut Corp., manages a $3 billion portfolio that was dwarfed by industry giants such as Citicorp and Banc One Corp. even before their recent and pending mergers.

Grabbing for scale is easy, Mr. Zebeck said, but he urged his audience to be wary of the current "euphoria" about bigness. He said "the quality of each customer" deserves more attention than quantity.

"We could be a $6 billion operation if we wanted," he said in an interview after speaking to Faulkner & Gray's annual Credit Card Forum. That would still be one-tenth the size of Banc One and First Chicago NBD Corp.'s combined portfolio and not quite in the bank card industry Top 10.

"But why should we?" Mr. Zebeck said.

He predicted that the card industry's consolidation would continue, given its excess capacity and the natural tendency to seek advantages in scale. "Up to 30% of the issuers in this audience won't be in business two years from now," said the St. Louis Park, Minn.-based executive, who previously worked at Citicorp and Advanta Corp. and came to his current prominence by designing the General Motors MasterCard program in the early 1990s.

The downside is that "when you are bigger, the problems are just bigger. What you really need to be is smart. Leverage your core competencies. Do the things that affect your bottom line and outsource the rest."

Among the problems that merging giants face are leadership and recruiting. He said that as Banc One executive Richard Vague takes on the First Chicago portfolio, he will be preoccupied with "filling seats and managing the sheer size" of it, and marketing could suffer.

"The biggest challenge in the industry is managing and keeping good people," Mr. Zebeck said. Labor shortages and low unemployment mean that companies must locate operations in municipalities where workers are most available.

Even amid the consolidation wave that lessens the number of open positions, top management talent has been hard to find. Kathryn Trott, partner in the San Francisco-based executive recruitment firm Allard Associates, said it has been deluged by requests for "smart, innovative card executives."

Some industry observers had wondered about First Chicago's long-term card leadership plans, but the questions were answered by the Banc One merger deal that was announced this week. Mr. Zebeck said nine senior positions at major credit card organizations such as Household Credit Services, issuer of the GM card, are open.

With appropriate pricing and rigorous market testing, smaller card issuers can compete, Mr. Zebeck said. "We need to follow the lessons of the smart, not necessarily big, players."

"Big means slow, and the fast eat slow in this business," added Michael Auriemma, president of Auriemma Consulting Group, Westbury, N.Y.

"We focus on our bank customers, keep our stock price up, and simply don't worry about" the big guys, said Roney L. Bisio, senior vice president of bank card services, Central Carolina Bank and Trust Co., Durham, N.C.

Joel Friedman, managing partner of Andersen Consulting, who has been close to the card business for many years, said, "This is a scale business. Many of the long-term winners will be those who are able to drive costs down. That requires size."

But he said "it is not an either-or situation. There are always opportunities for niche players, people who are more agile."

Mr. Zebeck said "best practices" can cut across size differences. He puts his own company in the same league as Associates First Capital Corp., Capital One Financial Corp., and Fleet Financial Group in target marketing, risk-based pricing, and product-testing capability.

Capital One "conducts 13,000 product tests annually in support of 5,000 card offers," Mr. Zebeck said. This may seem like "overkill," but "I give Capital One credit. They understand this lesson very well."

Capital One's "information-based strategy" continued to pay off in the first quarter, with a 13% earnings increase, to $65.7 million, the Falls Church, Va., company said Thursday. Capital One added 927,000 net new accounts in the first three months this year, bringing the total to 12.7 million, with $14 billion of managed balances.

"Because of this stable credit picture and the success of our new product innovations, we are bullish on our ability to continue to deliver superior results," said president and chief operating officer Nigel Morris.

The biggest of the monoline issuers, MBNA Corp. of Wilmington, Del., said Tuesday that its quarterly net jumped 27%, to $149.4 million.

Continuing its emphasis on affinity-group marketing, MBNA said it added 110 new endorsements and 2.1 million cardholding customers (1.7 million accounts) in the quarter. Receivables rose 25% from a year earlier, to $50 billion.

Mr. Zebeck identified one of Metris' core competencies as collections, which makes sense for a subprime-oriented lender. A typical customer might be a recent high school graduate with an income of $20,000. The collections staff of 1,000 is three times what some bigger card issuers have.

John A. Costa, senior vice president of Cardholder Management Services, Plainview, N.Y., said Capital One and Metris have outperformed the industry because they stress their competencies and stay focused. He called Metris "the archetypical nonbank entrant into the card business," relying for marketing data on its parent company, Fingerhut, which has an extensive direct mail and catalogue business.

He said it costs Metris $87 to acquire a new account, well below the industry average of $110.

"Irrational pricing has caused issuers to lose sight of what made the industry profitable over the years," Mr. Zebeck said.

"Card profits haven't gone away. Issuers have given them away. You are lending money to people. Don't forget it."

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