At first blush, the emerging world of payments through the Internet and mobile telephones may seem tailor-made for credit cards. But the card executives who gathered at Faulkner & Gray's 12th annual Credit Card Forum in Miami last week were anything but sanguine.
They said they saw threats on the horizon, including new digital currencies and other payment schemes that skirt card use altogether. In some countries, for instance, mobile phone companies are letting consumers shop by telephone and charge the merchandise to their phone bill. Experts say cable TV companies have similar opportunities.
"What we do or don't do will determine whether we ride the crest of the e-business wave, or be consigned to the junk heap of such formerly glorious products as the telegraph, the steam engine, and the manual typewriter," said Robert W. Selander, president and chief executive officer of MasterCard International, in a keynote speech.
Some Internet threats are less obvious. Theodore Iacobuzio, senior analyst at Tower Group of Needham, Mass., said banks that offer bill payment and presentment leave themselves vulnerable to the enticements of credit card issuers looking to steal depository customers.
The problem stems from the fact that many consumer bills are from credit card issuers. According to many popular bill-pay scenarios, consumers access their bills at their own bank's Web site, but in order to pay the bill, they must click on hot text that sends them directly to the site of the card issuer or bill aggregator. Consumers are then bombarded by enticements to remove deposits or open loans with what is in fact a direct competitor.
One top-10 bank is holding off on offering bill presentment because of this dilemma, Mr. Iacobuzio said. "It makes disintermediation frictionless."
On a more optimistic note, Kenneth Posner, a principal at Morgan Stanley Dean Witter & Co., said the Internet affords vast new marketing opportunities for the card industry. But he said that issuers may want to think twice before offering instant online approvals.
Companies like MBNA Corp. and American Express Co. do not offer online approvals, he said, and still bring in far more new accounts via the Internet than NextCard Inc., the online issuer famous for instant Internet approvals.
Mr. Posner, who conducted a study of credit card activities on the Internet, said automatic approvals tend to attract people "who like to move money around quickly and easily." These people "may not be your best customers," he told card executives.
Paul Confrey, vice president of electronic commerce at MasterCard International, gave a presentation laced with mystery. He talked about futuristic technologies that MasterCard is pursuing, lumping them into the cryptic category of "things that think."It was not readily apparent to the audience how some of these "thinking things" might be relevant to a payment- card company. For example, Mr. Confrey described a futuristic medicine bottle that could communicate with an electronic medicine cabinet, which could then remind its owner when he last took a pill. In the same household, a refrigerator could keep track of what's stale and what needs replenishing, and could somehow communicate that to a "thinking" kitchen countertop that keeps a shopping list.
In an interview after his speech, Mr. Confrey alluded to potential opportunities for MasterCard. The smart countertop could perhaps trigger a message to the supermarket, so goods could be waiting for a consumer at the store. MasterCard would want to be the payment vehicle for that transaction, he said.
MasterCard executives say Procter & Gamble Co. is working on "counter intelligence," and more will be revealed at an upcoming media event at the Massachusetts Institute of Technology Media Lab in Boston.
Mr. Confrey said the card industry must walk a fine line -- consumers value their privacy, but they also want products and services to meet their specific needs. "Nobody wants their inseam measured, but everybody wants their pants to fit," he said.
The market for buying bad credit card debt is still reeling nearly a year after the biggest company in the business, Commercial Financial Services, filed for bankruptcy.Gary Wood, executive vice president and chief operating officer of Texas-based Collins Financial Services Inc., said banks are much more wary of the companies to whom they sell charged-off card debt.
"Banks have greatly increased their scrutiny. They want to know about how we get funds," Mr. Wood said. Collins Financial buys bad debt and resells it primarily to collection attorneys.
Banks don't want to be stung again holding contracts with a company like Tulsa, Okla.-based Commercial Financial.
As a result, Mr. Wood said banks are not as eager to provide companies like his with the loans they need to buy charged-off debt. "It is increasingly difficult to raise capital," Mr. Wood said.
On the other hand, he pointed out that because Commercial Financial was so dominant in its market, many banks don't know what to do with the debt they had been selling to it. Mr. Wood said large banks -- he would not name them -- are calling smaller firms like his to make deals.
Commercial Financial, which specialized in so-called fresh debt or recently charged-off debt, was responsible for inflating the price of this debt. It paid, on average, 12 cents for each charged-off dollar of debt it bought, Mr. Wood said. Since the company's demise, Mr. Wood said fresh debt is being sold for about eight cents on the dollar, but "the price hasn't dropped as much as we had hoped it would."
With the antitrust case against Microsoft Corp. much in the news during the card conference, executives could not help but turn their thoughts to a similar Justice Department action against the bank-owned credit card associations.Attorney Anita Boomstein, a partner at New York-based Hughes Hubbard & Reed who specializes in card industry law, predicted the antitrust lawsuit against MasterCard and Visa is not "going to be a Microsoft case."
The department has a weaker case against the two card associations, barring any "smoking guns," she contended. Ms. Boomstein predicted neither side would settle, however.