On the same day in 1994 when a New Jersey bank announced a deal to offer credit cards to the residents of South Orange Township, New York Mayor Rudolph Giuliani said he wanted the same for his constituents.
Peter John Southway, first senior vice president of Valley National Bank in Wayne, had just returned to his office from signing the South Orange agreement when reporters from The Wall Street Journal, The New York Times, and other news media began calling.
"They were looking to us as the gurus of municipal card lending, and we didn't have one card on the street," Mr. Southway recalled in a recent interview.
Two years and some 3,000 cards later, Valley National is the guru of town cards. The $4.6 billion-asset bank has launched six such affinity programs and has six more in the pipeline. But Mayor Giuliani still doesn't have his New York card.
The South Orange card captured the attention it did because the idea of generating municipal revenue through credit card spending was new. South Orange's mayor, William Calabrese, made a lot of noise about the program, saying it was his idea.
If he hadn't been so vocal, Valley National might never have earned its reputation.
It all started when Mr. Calabrese was quoted in a newspaper article, complaining that he could not find a New Jersey-based bank willing to be South Orange's partner in launching a town card. Valley National answered that call, beating out Chevy Chase Bank and MBNA Corp.
Mr. Calabrese said the program has "benefited Valley National as much as it has benefited us."
South Orange has pocketed about $65,000 so far. It spent some of it on new holiday decorations and to hire a person to clean the streets on weekends.
As for the flagship unit of Valley National Corp., its entire credit card program has been turned around.
"We were in a downslide," said Mr. Southway. "We thought we couldn't bring to the market what our competitors were bringing with cobranded and affinity cards. With our first affinity card, we said, 'There is an opportunity for us.'"
While the 1,200 South Orange cards will never generate huge profits, they bring new customers into the bank and create cross-selling opportunities.
"Our credit card programs are used primarily to build customer relationships," Mr. Southway said. "We'd like to be in the three-products- per-household range before we consider ourselves successful."
Moreover, Valley National's higher profile in the card business led to a marketing partnership last May with ShopRite supermarkets. The ShopRite MasterCard is available in New Jersey, Connecticut, New York, Delaware, and Pennsylvania. It is the first time Valley National has marketed credit cards outside its home market, though about 60% of ShopRite stores are in New Jersey.
Cardholders earn a 1% rebate for spending outside the supermarkets and a 2% rebate on ShopRite purchases. Within 60 days, the program amassed 140,000 accounts. The response rate to solicitations was 10%, compared with the industry average of barely 2%.
Mr. Southway said he expects the program to expand to 250,000 accounts in a year and 500,000 in two years.
The card also stands out because the magnetic stripe on the MasterCard replaces ShopRite's electronic discount card, which is also used for authorizing check payments.
Cardholders get $5 coupons in their monthly statements that can be redeemed for purchases at ShopRite. Responding to consumer activists' concern about people racking up debt for food purchases, Valley National's statement has a separate section that totals food purchases so cardholders may pay off that part of their bills in full each month.
Creative as it may be, the bank lacks the heft of others, and that could ultimately threaten its alliances.
"It's important that they have (other) programs in the pipeline," said Michael Auriemma, president of Auriemma Consulting Group, Westbury, N.Y., "because none of them alone is enough to sustain them."
"When it comes time to renegotiate, ShopRite shouldn't be the tail wagging the dog," he said.
Mr. Southway declined to give specific numbers on the bank's card portfolio, but he said Valley National's 1996 growth would be 200% greater than last year's, mostly because of ShopRite.
To manage the growth, Valley's card division has hired 72 employees in the last 18 months. It also hired Edward L. Lawrence to run the programs after he had worked with Valley as a consultant. Mr. Lawrence, who reports to Mr. Southway, is a card industry veteran who formerly worked for Eastern States, a regional processing company on Long Island acquired by First Data Corp. in 1988.
Mr. Southway, 36, is responsible for all consumer lending. He joined the bank at 17, doing car repossessions. He is the son of Peter Southway, Valley National's president and chief operating officer, who has worked there 45 years.
The bank's offices are split among three ordinary-looking, four-story office buildings. The younger Mr. Southway, who has offices in the consumer loans-operations center and the administrative building, said has no plan to take the card business national.
"Northern New Jersey is probably the best banking market in the country," he said.
"As a small player they have lots of challenges," said Stephen D. Drees, principal of Strategic Marketing Services, Westborough, Mass., "but they are using the advantages that they do have" in courting localities and companies.
At one point Valley National had had discussions with 49 townships in New Jersey. But it weeded out a lot of prospects that did not have a clear idea of how the credit card money would benefit them.
"You can't just launch a municipal card and tell the customers that the benefits are going to go to the town budget," said Mr. Southway. The payoff must be tangible, like South Orange's holiday decorations and plans to refurbish some buildings.
Valley National has marketed cards for Sussex County, Woodbridge township, East Brunswick, the Edison Foundation, and Wall township. A card for Wayne, the bank's home base, is on the drawing board.
Mr. Southway said a community institution like his approaches the affinity market differently than the MBNAs of the industry, offering more hand-holding.
"I think we beat out our local competition because we caught them sleeping," he said, and the national players "because we know our market."
