PNC Bank Corp. is the 13th-largest U.S. banking company, but its credit card portfolio barely cracks the top 50. With an aggressive combination of strategic partnerships and new products, however, PNC set out this year to make its credit card business more commensurate with its overall size, and the returns are already coming in. Prime Value, the first offering of PNC's new era, was launched in late spring. A cobranded card with General Nutrition Centers, the vitamin and health foods retailer, followed in August. Prime Value would appear to be just another low-rate card at 3.75 percentage points over prime, with an $18 annual fee but for its unusual provenance. It sprang from PNC's partnership with Card Issuer Program Management Corp., a new Atlanta-based company that offers marketing and administrative support services for credit card companies. Industry observers have said the outsourcing of those functions could become a trend among card issuers. The consulting firm is headed by Jerry Craft, the marketing wizard who brought Wachovia Corp.'s once sleepy credit card business into the industry's top 25 a few years ago. Mr. Craft will try to do the same for other banks by selling his expertise along with that of a varied staff of card professionals. PNC was the firm's first client. All such Program Management alliances will include processing through First Data Corp., the largest nonbank processor of MasterCard and Visa accounts and Mr. Craft's employer for most of 1994. First Data will handle customer service, collections, and transaction processing for PNC. It's a unique opportunity to jump-start the program and launch into high gear with resources and talent that would have taken a long time to amass, said Keith Coughey, group vice president for PNC credit cards. We sit here today three months into the partnership and really rolling ahead in terms of growing the business. Mr. Coughey, 44, has been with PNC more than 20 years; he joined the bank after a short stint in broadcasting. He worked from 1980 until 1993 in the credit card department, then switched to head up one of two consumer lending centers for the bank. He returned to the card division in May. I know PNC's credit card business inside and out, he said. It's good to see it on a growth track. In July, two months after the Prime Value launching, PNC said it had $880 million of outstandings and 995,000 accounts, compared with $803 million and 848,000 accounts at the end of the first quarter, according to RAM Research Corp., a Frederick, Md.-based card tracking firm. Even so, George Bicher, analyst at the Alex. Brown & Sons brokerage firm, said too many issuers are competing on the basis of price. I think (PNC is) late in the game, he said. He said the other big Pittsburgh banking company, Mellon Bank Corp., dramatically increased its receivables and accounts through Cornerstone, a product that offers rebates on interest payments. But Mellon also took on credit losses exceeding 10%. You have to be careful with these new programs, the analyst warned. PNC is basically renting the balance sheet to Jerry Craft and First Data, Mr. Bicher said. Although PNC owns the receivables, I'm not sure that's the right way to get into such a competitive business. The card industry is becoming more of a specialists' game, with independent players like MBNA Corp., First USA Inc., and Capital One Financial Corp. in a better position to succeed, Mr. Bicher concluded. First USA and Capital One are machine-gunning the market with all types of offers, then purging accounts and changing their rules in the second year, said Robert B. McKinley, president of RAM Research. PNC, through outsourcing, can sustain a cost structure lower than the market rate for many years. He said PNC should see steady growth over the next three years. Targeting its own retail accounts will save marketing dollars and provide a steady stream of customers familiar with the bank. They'll survive in this market by mining their own customer base and deepening those relationships, said Mr. McKinley. Just as PNC's new credit card initiatives began to bear fruit, the senior executive who had launched them decided to leave the bank. A. William Schenck 3d, executive vice president of consumer banking, resigned in July to take a similar post at Great Western Financial Corp. in California shortly after PNC announced a $3 billion acquisition agreement with Midlantic Corp. of New Jersey. Mr. Coughey reports to James McLaughlin, senior vice president of marketing and consumer products, who used to report to Mr. Schenck. He said Mr. Schenck's departure shouldn't much affect the card business. After the merger is completed, PNC plans to solicit customers of Midlantic as well as PNC customers, Mr. Coughey said. PNC has decided a low-rate strategy combined with cobranding could be a winning combination. I don't think a major issuer can just take one tack, said Mr. Craft. The marketplace is not easy to begin with that's the challenge of (the) credit card business. There's not just one item that will take you to the future. The General Nutrition Centers card offers a competitive rate of 4.9 percentage points over prime and an $18 annual fee. A gold version is available with a $28 fee. A no-fee version has an interest rate of 8.9 points over prime, closer to the average for cobranded programs. Although cobranding is nothing new, PNC hopes to attract customers through its low rate. There's not too much that competitors can't and don't copy if they want to, said Mr. Craft. There are always people at the forefront, but most large issuers are testing and pushing on the edges every day. The retailer has 2,200 stores nationwide, with three million customers enrolled in a frequent-shopper program, the GNC Gold Card. Not a credit card, the gold card entitles holders to a 20% discount on the first Tuesday of each month. Customers pay a $15 fee to enroll in the program, which includes a magazine called Let's Live and coupons for free or discounted GNC products. The program also offers discounts on other fitness magazines, participating hotels and resorts, car rentals, and other perks. In the first year, the bank hopes to attract at least 5% of those customers to its card which offers a 17% rebate on purchases made with the card to be redeemed at GNC stores. The credit card will be advertised through direct mail, in Let's Live, and through take-one displays in stores and bank branches. With one of the first cards to offer rebates on health food, Mr. Coughey said, PNC will be reaching a demographically attractive group. There are two strategies in this business value through rebate or pricing, said Mr. McKinley of RAM Research. I think pricing will survive in the long term although banks heavily into cobranding are doing well, too. He pointed out that the industry has changed considerably in recent years. It's a whole new ball game, he said, and PNC finally got the playbook together. Looking ahead with optimism, Mr. Coughey said the bank should become a multibillion-dollar card issuer in two or three years, but nothing says we'll stop at that point.

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