PNC Financial Services Group Inc. plans to drop MBNA Corp. as its credit card issuer and sign up with U.S. Bancorp's payments division.
The Pittsburgh banking company said Friday that its seven-year relationship with MBNA will end Tuesday, and that it would begin working with U.S. Bank on Sept. 1.
PNC's announcement followed Wachovia Corp.'s termination of its deal with MBNA, after Bank of America Corp. announced it was buying the Delaware card company. Wachovia took its operation in-house, and many observers have said it did so to avoid partnering with one of its top rivals.
However, PNC plans to use a different model; it will issue the cards and own the receivables, and its agreement with U.S. Bank is limited to outsourcing back-office operations.
Dan Tuccillo, the senior vice president of consumer products for PNC, said in an interview Friday that the new contract will give his company more say over its credit card operation.
"We get control back over the card solutions, product design, pricing, customer information - all the things that we need to understand what customers need, how they buy things, how they like to pay for things, and come up with the right card products and solutions," he said.
PNC will be in charge of strategic decisions, marketing, product development, and setting credit policy, and it will hold the receivables on its balance sheet. U.S. Bank will take over card origination, risk management, and issuing statements.
This setup will enable PNC to "tightly integrate them [credit cards] with our other products," Mr. Tuccillo said. He would not reveal the size of its card portfolio.
The decision to drop MBNA had little to do with its new parent's being a competitor, he said.
"As a traditional agent relationship, it was fine. It was a good one," Mr. Tuccillo said. "But when the opportunity presented itself, it was a pretty simple decision for us to make."
PNC is strictly targeting its own customers, he said. "It's not about trying to create some large-scale credit card operations. That's not what we're about."
But the decision to take more control over its credit card program is part of a larger payments strategy. Last week the company announced that it would reimburse customers for fees incurred when using other banks' automated teller machines.
"We wanted to make sure that we can provide the full spectrum of payment products to the 2 million-plus consumer and business households that we serve across our footprint," Mr. Tuccillo said.
However, PNC was missing "one key piece," he said - credit cards.
"We could have bought someone. That's not practical. Or we're going to build all the back office necessary, and that's also not practical from an economic standpoint," Mr. Tuccillo said. "What we landed on was there has to be a way to become an issuer again but benefit from someone else's scale and expertise."
Rob Morris, a senior voice president of retail payment solutions for U.S. Bank, called its partnership with PNC a different kind of card outsourcing arrangement because "we're doing more than just processing services. We truly are a strategic partner with them. They own the accounts," but U.S. Bank will be working with them on marketing strategies.
This is U.S. Bank's second deal of this sort. In June 2005, it announced a similar agreement with Toyota Motor Corp.'s Lexus division.
Numerous small and midsize banking companies have left the card-issuing business in recent years, because of the problems involved in competing with large-scale issuers. Mr. Tuccillo said that scale was one of the reasons PNC decided to work with U.S. Bank, which has 1,600 financial institution customers.
MBNA handles the card business for hundreds of banking companies, and there have been few defections since B of A took control Jan. 1. When the Charlotte company announced the deal in July of last year, it said that it expected to lose some banking clients, and that MBNA's revenue ($10.15 billion last year) could fall by as much as 7%.
For the third quarter of last year, the last one for which it reported before the B of A deal closed, MBNA reported net interest income of $729.1 million.
Sovereign Bancorp Inc. said in March that it would switch its small-business card portfolio from MBNA to American Express Co. but would continue to use MBNA for consumer cards. But MBNA took over Bank of Hawaii Corp.'s Amex card portfolio in January.
When contacted Friday for a reaction to PNC's announced, Alex Liftman, a B of A spokeswoman, cited the Bank of Hawaii pickup.
"We're pleased that losses in the financial institution business have been substantially less than what was predicted at the time the merger was announced," she said. "Since the merger was announced we've added a number of banks" and renewed its relationship with Merrill Lynch & Co. Inc.
