At its first investor conference since Joseph Saunders took over as its chairman and chief executive officer more than a year ago, Providian Financial Corp. executives described its "new" incarnation as a company that targets the middle market rather than riskier borrowers.
Among the innovations in the works is letting credit card customers avoid late fees by trading in reward points, the executives said. Providian also said it may eventually start selling insurance products and installment loans.
Most of the executives who spoke at the conference were handpicked by Mr. Saunders, who took charge in November 2001. He gave the audience a brief overview but allowed his officers to tell most of the story.
Warren Wilcox, Providian's vice chairman of marketing and strategic planning, put the changes in blunt terms when he said he had spent some time pondering whether to keep the Providian name, which he said had been "tainted" by the problems of its previous administration.
"Providian is a name, not a brand," and it means little to consumers outside San Francisco, he said. Nevertheless, the name will stay: "It is a name we can make what we want it to be."
One of the new Providian's goals is to minimize the influence of the old one. At the end of last year $18.1 billion of the loans in its portfolio had been generated under the previous administration. By the end of this year that figure will be reduced to $15.5 billion, according to Mr. Wilcox.
He said that he spent his first few months at Providian trying to get a handle on the "piece we inherited" and that he separated the portfolio into green, yellow, and red segments based on customer riskiness. Previously, customers had been treated too much alike, but more recently riskier customers (red) have gotten higher interest rates and lower credit lines, and less risky ones (green) are now getting better terms, he said.
At the beginning of last year 7.5% of Providian's receivables had variable interest rates, but Mr. Wilcox said it will increase that percentage to 50% by the end of this quarter.
Mr. Wilcox conducted extensive research, including dozens of interviews with consumers who were candid in their likes and dislikes, to figure out what Providian's target market of "middle Americans" wanted. "One of the things we did in research was to work through a model with consumers," he said. "This is starting to set pretty quickly."
Among the things he learned: Middle-market consumers want to feel that they are fairly treated, and they are willing to pay more if they have "been bad." He defined the middle market as consumers with Fair, Isaac scores of approximately 600 to 739.
"I know I'm probably not the greatest credit risk," Mr. Wilcox quoted one of the research subjects as saying. "I just want to be treated fairly."
Another one said: "When I've been bad, I deserve to spend some time in the penalty box, but not for the rest of my life!"
One idea Mr. Wilcox said he had been considering was allowing customers to use loyalty points to get out of late fees. He outlined the scenario this way: "I've been late, and the customer service representative says my behavior doesn't warrant a waiver, but I've got 50,000 points sitting in my rewards account. Can I use them to cover the charge?"
He said he envisions Providian becoming a trusted provider of products and services beyond credit cards. He quoted one customer as saying: "You know, if a company could really do that … I'd certainly give them more than just my card business."
Mr. Saunders reminded the audience that, in spite of its dramatic scaledown of receivables - to around $19.6 billion at the end of last year, from $32 billion a year earlier - it is still among the top 10 credit card issuers and had returned to profitability in the past year.
Tony Vuoto, its chief financial officer, elaborated on the ways in which he says Providian is stronger than it was a year ago. In addition to cutting its employee base roughly in half, to 6,200, it has improved its capital and liquidity reserves and has stabilized the excess spread in its Master Trust, he said.
