Ironies abounded at the American Bankers Association's bank card conference this week.

Credit card profitability, a big contributor to the banking industry's record earnings in recent years, is dropping like a stone. But only a few speakers cared to mention it.

Despite numerous admonitions about sea changes in all aspects of the card business and the need for quick and forceful competitive responses, the meeting hall atmosphere remained about as languid as the California sun.

After skipping last year, the U.S. chief executive officers of MasterCard and Visa returned to give their customary "state of the industry" addresses. But long gone are the days when these leaders would go at each other like presidential debaters. More sparks flew between two vendor companies, First Data Corp. and Total System Services Inc.

Total System chairman and chief executive Richard W. Ussery, given one of the conference's prime speaking slots in a panel discussion early Monday, confronted the economics: "Even though some issuers had record profits in 1996, they are digging deeper and deeper" to get new accounts. "Margins are down three years in a row."

Securities analyst Susan Roth of Donaldson, Lufkin, & Jenrette hit a more bearish note, saying loss rates on card accounts would be "flat to modestly higher" next year, with a "significant slowdown in revenue growth" into 1999.

The audience showed no signs of panic. Card issuers' returns on assets may be down, but they are still putting significant dollar amounts on bottom lines.

Celebrity hobnobbing, a card conference tradition, went to a new level this year through a coincidence of scheduling.

Visa, which has a marketing tie-in with the Rodeo Drive stores in Beverly Hills, sponsored a star-studded fashion show on the fabled shopping street on Sunday. First USA Bank used the opportunity to unveil a cobranded Visa card, and a number of ABA attendees got to mingle with actors Charlton Heston and Fran Drescher, among others.

Only a few were invited to the gala, but there were plenty more celebrities back in Long Beach.

Playing off its Olympics sponsorship, Visa had three athletes signing autographs-Jim Naft, Dominique Moceanu, and Kyle Rasmussen. Former Los Angeles Dodger Steve Garvey made another of his frequent appearances for Cardservice International, and basketball great Kareem Abdul-Jabbar posed for pictures at the First Data booth.

First Data rented the Queen Mary for Monday night and hired singer/songwriter Kenny Loggins to perform; the night before, Equifax Inc. offered the music of George Benson. "Tonight Show" host Jay Leno was on Total System's marquee.

Among the most striking ironies were those delivered in the style of comedian Kevin Nealon's character Mr. Subliminal, from "Saturday Night Live."

Mark Tonnesen, executive vice president at Royal Bank of Canada, opened a presentation with an innocuous statement: "There are not many things I can say to such an intelligent and informed group. ... I won't bring up some of the current issues facing our business."

At strategic points Mr. Tonnesen interjected-under his breath-some of those very issues, such as rising chargeoffs and expensive cobranding deals.

Mr. Tonnesen's satire hit a target: those who might prefer to sublimate any leading indicators of industry trouble and upheaval.

Carl F. Pascarella, president of Visa U.S.A., tried to instill a sense of urgency.

Presenting a balanced picture of a dynamic and growing industry also beset by a record number of consumer bankruptcies and an increasingly aggressive American Express Co., Mr. Pascarella said bankers must not accept the status quo.

"The time to solve our future problems is now," he said. "The time to be discontent is when things are going well. We have to think beyond the world of payment cards as we know it today ... or we will lose new opportunities to the competition."

In a subsequent interview, Mr. Pascarella did not minimize the potential for worsening credit quality. He noted that a marked decline would be a new experience for many in the industry who were not around for the cyclical problems of the 1980s and the early 1990s.

Alan J. Heuer, president of the MasterCard U.S. region, was in tune with Mr. Pascarella on issues that cut across their industry, such as the need to reform the bankruptcy laws, maintain banking industry control over payment systems, and promote debit, corporate, and purchasing cards.

Mr. Heuer did take a swipe at Visa's familiar advertising slogan, saying MasterCard's marketing tack will be "not where you want to be, but where you are today."

He also put in a plug for Mondex, the smart card venture MasterCard owns 51% of, and the Multos operating system, which Mr. Heuer said is more ready and more complete than the Visa approach based on the Java computer language.

(In one of the concurrent sessions, David Angier, business development manager of Mondex USA, and Diana Knox, vice president of Visa U.S.A., were diplomatic about their rivalry. When asked how the chip cards differ, Mr. Angier paused a moment and said, "Why don't I just tell you how Mondex works?")

Mr. Heuer urged bankers not to fall into the trap that caused Apple Computer Inc. to lose its edge in personal computers. While Apple stayed focused on its own hardware and operating system, Microsoft Corp. changed the rules of the game with an open-standard software approach.

"Gillette knew market success came from selling blades, not razors," Mr. Heuer said. "Microsoft understood this and so does MasterCard."

On the profit outlook, Mr. Heuer said in an interview, "There is no question the card industry is more competitive and margins are being squeezed. But my view is fairly optimistic."

Given the unusual decline in credit quality during an economic expansion, "there is a real danger in looking at the numbers from the 1970s and saying something is awry now. This is a very different business. It is in many ways a tougher world, but I think a lot of people can succeed."

Among advocates of higher technology, Cybercash Inc. president and CEO William Melton came across as both realistic and impatient.

Competition will run rampant on the Internet, with "many new niche players," he said. He predicted "a fair amount of outsourcing (because) it is all going to be moving so fast that it won't be possible to build it all internally."

He said bank card people's emphasis on credit cards and the SET (Secure Electronic Transactions) Internet protocol distracts attention from a bigger opportunity in debit cards.

Debit on the Net "is totally underestimated," Mr. Melton said. "We believe the technology is ready for it but people aren't with it yet."

He said "most bankers' eyes glaze over" at the mention of digital certificates, a key component of SET but a service that bankers could let slip away if they are not careful.

Companies such as America Online, and Microsoft "could ship out an identity to users and digital identity could be solved."

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