Credit card lenders that don't recognize the Darwinian nature of the business will die, said Alex W. Hart, chief executive of the fast-growing Advanta Corp.

Mr. Hart was the keynote speaker at the Faulkner & Gray credit card conference last week in Atlanta.

The former chief executive of MasterCard International told an audience of about 1,000 on Wednesday that the next wave in payment systems "will be crowded, as all of us try to decommoditize our products."

Niche marketing will be essential for success, he said. As an example, Mr. Hart pointed to MBNA Corp.'s ability to make a 250-account portfolio profitable.

The payment services industry has grown quickly, he said, but there is plenty of room for more expansion. MasterCard and Visa account for only 15% of personal consumption expenditures in the United States.

"We have so much potential in displacing cash and checks," Mr. Hart said. "We have untold opportunity."

Credit card marketers can learn from the likes of Coca-Cola, which is looking to boost its presence in Southern California more than anywhere else, he said. "Sometimes the best markets are right under our noses."

Mr. Hart said he doesn't expect smart cards to emerge as a market force soon, because "the economics are questionable."

He was equally skeptical about marketing trends like teaser rates and cobranding. They "have some life in them," he said, "but if you aren't playing those games, it's probably already too late."

To compete, Mr. Hart said, card issuers will need to grow 20% and 25% a year while managing risk. Advanta's recent growth - fourth-quarter receivables were up 69% from the year-earlier level - was no easy feat, he said.

In the future, Mr. Hart said, the focus will shift from products to the consumer. Those who can strike a balance between management of customers, products and services, and distribution channels "will have a great chance to catch the next wave. Those who don't will falter or die."

Moshe Orenbuch, an analyst with Sanford C. Bernstein Co., said NationsBank, Citibank, and MBNA will be the up-and-comers in the next three to four years.

Meanwhile, said James Accomando, the conference chairman and president of a consulting firm in Fairfield, Conn., credit card executives everywhere will be under the gun to maintain double-digit growth.


David A. Wyss, research director and financial economist for DRI/McGraw Hill, cautioned that credit card lenders will find it difficult to turn an aging population into profitable consumers.

"As baby boomers get older," he said, "they will realize that they need to save more for retirement," so they'll revolve their balances less.

On the other hand, personal debt has been rising steadily and credit card spending accounts for nearly 40% of it.

The average consumer owes one year's income in debt, according to DRI research. Still, consumers are confident, as illustrated by the Conference Board's monthly consumer index, which last month hit a five-year high, Mr. Wyss said.


"If the market is no-fee, low teaser rate, and balance transfers, compete elsewhere - because the current marketplace isn't creating loyalty," said Jeff H. Slawsky, director of credit cards of Bank of Boston, which reentered the card business a year ago.

About 75% of the bank's offers come with an annual fee, Mr. Slawsky said. Industrywide, 68% are no-fee, he noted.

So the bank, which hired Mr. Slawsky last year to relaunch the business, is bucking a trend.


According to Synergistics Research Corp., the top features consumers seek in credit cards are low rates and no annual fees.

To get those low rates, consumers hop from one card to the next. Anne M. Moore, president of the Atlanta-based research firm, said that people who transfer their card balances more than once in two years had an average balance of $2,446.

However, Synergistic's research found that only 2% of cardholders canceled their accounts and transferred balances when the interest rate rose after the introductory period, 6% canceled the accounts, and the rest kept the cards.

Ms. Moore attributes the lag to a delayed reaction on the part of consumers, who do not notice the rate hike taking effect.

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