As head of the hugely successful GM Card, Ronald Zebeck feasted on bankers' lunch. Now this card maven, holding his finger to the wind, is testing credit card ideas at Fingerhut, a big catalog merchandiser with a growing presence in home shopping and electronic delivery.

Not long ago, Ronald N. Zebeck was in the catbird's seat. As managing director of General Motors' GM Card, he presided over the fastest-growing credit card ever sent out of the chute. Millions of Americans saw his name emblazoned on representations of the card appearing in television, newspaper and magazine ads.

But in March, Zebeck left GM after a strategic rift with the auto company's top brass and some soul-searching about the future of the card business, where he has spent the last two decades. He touched down at the Fingerhut Companies, a long-established catalog merchandiser with a growing presence in home shopping and other forms of electronic delivery. And it is at Minnetonka, MN-based Fingerhut where Zebeck, who has a thing about challenging conventional wisdom, hopes to carve his initials yet again in the card industry's still-growing tree.

Given Zebeck's reputation as a strategist who made big winners of the GM Card and earlier, the Colonial National Bank gold card program, his new venue is an intriguing one. Some might see it as a jump-off from the fast lane to what is virtually a startup--Fingerhut doesn't even have a credit card program. Zebeck's mission is to build one, and he is by reputation (and choice) a builder.

What's most notable for bankers are: 1) Zebeck's target audience--lower- to middle-income consumers whose mailboxes aren't stuffed with card solicitations (Zebeck says three of four Fingerhut customers don't have a credit card); and 2) his certainty that the delivery system in place at Fingerhut--catalogs, infomercials and home shopping, including CD-ROM products and other computer-based interactivity--is the wave of the future.

What really seems to get his juices flowing is the notion of conquering terra incognita--a nontraditional card audience. Fingerhut's customers are solidly middle (including lower-middle) class, with average household income of $29,000. Gold card customers? Not. But Zebeck is sure that, priced properly, a card program aimed at them can be profitable.

Fingerhut is certainly not a name on most bankers' lips. The 46-year-old direct marketing company sells a wide range of products and services--jewelry and home furnishings are two special areas of concentration--directly to consumers through catalogs and television. It offers all its wares on installment payment plans and a 30-day free trial period.

Zebeck thinks he knows Fingerhut's customers. "I call them the Chevrolet buyers," he says during an interview, forming a pyramid with his fingertips. "They have high financial services needs--they need deposit-taking, they need insurance products, they need credit products. And traditionally, they aren't being serviced in an aggressive sense."

Talking for an hour over lunch in his roomy, windowless office at Fingerhut's low, brown-toned headquarters in a suburban office park, the 39-year-old Zebeck meets every question head-on. Dressed in a blue oxford shirt and patterned tie, he's round-faced and almost boyish-looking despite the flecks of gray in his dark combed-back hair. He's serious, almost intense, articulate and opinionated, and his intimacy with the business flashes in bursts of jargon: "the selection piece," "spending utility," "cost-to-acquire basis."

He lives and breathes the credit card business, having begun some 20 years ago with Citicorp's Choice program while in Baltimore, where he graduated from Towson State University with a business administration/marketing degree.

The 'Third Bucket'

Looking at the credit card market, Zebeck puts many Fingerhut customers in what he calls "the third bucket," the lowest of three economic tiers and "where most banks draw the line." He pegs this group at 20-25 million people. Unlike the top or "A" bucket, the well-heeled gold card customers, this lowest tier is "not value-sensitive, and they're not interest rate-sensitive, and they're not fee-sensitive. What they are is in a high-consumption mode because of their particular time of their lives, and they're very sensitive to affordability."

The "B" bucket, he says, holds the standard card customer who's a staple of Chase, Citibank, Household and other mass-market issuers. There's some overlap, he says; Fingerhut will draw from both the B and C groups.

A key strategy "will be to take the traditional Fingerhut customers and elongate their life cycle with us." That life cycle is usually six years, he says; if the company can add new credit products, it can keep profitability high and extend that cycle a couple of years.

As president of Fingerhut Financial Services Corp., Zebeck has a number of projects on his plate: creating a proprietary Fingerhut card, a cobranded bank card, possibly a secured credit card. Various tests are underway, and Zebeck says the products will be rolled out when everything is in place--and not before. Something could be ready in three months, or it may be considerably longer, he says.

Any secured card would have to be done with a bank partner or some other strategic alliance. Zebeck says, "We have legal vehicles that allow us to do deposit-taking. We have a bank in Utah." (Actually, a Utah official says Direct Merchants Credit Card Bank has just been approved by the Office of the Comptroller of the Currency and hasn't yet begun operations.)

Some card programs have mushroomed by offering low rates, but Zebeck is firm that "we're going to price for risk. This segment is more risky." Historically, secured cards have commanded higher interest rates than traditional cards.

Can this strategy pay off? "I supposed you could make some money if you knew your costs and your security was good enough," says Robert K. Hammer, an investment banker and credit card consultant in Newbury Park, CA. "I'm certainly not surprised that someone is trying to find some way to make money on the down side of this business."

Zebeck is by reputation and practice a self-promoter, and that has rubbed some in the industry the wrong way. Critics say he has taken more credit than is his due in developing products like the GM Card. One industry consultant who insists on anonymity claims the auto rebate concept was developed by others and was in fairly finished form when Zebeck was hired before the launch.

But he gets recognition. "He captained the ship," says Michael Auriemma, managing director at Auriemma Consulting in Westbury, NY. "He did develop one of the most successful products in the credit card history, one that generated more notoriety for the category." Launched in September 1992, the GM Card pulled in more than a million accounts in the first month and had 6.3 million this last March, when Zebeck left. He captured a number of national marketing awards for his success there, and he's been involved with a number of industry groups, including Visa USA's Marketing Advisory Committee from 1988-91.

A spokeswoman for Advanta, parent of Colonial National, says executives there declined to talk about Zebeck. But Kristine Crow, senior vice president, member relations/Midwest at MasterCard, which remains the sole licensee of the GM Card, sings his praises.

"Ron is someone who is incredibly creative," she says. "He can take tough challenges and difficult situations and find a solution, and he doesn't do it all himself. He utilizes lots of resources." Using his own energy levels, "he's always challenging the people around him to do more."

Different Vehicles

Zebeck's take on the eroding viability of direct mail isn't novel, but his enthusiasm about the Fingerhut delivery channels commands attention.

"We send out 300 million catalogs a year, so just adding one additional page (for a credit card application) gives us a 300 million frequency," he notes. Instead of a mail piece that may get reflexively thrown away, the consumer is reading a catalog or watching TV, where an 800 number comes on. "I've got you in a different format, a different vehicle. So I think the tools are what we're really excited about."

Looking to catalogs to deliver consumers is hardly far-fetched; catalog shopping just keeps growing. From catalogs, it's a bit of a leap to shopping by PC, where you need a computer and someone willing to browse through it. But Zebeck is undaunted.

"If I go over here right now and hit my PC and go on Prodigy, I can probably apply for three credit cards, one of them being GM. So to me, the marketing tools that we're going to need to stay ahead of the game are really evolving." Fingerhut will benefit from aggregating these various delivery channels, he says. "We have access to customers in a much more high-tech, and in theory, lower-cost-to-acquire basis than anyone else."

The catalog company is both profitable and ambitious. It has a joint venture going with Montgomery Ward, and is going after the former Sears catalog base. Already, it's the second largest catalog operation after J.C. Penney.

A subsidiary, USA Direct, has been broken out as a separate entity to develop its electronic retailing base, and Fingerhut is developing a new TV shopping channel. One of USA Direct's biggest businesses is what many view as among the more unfortunate creations of the '90s--infomercials, 30-minute TV "entertainment commercials" in which celebrities like Cher or Cherwannabes peddle products. Also pending is a TV shopping test with that Generation X paragon, MTV.

Until recently, most of Fingerhut's financial services related to product warranties and represented a small fraction of its $1.8 billion in annual sales. Fingerhut Financial Services itself has some 30 people and is about five years old. But that's just the nucleus; close to 800 outbound telemarketing people also touch on the business, Zebeck says.

Fingerhut's strengths are database management and customer service, which company officials say translate into an exceptionally high response rate--they claim 5% on their catalogs, vs. a 1% industry average--and a high trust factor. The company is aggressively building its database, already holding more than 25 million households; it is developing a next-generation computer system it says will create "the largest proprietary consumer database in the world," which it expects to be on line by year-end 1995.

"They're literally the best credit-screener in the country," says George Vos, a partner with Vos, Gruppo and Capell, direct marketing investment bankers in New York. He adds that "they are probably the last of the billion-dollar catalog companies that hasn't issued a proprietary credit card."

Few Major Players

Zebeck is dismissive of most bank credit card programs, saying that only about 5% of the issuers "are really in the credit card business. The other 95%, the credit card business is really a tertiary business for them, at best." But they stay in it because it helps customer retention--and "throws off a pretty good return."

In the long run, these smaller players "will shrink but be happier." Yet even the biggest bank players will see business slide unless they lower expenses, he says, because the costs to maintain market share keep mounting.

So who wins? "Those with a distinct niche or distinct growth expectation of where they want to be." He mentions MBNA Corp., Advanta, First USA, even, er, Fingerhut. "We're trying to service a distinct segment, and don't want to be 30 million customers." In fact, Zebeck says that "two million would be big for us... If we don't sell merchandise, and we don't bring home shareholder value, then the credit card is not a good business for us here, either."

Gazing into the future, he sees tough sledding domestically. "There is no other GM out there, not in the foreseeable future. The real growth in credit cards is probably sitting offshore, in places like Asia/Pacific. And it's taking distinct niches--hugging them, stroking them, maximizing them, nurturing them and building relationships on top of that."

As a refugee--albeit a potentate--from the gold card wars, Zebeck says he's more than willing to lower his sights. In fact, he sounds like an altruist. Referring to Colonial National and GM, he says:

"Some of the frustrations I had in both of those transactions is that no one except maybe the finance companies historically financed this third (customer) bucket. And to have the ability, with the database, the customer and the feeder mechanism that the merchandise side of our house brings in, to be the first card in some of these people's wallets--that's a big coup, in my mind, and something I'm going to be very proud of five years from now."

'We're Going to Make an Impact'

Ron Zebeck isn't shy about saying what he thinks, and he isn't one for phony humility, either. Some straight talk:

On his approach: "I'm a very driven person. I enjoy this. I wake up every day saying I enjoy this stuff. And I've been doing it for long enough, that when you look at your wins and your losses and your mistakes and your opportunities, you feel pretty good about it."

Leadership style: "I like to be a teacher." He notes that none of the 20 managers in the GM Card program had any background in direct marketing or advertising; they were people from places like finance and manufacturing. So he taught. "I like to manage the components and let the people with very strong gray matter do a lot of the horsepower." He adds that "I don't believe in a huge organizational structure."

On his own place in history: "In my own way, I like to say that I've had an impact on the category." And not just for GM: He points to high-level work involving the Choice program and the Colonial National gold card operations for Advanta. "Back in 1985, there was no such thing as gold cards, per se. We took that niche and we leveraged it.... I think that (at Fingerhut) we're going to make an impact again by being the first to satisfy the consumer credit needs of segments that people don't traditionally chase after."

"Many people were surprised when I walked out of the GM program.... Management looked at it and said, 'This is already three times the size we expected it to be. Can we be quietly successful? Can we just maintain it?' And we had differences of opinion about that. I'd rather be working for a company where you can build things."

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