Ron Zebeck has always been a pioneer. When others were collecting fat fees for gold cards, he convinced Advanta Corp. to waive fees-and the national market for the original precious metal card exploded. At Household International, he defied conventional wisdom and sweetened rebate incentives to make the GM Card the most successful affinity card launch in history.

Now, as CEO of Metris Cos., he is again shaking things up-rapidly growing what some describe as a subprime credit card business, offering plastic to consumers who can do little better than obtain secured cards. And Zebeck has done so without the mass marketing that has made the card industry what it is today.

While critics say that his triple-digit growth in the last few years is the result of a newcomer's aggressiveness, Metris' numbers tell a story of a company that relies on marketing to identify customers and price offers for individual risks. And with the help of a three-terabyte data warehouse, Zebeck's company claims response rates of as much as five times the industry average and sales of fee-based products to an incredible 60 percent of customers-an estimated four times the industry norm. "Our response rates demonstrate that we're better than most," Zebeck says. "You don't focus on markets. You focus on customers-and you focus on profitable customers. My goal isn't to be the biggest card issuer. It is to be the most profitable."

St. Louis Park, MN-based Metris has quickly ramped up to $3.5 billion in receivables at year-end 1997, a seven-fold increase in three years. During that time, the company has reported an impressive 24 percent return on equity, while most other card issuers struggle with falling market penetration and weak profits.

The reasons for Metris' success: Zebeck, his team and a massive database on 30 million U.S. households. Outsiders familiar with the database-made available exclusively to Metris by its parent company, direct seller Fingerhut-say that it represents nothing short of the last great unexploited niche in the card business. That niche: households with incomes of $35,000 a year or less, little credit history and even less credit access. "The consumers in this database are clearly underserved," says Metris' Doug Scaliti, senior vice president for marketing. "They don't have a mailbox that is overflowing with offers." Adds Zebeck, "A big part of our value is that we are establishing the first relationship with these customers. Research shows that if we do that, they will be more loyal."

Metris' strategic advantage comes through its exclusive access to Fingerhut's customer database. One Wall Street analyst estimates that a competitor would have to spend at least $2 billion to duplicate the extensive data. "When Ron went to Fingerhut, he immediately recognized the tremendous hidden asset that it had in its database. Others would have seen it as a chance to sell a credit card to those people, but Ron knew there was more to it," says Wayne Johnson, an industry consultant and Zebeck supporter.

The database includes detailed payment history as part of the near-400 attributes per record which have been collected over the years by Fingerhut. While payment information fosters great opportunity by itself, more detailed data such as method of payment is also included, indicating whether the customer paid by money order or check. By some accounts, the level of detail is nearly anal, including obscure points such as whether the customer signed their check in pencil or pen.

Scaliti says that every piece of information helps in sub-segmenting the customer base so that mailings and offerings can be highly targeted. Last year, Metris used that data to send 17 million pieces, with some mailings including as many as 300 variables. The company claims its response rates average as much as five times the 1.3 percent reported industrywide.

The database is also key to growth in Metris' fee-based businesses, where it is almost alone in both manufacturing and marketing its own programs (credit card registration, auto buying services and warranty programs). The company also has a growth business in managing of the sale of fee-based services for competitors including Household, PNC Bank and BankAmerica.

Last year, Metris reported fee-based income totaling $63.4 million, nearly triple from two years earlier. The company reported that 35 percent of its accounts purchased one service, while 19 percent bought two services and seven percent had three or more. "At MBNA, they let CUC service the ancillary services. We have more data and more touch points than a third party," says Scaliti.

Zebeck says that Metris is constantly feeding transaction-level data back into its marketing effort. If a card customer keeps charging car repairs, for instance, he or she is targeted to be sold a car buying service. "It's not a tertiary business for us," he says. "It's part of our marketing message. We sell it when you sign up. We sell it every time we talk to you."

know thy customers

The cross-sell of other services also helps build more profitable and loyal customers. Consultants say that despite its youth, Metris ranks on par with established players like Banc One's First USA, Providian, The Associates and Capital One in terms of deploying sophisticated profitability models.

Metris has a long-term relationship with HNC, creator of neural net software that aides in behavioral and profitability analysis, and First Data Solutions, which manages its customer base. And everything that Zebeck does-from marketing to pricing-is driven by analysis of the individual risk of each customer.

One area where this is most evident is in the card portfolios which Metris acquired from other issuers. Zebeck refuses to reveal retention rates, but says the strategic opportunity is to use Metris' analytics to reprice the cards to those new customers. "The information we have doesn't change the customer's profile, it allows us to better align the pricing with what it should be," he says. "Some customers see rates go down 300 basis points; others see it go up 300 basis points. We don't move everyone in the same direction like many issuers do in an attempt to keep the business."

Metris' niche is clearly to win customers viewed as too risky by most issuers. But Zebeck says that the herd mentality of card issuers has caused them to over generalize about the niche he serves.

That Zebeck is a leader in what's been called the final frontier of the card market is hardly surprising. He's always been an unconventional thinker, dating back to the early days of his career in Citicorp's collections department.

In building Metris, Zebeck lacked the infrastructure needed to service the hundreds of thousands of accounts he planned to win, so he outsourced this vital function, putting his energy and resources into marketing. "Ron found customers first, then focused on servicing (them) and then figured out how to build his operational support," says Johnson.

In the future, Zebeck's prosperity will be largely determined by his well-regarded team, says investment banker Robert Hammer. "He has a good track record, but, in this business, you are only as good as your last deal."

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