Paul G. Kahn, chief executive of AT&T Universal Card Services, used to call bankers his friends.
But he vividly remembers the cold shoulders turned by former colleagues after he joined AT&T to launch its Universal credit card operation inn 1990.
"The alienation was fairly total and complete," the bank card veteran recalls. "On the business side, it said we were successful. But on a personal level it was difficult, because I knew a lot of these people. It felt personal."
To be sure, Mr. Kahn had been asking for trouble. Ma Bell was reaching out for a big chunk of the credit card market, and bankers were worried.
And so, almost overnight, the veteran of Wells Fargo & Co., Mellon Bank Corp., and First Chicago Corp. became an industry pariah.
Nearly two years later, the chilly relations have begun to thaw.
Mr. Kahn, 47, recently joined the board of MasterCard International. He also is a frequent speaker at card industry forums, tutoring bankers on the secret of the Universal card's success.
It's a story that they cannot ignore.
Universal Bank, which issues cards for the AT&T unit, is the nation's third-largest credit card issuer, behind Citicorp and Chase Manhattan Corp. While card bankers complain about oversaturated markets, customers keep grabbing for the Universal card.
Target:2 Million New Accounts
This year alone, according to Mr. Kahn, AT&T has opened 1.2 million new accounts, and it expects to add 800,000 more by December.
With that kind of growth, Mr. Kahn has no illusions about the stability of his new alliance with the bank card establishment.
Indeed, aftershocks continue.
Citicorp, the nation's largest issuer of MasterCard and Visa cards, dropped AT&T as its long-distance carrier in April, switching its $250 million account to MCI Communications Corp.
Citicorp's |Political Move'
The banking company says the decision had nothing to do with the Universal card, but industry observers are skeptical. "It was an extremely political move," says an analyst who asked not to be named. "There is a lot of animosity there."
Mr. Kahn, for his part, is doing little to calm the waters.
In November, when President Bush asked banks to reduce their card interest rates, AT&T did not miss a beat: Within hours, it cut its charter-member rates to 16.4%, from 17.4% - a move it had planned to make two months later.
Mr. Kahn has no apologies for jumping on the rate-reduction bandwagon. Indeed, he continues to do it with gusto.
Consumers who get 2.5% interest on their savings accounts and pay 19.8% on their credit card balances are being "abused," he says. "I think that is a soft enough word."
Link to Consumer Activists
In April, AT&T joined hands with the Consumer Federation of America and the Bankcard Holders of America - a nemesis of the bank card industry - to sponsor a survey on consumer attitudes toward credit cards.
Not surprisingly, the study concluded that Americans felt banks weren't telling them enough about credit card costs and benefits.
"It was noticed by some of our members, definitely," says Richard Woods, a senior vice president in charge of public affairs at MasterCard. "People every so often will make an informal comment about it. It's out of pattern about the industry."
Mr. Kahn says he is no longer bothered by his status as odd man out nor upset about controversy. "It seems even childish at this point," he said in a recent interview in his Jacksonville, Fla., office.
Or put another way, it's beside the point.
An Unavoidable Fact
"The card has been a tremendous coup for AT&T, and there is nothing that bankers can do about that," says Geoffrey Johnson, a telecommunications analyst at Argus Research.
A combination MasterCard or Visa card and long-distance calling card, the AT&T Universal card is now carried 13 million consumers.
The company's loans outstanding totaled just $4.3 billion at yearend 1991-a low number for an issuer of its size and well behind Citi's $30 billion. But Mr. Kahn is confident that his customers will begin to carry bigger balances.
"Revolving balances always lag getting a new card in somebody's wallet," Mr. Kahn says. "It takes two years for someone to operate a revolving account."
Meanwhile, AT&T is aggressively promoting a program that consolidates balances from competitors' cards onto the Universal card. The lure: No annual fee for life.
It's the same offer that Universal made to its charter customers. And it's sure to revive a familiar criticism: AT&T, bankers say, is buying business by underpricing its competition.
Mr. Kahn professes no concern.
"The bottom line is, we are going to make money," he says.
Most analysis agree. AT&T's credit card operation will break even this year, and earn its parent 5 to 10 cents per share in 1993, estimates Mr. Johnson of Argus Research. That compares to an 11-cent-per-share loss in 1991.
|Delighting the Customer'
The Universal card is the brainchild of Robert Ranalli, AT&T's president in charge of consumer services. He handpicked Mr. Kahn to run AT&T Universal Card Services Inc. about a year before the card's March 1990 launching.
"As I interviewed a number of people, Paul was one of the few who ... seemed to understand the notion that the way you win in the long run is by delighting the customer," Mr. Ranalli says.
People who have worked for Mr. Kahn seem to agree.
"If there who could pull off [the AT&T card] and do it right, it was Paul," says William DeGrosky Jr., who worked for Mr. Kahn at Mellon Bank and now runs the Control Group Ltd., a Delaware consultant. "The guy is a visionary."
Key Idea: Low Prices
Mr. Kahn says that delighting the Customer takes no special genius. It's a blend of service, quality, and value that is expressed mainly by one idea: low prices.
"I don't look at our [pro-consumer] positioning as messianic," Mr. Kahn says. "We happen to believe it is important" financially.
As for bankers who don't share his views, he is characteristically blunt: "They have their heads in the sand."
Some of Mr. Kahn's drive-ahead to the fact that his masters have a different agenda than most of his competitor's bosses. AT&T's principal reason for entering the credit card business was to protect its core long-distance franchise.
It appears to have succeeded. Mr. Kahn says that Universal cardholders use their calling card accounts 50% more often than do holders of ordinary AT&T phone cards.
Now, however, AT&T Universal Card Services' ambitions have grown.
"AT&T expects to be a full member of the credit card industry," says Mr. Ranalli. The most telling sign of this was the company's purchase in April of an industrial loan corporation in Salt Lake City.
It employs for people and offers deposit accounts and home equity loans in the Salt Lake City market. It also is preparing to issue AT&T Universal MasterCards.
But most observers believe AT&T has far grander plans for the Utah outpost. They think it is certain to be AT&T entree to the booming market for corporate credit cards.
Universal Bank, a card-issuing unit of Synovus Financial Corp., is chartered only to make consumer loans. Indeed, Mr. Kahn's own work force at AT&T Universal somewhat shamefacedly flashes American Express Co. cards for business expenses.
Mr. Kahn won't say much about his strategy other than to note that the Utah company offers AT&T Universal a broad charter" for expansion.
"We are looking at other card products, as we intend to innovate inn this business," he says. "Debit cards, corporate cards, secured cards. There are lots of possibilities."