Trial testimony Wednesday in the Department of Justice's case against Visa and MasterCard provided a glimpse into a large bank's decision-making process on such issues as cross-selling and its relationship to the credit card associations.

James Tylenda, a senior vice president with FleetBoston Financial Corp., said the banking company has invested $10 million to $12 million to convince people who walk into its branches to open up a credit card account. The testimony was part of a government effort to prove that banks' branch networks are an essential part of their marketing efforts - an advantage the bank card industry has over nonbank competitors such as American Express Co.

Mr. Tylenda, who developed FleetBoston's branch marketing program in 1998, said that the effort has exceeded the bank's expectations - 100,000 card accounts were opened in 1999 via the branches - but represents only a fraction of the accounts Fleet acquires. The vast majority of Fleet's credit card business is generated through direct mail solicitations, he said, and the bank projects that only 8% of its new card accounts this year will be generated in branches.

Only 2% of FleetBoston's marketing budget is earmarked to the branch program that Mr. Tylenda developed, and only 20% of its credit card customers have another banking relationship with FleetBoston.

Mr. Tylenda, a hostile witness, tried to undermine the government's assertions at every turn. Under direct examination by government attorney Scott Sheele, Mr. Tylenda also disclosed that FleetBoston - currently a MasterCard issuer - would soon become a "dedicated" Visa issuer. This fact appears to undermine the government's point that Visa and MasterCard are not in competition because they are owned and governed by the same banks.

Mr. Tylenda said that in 1998, FleetBoston signed a contract with MasterCard stipulating that all its new card accounts would bear the MasterCard logo. The goal was that 75% of its portfolio would eventually be MasterCard-branded.

This contract expires in July, and Mr. Tylenda said Fleet will then become a "dedicated" Visa member and will issue only Visa cards to its new accounts.

Another point Mr. Sheele tried to establish was that Visa and MasterCard have inhibited competition and product innovations because too many of their members sit on each other's committees and board of directors. Mr. Tylenda was a member of a Visa marketing advisory committee, but his employer was dedicated to MasterCard, and his boss, Michael Zucchini, was a member of Visa U.S.A.'s board of directors.

Prior to his position at Fleet, Mr. Tylenda was in charge of Bank of New York's credit card program, where he was also a member of two Visa committees, but his boss was a member of MasterCard's board of directors.

During his stint on the Visa marketing advisory committee - the committee disbanded in 1998 - Mr. Tylenda was among a group of bank executives who advised Visa not to move forward with a premium credit card product, code named "straw man."

Mr. Sheele presented a Visa document showing that straw man would "cannibalize" 78% of the members' Visa and MasterCard card portfolios of existing products. Mr. Sheele argued that product was shelved because the advisory committee was comprised of executives with loyalties to both MasterCard and Visa.

During cross-examination by Visa lawyer M. Laurence Popofsky, Mr. Tylenda explained that Visa shelved straw man in favor of a less-costly product, a platinum card.

Mr. Sheele also sought to show that Mr. Tylenda was privy to sensitive information from both MasterCard and Visa at Bank of New York and FleetBoston. Mr. Sheele asserted that Mr. Tylenda's boss at Bank of New York "asked you how to vote on issues on the MasterCard board, all this while you were a member of Visa committees."

In cross-examination, Mr. Tylenda was given the opportunity to clarify how he dealt with this "ethical" situation. "It is my practice to make sure I maintained a mental wall on the topic," he said.

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