CompuCredit Corp. sees big potential in cards for people with limited credit histories.
With 500,000 active credit card accounts and more than $488 million in receivables, the three-year-old company is small by industry standards. But chief executive officer David G. Hanna said 82 million Americans have not been solicited for credit cards, and his company has assigned acceptable credit scores to 25 million of them.
"Our customer base is Middle America," Mr. Hanna said. These are people, he said, who "shop at Wal-Mart, eat out at Red Lobster, and pay their bills on time."
Atlanta-based CompuCredit says it does not pursue the bottom of the subprime market: people with bankruptcies or other severe credit problems in their pasts.
Instead, it targets people with modest credit records who want to build better ones.
This goal is reflected in the name of its central product, Aspire Visa, available in classic, gold, platinum, and diamond variations.
The company does not charge annual fees. The average credit limit is $1,750, though riskier customers are offered lines as low as $500.
One unusual policy is that the company does not offer teaser rates. Interest rates start at 15.9%. Mr. Hanna said cardholders get confused and angry when teaser rates get bumped up, and those feelings can lead to attrition.
CompuCredit likes to compare itself to two larger issuers, Capital One Financial Corp. and Providian Financial Corp., which use data mining and modeling skills to tailor credit offers to people in all economic circumstances.
Mr. Hanna said his company prides itself on the sophistication of its proprietary scoring models and data bases.
"We have around 20 different models that we use," he said. "We're able to find a lot more creditworthy people who have fallen through the cracks of the more generic tools people have used in the past."
CompuCredit went public April 22 on the Nasdaq market. Its stock opened at $12 a share and was trading at $18.5 at midday Tuesday. Analysts at Bear, Stearns & Co. and Bank of America Securities initiated coverage with "buy" ratings.
CompuCredit says it is adding 25,000 customers a week through internal account generation, and has grown through acquisition. Last year it gained 175,000 cardholders by buying two sets of receivables from Morgan Stanley Dean Witter & Co.'s Discover unit.
Mr. Hanna said he is looking for more deals but will buy only at a discount. In some, he said, the seller divides the portfolio into "a super- prime piece" and "everything else."
"We're not interested in the portfolios that people are paying large premiums for."
After an acquired portfolio is repriced, CompuCredit gives customers the option to pay off their balances under the old terms.
"We want to make sure we never get a customer who doesn't want to be one of our customers," Mr. Hanna said.
Gary Gordon, managing director at PaineWebber Inc.-which was the lead underwriter in CompuCredit's initial public offering-said CompuCredit is operating at a low risk level.
Banks seeking wealthier consumers may be soliciting people who have "$40,000 of unused credit sitting in their wallets on five different cards," Mr. Gordon said.
"The biggest risk is lending to someone who is being overmarketed to," he said. "The customers at CompuCredit have relatively low starting limits, and the accounts are monitored. If they default on $500, it's much less of a risk."
Mr. Hanna, 35, started CompuCredit in August 1996, with Richard W. Gilbert, the chief operating officer. The pair worked together from 1988 to 1990 at Nationwide Credit Inc., a receivables management firm in Atlanta.
Between 1990 and 1995, Mr. Hanna ran a company he started, Account Portfolios, a distressed-debt buyout company, with his brother, Frank J. Hanna. They sold it to Outsourcing Solutions Inc. in 1995. Mr. Gilbert headed Equifax's strategic client group until 1995.
At Equifax, Mr. Hanna said, Mr. Gilbert perceived that the "middle market that we serve today was largely being ignored by large credit grantors."
Niche and subprime lenders might face increased competition from traditional issuers as the prime market gets saturated, according to Alison Swann-Ingram, director of business development at Renaissance Holdings Inc. in Beaverton, Ore., a subprime specialist.
Said Mr. Hanna, "We think because of our size and technology, we're going to be able to remain ahead."
William F. Keenan, president of De Novo Corp., a consulting group in Wilmington, Del., said boutique card issuers have some advantages over bigger ones.
"Specialty firms are very agile, focused, and interested in dominating relevant markets, not large markets," he said.