In a business where it was darn near impossible to lose, the impossible is happening. The fundamentals of the credit card business have changed and, as with any industry in crisis, there will be winners and losers.
Unlike the banner years of '94 and '95 bank credit card receivables (VISA, MC, Discover and AmEx) have not grown at all this year. At mid-year, industry receivables logged in at $404.5 billion, down slightly from year-end 1996's figure of $404.7 billion. However during the past twelve months industry receivables have grown a modest 12.1%. At mid-year, card volume was growing 14.5% annually.
Who's beating the averages?
Analyzing quarterly portfolio data gathered by RAM Research's new CardData service reveals the major industry leaders are MBNA America, First USA, NationsBank and Discover. American Express would have made the cut also but AmEx card volume is not keeping up with the industry.
MBNA America is the undisputed leader today. Card loans are
growing 35% annually and card volume is growing 42% per year. MBNA
rules affinity cards, platinum cards, and agent cards. The firm
also cherry picks acquisitions and is renowned for its customer
service, cardholder retention programs and delinquency management
efforts. While MBNA is the second largest issuer in the U.S. with
$39 billion in card loans, it is within striking distance of
unseating #1 ranked Citibank this year. MBNA is growing 28% faster
than Citibank.
First USA is a close second to MBNA with
annual receivables growth of 32% and annual volume growth of 44%.
However First USA merged this summer with industry laggard Banc
One. If First USA can successfully tap into Banc One's customer
base, then it is also possible for First USA to blow past Citibank
within the next two years. First USA is the king of teaser rates,
the king of cards advertised on the Internet, and rules the science
of precision marketing. First USA is also in the platinum card game
as well as affinity, co-branded cards or anything else MBNA does.
Discover and NationsBank are growing card loans by 18% and
card volume by 24% annually. American Express' card loans are up
22% over the past twelve months but volume is growing 14% annually.
American Express is now the tenth largest issuer and will probably
pass sluggish Advanta for ninth place by next summer.
Aside from the powerhouses, the fastest growing issuers are
PNC Bank and Direct Merchants.
PNC Bank's card loans have grown 274% since last summer from
slightly less than $1 billion to $3.7 billion and card volume has
quadrupled. PNC's surge is attributed to three letters: AAA. The
Automobile Association of America has formed a partnership with PNC
and is consolidating its card accounts, scattered among other
issuers, to PNC's portfolio.
Direct Merchants is an off-shoot of Fingerhut and is targeted on sub-prime card lending. Direct Merchants, led by the same guy that kicked off the GM MasterCard, has doubled card loans over the past twelve months and is increasing volume by 37% annually.
Honorable mentions should also go to Providian and First National Nebraska (formerly known as First National Omaha). Providian, a sub-prime card issuer, grew card loans by 23% since last summer, however, volume has been sluggish at 11% per annum. First National Nebraska made a recent acquisition that boosted card loans by 10%.
Now for the laggards . . . .
Among major issuers the biggest laggard is Bank of New York, but it really doesn't count. Bank of New York's card loans are down 25% and volume is off 39% since last summer. BNY sold off half its portfolio since early 1996 to Household Bank and Associates First Capital. The issuer has continued to shrink this year, doing little or no marketing and is rumored to be on the selling block.
The true major laggards are Banc One, First Chicago, AT&T Universal, Advanta and Citibank. Banc One's card loans are down 4% and card volume is down 2% since last summer. First Chicago's card loans are down 2% and card volume is essentially flat. Both issuers have been dealing with high losses or charge-offs in the range of 7% to 10%.
AT&T, Advanta and Citibank posted gains over the past twelve months but all have been in the single digits. Citibank's card loans are growing 7% annually while card volume is up a modest 8%. Advanta is currently re-inventing itself after posting an actual profit loss in the first quarter of this year and AT&T is re-organizing following a profit loss last year.
Other smaller players are stagnant too, in some cases posting losses.
What will the shakeout mean for consumers?
Possibly, but not necessarily, higher prices. For the next two years you will see a wave of consolidation in the industry as the winners gobble up the weak or as the laggards attach themselves to the leaders. Large competitive issuers like Advanta, Capital One, AT&T Universal and Bank of NY will most likely merge into other portfolios. Consolidation usually means less competition and higher prices but considering the saturation of credit card issuance it may drive competition to a higher level, delivering more value and better prices.
What could really drive competition crazy is the potential merger of Citibank and American Express. The implications of such moves are far reaching and it could conceivably drive brand competition to the stratosphere. However, with Citibank quickly losing its leadership in the U.S. credit card market anything is possible. After all, the impossible is already happening in this business.
