Watch your wallet. The plastic pushers are on the prowl.
Financial and retail behemoths, led by Citicorp, Sears and American Express, are stuffing mailboxes and flooding the airwaves with sales spiels for their credit cards.
Driven by brisk consumer credit spending and fat profit margins, the card merchants are spending hundreds of millions of dollars to persuade consumers to take their card and use it.
But beneath the glib television ads and the enticing direct-mail appeals lies a quiet, long-term strategy that promises to change the structure of American consumer finance. The three giants are becoming, in effect, nationwide banks built on plastic.
Bought Small Banks
"It's their way of getting into interstate banking by first getting their card in your pocket," said John H. Bennett, chief of marketing for Visa International, bank-card firm. "It's national banking via plastic instead of bricks and mortar."
Sears has bought small banks in California, Delaware and South Dakota and will begin offering savings and credit services to its 57 million card holders. Citicorp, already the nation's largest banking company, is spreading nationwide through acquisitions and mass credit card giveaways.
And American Express, through its Shearson Lehman Bros. brokerage offices and its Delaware bank, soon will be able to provide its upscale card customers with nearly all the traditional services of a bank.
Federal law bars banks from operating across state lines. But a 50-year-old loophole allows banks and other financial institutions to offer limited consumer banking services nationwide. Citicorp, Sears and American Express are exploiting gaps in the law to establish multibillion-dollar interstate networks that are banks in everything but name.
While Congress debates proposals to close the loophole, the credit card game has become picking off the most credit-worthy and highest-volume customers from the competition, while further sharpening marketing tools to identify potential new card-carriers.
One card-company executive calls the increasingly sophisticated credit and consumer analysis "peeling the onion."
Thus, American Express mails Ivy League seniors a green card pitch ending "Don't leave college without it," and Citicorp markets its Preferred Visa card to well-heeled young professionals as "The card to end all cards."
Sears, Roebuck & Co. is pursuing a wholesale strategy to move its massive middle-American card base from housewares to individual retirement accounts.
Standard bank cards are being sold with "enhancements" such as free travel insurance, discounts on long-distance telephone service, national access to cash machines and computerized comparison shopping. The premium cards offer higher credit limits and such perks as guest membership in country clubs, limousine service and rewards for heavy spending akin to those given by airlines to frequent fliers.
Once the consumer's wallet is pried open, the idea is to sell as many additional financial services as possible--from money-market accounts to discount brokerage to insurance. The ultimate aim, the card issuers say, is to enable Americans to carry their bank in their hip pocket.
The three big firms come to the arena from different core businesses: Sears from retailing, Citicorp from banking and American Express from charge cards. But through acquisitions and aggressive diversification, the three companies are bearing down on the American consumer with very similar packages of financial services. All are built on a 3 3/8-by-2 1/8-inch piece of plastic.
With an estimated 708 million credit cards already in Americans' hands, why are the card dealers so hard at work?
Industry executives and analysts say the card wars are heating up in part because today's interest rate structure yields unusually high profits. Banks pay between 8% and 9% for funds, while credit card interest charges average 19.4%. The more a bank can lend out on a 10% "spread," the blacker the bottom line.
Just a few years ago credit card operations were money losers for banks. Money was expensive while credit card interest rates were kept low by state laws. Consumer credit was deliberately squeezed down by Federal Reserve Board policy. Losses from fraud and bad debts were mounting because banks lacked the sophisticated credit analysis tools they've since developed.
"Two or three years ago these credit card businesses were terribly under water," said Frank Partel, an American Express executive vice president. "What's happened since is that state interest rate ceilings have been lifted and the cost of funds has declined dramatically.
"That's brought more players into the game, thus you're seeing a flurry of marketing in your mailbox."
Partel's comments lead to the second key reason for the push in plastic. The credit card market is already nearly saturated, so the effort now is to steal market share from the other guy.