A War of Cards and Checks

Bringing more--and cheaper--services for charge-it customers

Already 590 million of them fatten Americans' wallets and purses, and the easy, pay-later access to goods and services that credit cards offer extends to such exotica as Nevada divorces, surgical work and, in some areas, bail money. Now the ever inventive credit card companies are poised for a new phase of expansion. Growing twice as fast as in recent years, the amount of purchases billed on cards so far in 1978 is up 40%. Americans spend $16 billion a year on cards, and the total is expected to soar to about $50 billion in the late 1980s.

Still, there is much room for expansion. Of the 50 payments of various kinds that the average U.S. family makes each month, cards are used for only two or three. To increase that share, card issuers are coming out with many new services:

Split billing. In the high-spending travel-and-entertainment card field, Diner's Club is introducing the "Double-Card." A subscriber gets two cards: one for personal use, another for business expenses. The monthly bill separately lists the items charged on each. Through Double-Card, Diner's (3.2 million cardholders) hopes to close in on American Express (9 million).

Rebates. Visa, which with nearly 60 million holders has overtaken the longtime leader in the field of multipurpose cards, Master Charge (50 million), is testing in several Midwest states an Execu-charge card aimed at big-spending businessmen. Among its attractions: cardholders get a 1% rebate on all charges.

Direct debiting. Though Visa and Master Charge cards have traditionally been issued only by commercial banks, other lending institutions are preparing to jump into the field. A mutual savings bank in Washington State has issued a card that directly debits a customer's savings account for the amount he charges. Some 60 banks are now issuing Visa cards that debit directly against a cardholder's checking account.

In addition, some banks are mailing "preapproved" card applications to potential customers who are rated good risks. They do not have to provide lengthy statements citing credit references and salary, but merely mail back a short, signed form. Over the past 18 months, Chicago's Continental Illinois bank has acquired enough new preapproved Master Charge customers to make it one of the top ten U.S. card issuers.

Most of the new action by card firms is in a long-somnolent field: traveler's checks. American Express has about 65% of the world market, despite recently heating competition. But the check business, argues Visa International President Lee W. Hock, "has changed very little in the past 50 years. It is ripe for innovation."

Diner's Club is offering checks through an arrangement with Thomas Cook & Sons; they are free, while American Express charges $1 per $100 in checks. Master Charge plans to begin selling traveler's checks, probably by late next year, and will allow them to be charged on its card. Visa is also considering a traveler's check venture.

New York's Citicorp, which already has 20% of the traveler's check market, plans to sell its Citibank checks through Carte Blanche. Citicorp bought Carte Blanche in the early 1960s, but was forced to spin it off when the Justice Department objected on antitrust grounds. A federal judge has approved Citicorp's plan to buy back Carte Blanche, and the trustbusters are not likely to block the reunion. Partly because of rising competition from bank-issued cards, Carte Blanche has fared poorly and could well use Citicorp's muscle.

The lure of the card business, and the reason that the newcomers are prepared to sell checks without a fee, lies in the "float"--all that money from checks that have been bought but not yet cashed. The check issuer has free use of the funds. Thus American Express's pitchman, Karl Maiden, urges returning vacationers to keep their unspent checks in their pockets as "emergency money"--and his campaign is working nicely. Although no firm returns are in yet on the Maiden campaign, American Express studies indicate that people already keep approximately $1 billion in cash stashed away for rainy days. If consumers could be persuaded to convert that cash to traveler's checks, it would substantially increase the float. American Express's float totals about $2 billion at any moment; the company invests this money, mainly in long-term tax-exempt securities, and pockets the income.

Outwardly, American Express shows no sign of concern about the increased competition ahead. Louis Gerstner, head of the company's card division, says he is "respectful" of some of his rivals, especially Diner's Club, but is skeptical about the bank cards that want to add traveler's checks. The business, he says, "may look simple, but it is very, very complex, requiring significant economies of scale and control that take years to develop." Yet many industry analysts believe American Express is facing some tough problems: while there is less and less room for it to grow in the lucrative travel-and-entertainment market that it pioneered, it is confronted by rising competition there and in other fields from many companies, notably Citicorp.

The rush into traveler's checks has inspired some odd alliances and rivalries. Although Citibank issues Master Charge cards and is a member of the consortium that licenses the Master Charge system, its parent Citicorp has gone to court to try to block Master Charge's entry into traveler's checks, charging unfair competition. Citibank's argument: Master Charge, through the banks that issue the card, would be able to control which traveler's checks the customer bought, thus shutting Citibank out of the business.

The new competition will further blur the marketing lines between the older travel-and-entertainment cards like American Express, which grew up specializing in hotels, airlines, rental cars and restaurants, and the bank cards that originally focused on local retail purchases. Citicorp and other big banks that have been moving into cards and checks on a nationwide scale argue that they have been forced to do so in self-defense, claiming they have lost a lot of consumer credit business since World War II to other loan suppliers, including not only the card firms but department-store charge accounts and the auto-finance subsidiaries of the car companies. Insists a top bank executive: "There is no war going on. That would imply that someone must win and someone must lose." But there surely will be a lot of bruising. -

This file is automatically generated by a robot program, so viewer discretion is required.