Visa Volleys For Market Share

Pity poor Visa. On Sept. 10, American Express Co. ran a vitriolic two-page advertisement in The New York Times accusing its rival, a sponsor of the U.S. Open tennis tournament, of persuading merchants at the Open to drop the American Express card in exchange for Visa ads. The spat came less than two weeks after the head of Visa International's U.S. unit resigned amid rumors that he had differed with Visa's directors. The credit-card giant suddenly found itself swamped by a flood of unflattering publicity.

Meanwhile, as Visa and AmEx duke it out, MasterCard International Inc. has been gaining market share for the past 18 months. While AmEx' charge volume grew just 10% in the first six months of 1993, compared with 16% for Visa, MasterCard's volume was up 23%, to $62 billion (chart).

MasterCard's challenge is particularly worrisome for Visa, still the preeminent credit card, with $101 billion in charge volume in the first half of the year and 45% of the market. Visa must put itself "more in touch with consumers," says Robert McKinley, president of market researcher RAM Research Corp. Indeed, outsiders contend that Visa needs to modify further its marketing approach. The card has long been positioned as an alternative to upscale American Express rather than a substitute for the more downscale MasterCard. Visa ads barely mentioned MasterCard, focusing instead on vacation spots and restaurants that "don't take American Express."

The campaign worked famously, and Visa saw its market share increase almost every year in the 1980s. Now MasterCard, which languished in the 1980s, is taking a different tack. It is grabbing market share by emphasizing value and squarely targeting the middle class.

REBATE-HUNGRY. More important, MasterCard is the leading co-brander--the card banks issue most often in tandem with huge nonfinancial companies such as General Motors Corp. Thanks to co-branding, MasterCard is outpacing Visa in charge-volume growth for the first time since 1987, as bargain-hungry consumers sign up for cards that earn them rebates on such merchandise as new GM cars. Stephen Bartell, MasterCard's vice-president for co-branded and affinity marketing, predicts that growth in bank cards will come entirely from deals offering consumers rebates, frequent-flier miles, or other features.

If he's right, Visa will have to play catch-up. Visa says it has delayed a big push into co-branding while it studies the market. But outsiders say Visa's directors were the obstacle. They "didn't like the idea of letting these great unwashed corporate entities" into the credit-card market, says John Stewart, editor of Credit Card Management, a trade magazine.

Whatever the reason, Visa's coolness to co-branding has hurt. Last year, MasterCard increased its U.S. cards outstanding by 9.5%, to 99.5 million--much faster than Visa's 5.8% hike to 149.5 million cards. Co-branded cards are the key to MasterCard's edge: There now are nearly 7 million GM cards outstanding, for instance. American Telephone & Telegraph Co., another co-brander, only issues Visa cards if consumers ask for them, so about 70% of its 17 million cards are MasterCards.

Visa is now actively pursuing co-branding: Banks are issuing Visa cards in conjunction with Ford Motor Co., Nordstrom Inc., and others. "We've created a SWAT team to pick up on this," with four full-time employees and specialists on call, says Executive Vice-President Bradford W. Morgan. Visa has also modified its advertising: In place of a French castle as an example of a place that doesn't accept American Express, they feature more down-to-earth venues, such as a children's bookstore and a dude ranch.

HIGH MARKS. The new Chief Executive Officer of Visa's U.S. division, Carl Pascarella, may help get things moving. He turned Visa's Far East operation into the market leader in five years and is described by one industry source as the kind of sharp marketer Visa needs--"more of a press-the-flesh kind of guy" than his predecessor, economist H. Robert Heller. Visa has other strengths, too: It scores high on customer-satisfaction surveys. And if debit cards--which draw directly on consumers' checking accounts--take off, Visa has a big advantage: About 70% of the nation's bank deposits are poised to be linked to Visa cards.

But Visa has a lot more catching up to do. MasterCard already has more than 25 million co-branded cards in consumers' hands. Maybe Visa needs to take a page from the reigning champs at the U.S. Open. Top-seeded players there know they just have to volley that much harder when an up-and-comer starts to mount a challenge.

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