How To Rope `Em With Plastic

When Texas A&M University fans gather at Kyle Field for another season of Aggie football this fall, they'll stock up on pennants, jerseys, and other souvenirs proclaiming their fidelity to the gridiron athletes. But this year at the College Station stadium, they'll also have a chance to sign up for a very different tribute to their alma mater: a MasterCard emblazoned with the school's maroon "T" symbol.

Sure, wallets are already thick with plastic, and consumers are being inundated with credit-card solicitations. But appealing to school spirit to find new charge-card customers is turning out to be canny marketing. Thanks to "affinity" programs such as the one it offers through Texas A&M, MBNA Corp. has become the fastest-growing issuer of credit cards in the nation, with some 14 million Visa and MasterCard customers.

College football fans aren't the only ones flashing MBNA-issued cards, each customized with its own logo. Among the bank's newer clients: members of the National District Attorneys Assn. and fans of the Baltimore Orioles. "We've gone into a commodity business and issued a card that's not a commodity," says Alfred Lerner, MBNA's 61-year-old chief executive and the bank's biggest shareholder, with a 12.2% stake.

That has quietly turned the once-tiny bank, based in Newark, Del., into a powerhouse in the card industry. With $16 billion in loans outstanding, its bank-card business is second only to Citibank's, with $34 billion. Its earnings growth has been stellar, too. MBNA's profits could rise 27% this year, to $264 million, figures analyst Mark T. Lynch of Lehman Brothers Inc.

SCREEN TESTS. MBNA has been the leading purveyor of affinity cards since it was founded in 1982 as the credit-card unit of MNC Financial, a Baltimore bank. In 1991, it was spun off in a public offering to raise money for its parent, which was ailing from the real estate downturn. The sale was part of a strategy by Lerner, a Cleveland real estate investor and a big MNC shareholder, who was brought in to rescue the bank. MNC has since merged with NationsBank. Lerner, who spends most of his time in Cleveland, has remained CEO of MBNA. President Charles W. Cawley handles MBNA's daily operations.

Using a master list of 35,000 organizations in the U.S., MBNA marketers scout out groups with an upscale membership, such as professional societies and college alumni associations. Texas A&M, for instance, is among 315 colleges and universities that promote MBNA's cards.

Altogether, the company has affinity-card programs with 3,600 organizations.

Thanks to that careful screening, MBNA boasts one of the most affluent customer bases in the bank-card industry. And that means fewer deadbeats. So far this year, only 2.7% of MBNA's credit-card loans were written off as uncollectable, compared with an industry average of 4% and 5.3% at Citibank.

Once a group is selected, MBNA offers the organization a share of the card billings to secure its endorsement, along with its membership list and the right to mail solicitations on the group's letterhead. For example, the Sierra Club receives 0.5% of every charge made by the 45,000 members who carry MBNA cards. This year, proceeds for the environmental group will top $400,000. The financial return to a group is a potent lure in signing up cardholders. So are sentiment and pride of affiliation, says Lerner.

Service is also critical in keeping customers happy, given the proliferation of card enhancements in recent years. MBNA staffers routinely phone groups and show up at major functions. And they use those contacts to drum up more business through subsequent mailings and telemarketing. Such efforts pay off: When Mellon Bank Corp. had the Penn State Alumni Assn. account, it signed up only 15,000 cardholders before MBNA took over the program in 1989. Since then, MBNA has built it to 120,000 accounts.

EUROPEAN PLAN. Meanwhile, MBNA is chasing new audiences. It offers customized cards to residents of all 50 states, as well as some municipalities. Another popular MBNA card features common surnames and their coats of arms. In each case, MBNA depends heavily on credit reports to select the most affluent customers. Such cards now account for half of MBNA's new cardholders each year, vs. 30% two years ago. The big attraction for MBNA: There's no organization to share billings with. Meanwhile, since last November, the company has been pitching cards in Britain through outfits such as the Rolls-Royce Enthusiasts' Club. MBNA marketers plan to enter the rest of Europe by 1997.

Despite the popularity of its cards, MBNA has been criticized by some consumer watchdogs for peddling an expensive method of demonstrating group loyalty. The bank charges an average interest rate of 16.1%. That's shy of the 17.6% average for all bank cards but nowhere near the bargain rates that have flooded the market recently. Wachovia Corp., for example, offers a card pegged to the prime rate, currently 7.75%. Moreover, though many issuers have stopped charging annual fees, MBNA wants $20 for a standard credit card.

MBNA could be forced to cut its rates and fees as competition intensifies. On Sept. 6, American Express Co. launched a new credit-card offensive by unveiling the Optima True Grace card, which offers a 25-day interest-free grace period on every purchase and a 7.9% rate for the first six months. And with plans to add perhaps a dozen new cards over the coming five years--some bearing the names of big retailers or other organizations--AmEx may nibble at MBNA's market. "Consumers are saying they need something more than affiliation," says Ernest Berger, AmEx' vice-president for business partnerships.

For now, MBNA has no plans to alter its pricing formula. Cawley, MBNA's president, says the bank markets its card as a premium product, much as AmEx does its Green Card. The way Cawley sees it, consumers don't mind paying a little extra when they feel a real affinity for something.

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