FEBRUARY 2004

The Wallet Wars

In her excellent article in the New York Times, Jennifer Bayot explores the effect of the many bank mergers on the holders of those banks’ credit cards. Essentially, the merger boom will yield fewer card-issuing banks. The merger of J. P. Morgan Chase and Bank One provides a good example of the issues involved. An initial concern of the merging banks is to decide which card is the stronger brand. However that question is resolved, it is likely that the new cards sent to consumers will carry different terms than applied to the card being replaced. Hence, consumers need to read the "fine print" very carefully. The combination of J. P. Morgan Chase and Bank One would create the nation’s largest issuer of Visa credit cards. How does that result affect cardholders? There is a further complication. A few years ago, the Justice Department concluded that if two banks merge, the remaining institution must concentrate on one credit card brand or the other.

Not surprisingly, consumer groups are expressing their concerns about the merger movement. Ms. Linda Sherry, editorial director of Consumer Action, an advocacy group in San Francisco, comments, "You’d think that banks would want to set themselves apart from their competition. But, there is a kind of follow-the-leader mentality. It’s so homogenized that there is no choice out there for consumers."

In an interesting turn for both consumers and the overall competitive landscape, MBNA Corp., the second largest U.S. credit card issuer, announced at the end of January that it will begin issuing American Express cards. Bruce Hammonds, MBNA’s CEO, said that many of the company’s 40 million cardholders are the "high-spending customers" that American Express favors. He told the American Banker "we will solicit many of those for customers. . . We can solicit [current] customers for an additional American Express card, and then we’ll be going out to the affinity group programs and soliciting their members—even those that do not today carry an MBNA product." In addition, MBNA will market the American Express cards in Canada, Spain and the United Kingdom. He added that the American Express brand recognition overseas "should give us a jump start in a new market like Spain or in some of the other new markets we might enter." MBNA is the first major U.S. Visa or MasterCard issuer to announce a joint marketing program with American Express following a federal court decision that prevented Visa and MasterCard from blocking such affiliations.