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Meanwhile, the passion for plastic money continues to grow, and the credit-card firms are moving to expand their range of products. Some 125 million Americans now have MasterCard, VISA or both. These little cards can be used to buy a tank of gasoline or to help make a down payment on a house. Both MasterCard and VISA have introduced the debit card, which operates much like a check. Instead of being billed for the cost of purchases, the customer has the amount automatically deducted from his bank account.
American Express is the blue chip of the credit-card industry; some 6.7 million people in the U.S. pay an annual $35 fee in order to carry its card in their wallets or purses. The company also owns Fireman's Fund Insurance (1980 sales: $3 billion) and has a 50% interest in a cable-television subsidiary of Warner Communications, which it plans to use for experiments in home banking. The merger with Shearson may give American Express a range of financial products second only to Merrill Lynch's.
American Express's bold deal on Wall Street has spurred rival VISA to new money ventures. The company is reportedly planning to pay interest to people who deposit money in their card accounts. It is uncertain, though, whether the Federal Reserve will allow that, since it would be a savings account in all but name. Says VISA Chairman Dee W. Hock: "We're going head-to-head with American Express. They've got a virtual monopoly in some areas, and we're going to take them on."
American financial institutions from the neighborhood savings and loan to Wall Street stock brokerage firms have now entered a battle for the $1.1 trillion that consumers currently have on deposit. And the fight will be fierce. Says Merrill Lynch Chairman Birk: "We are now competing against major securities firms, banks, credit-card companies and insurance companies. This is going to be one big, competitive assault. The pace of change will become even more rapid in the next five years, and the lines between the various financial institutions more blurred."
As money-market funds and other high-interest accounts have grown, there has been strong political pressure to control their expansion as a means of helping the beleaguered banks and thrift institutions. Several bills have already been introduced in Congress to regulate the money-market funds as though they were banks. Such attempts have failed, so far, to win much support.
The far better approach to helping the troubled financial institutions is to remove the remaining sinews of regulation so that all money managers can compete equally. This would open the way for strong nationwide banking and healthy competitive savings and loans. Says George LeMaistre, a former chairman of the Federal Deposit Insurance Corporation and now a professor of banking at the University of Alabama: "Congress shouldn't put the clamps on Merrill Lynch. The only logical answer is to free up the banks."