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As major companies enter the card business, usually by buying their own banks, they tout fresh features to set them apart. Last month new-player AT&T startled the competition with a plan to intercede with credit bureaus on behalf of its charge customers. Consumers have long complained that the industry disseminates inaccurate and damaging information about them, then is inexcusably slow to correct mistakes. AT&T, which wields considerable clout as a leading buyer of credit reports, persuaded the three major credit bureaus -- Equifax, TRW and Trans Union -- to set up toll-free numbers for Universal customers and card applicants who want to dispute their records. Says Paul Kahn, president of AT&T's card division: "We've really shaken up some of the very fat, complacent banks in this business. Ultimately, I think consumers are / getting a better deal with our product and with a lot of products that are starting to come out."
Another new type of benefit seeks to help two-income families to save time. Citibank Visa and MasterCards now offer the price-protection feature. If customers buy a product with the card, then find it elsewhere at a cheaper price, Citibank will refund the difference. The customer, though, must provide proof within 60 days that the lower price was advertised in print. Citibank's cards also cover damage and loss.
A popular feature started by bankcard issuers like Citibank is the airline- affiliated card, which gives one frequent-flyer-mile credit for each dollar charged. Starting next week, American Express will mimic that idea, adding its own twist. Unlike most bankcards, which generally restrict the program to one airline, American Express will allow cardholders to allocate their miles to any combination of 31 airlines, including United, Delta, Northwest and Continental. One catch: cardholders must charge at least $5,000 a year to participate. Explains Chenault: "The American Express card will serve as a kind of wild card for a variety of frequent-flyer programs."
The intensifying competition is squeezing profit margins on cards. Services such as Global Assist, the warranty programs and frequent-flyer benefits are more costly to provide than the old-time discounts were.
To boost the volume of business, issuers are trying to persuade American consumers to charge everything from groceries and fast-food to telephone calls and health care. Currently 13.5% of U.S. consumer spending is paid via plastic; most of the rest is dispensed through cash and checks. Says Keith Kendrick, senior vice president of marketing for MasterCard: "Though people have talked for a long time about the cashless society, we are by no means all the way there."
Technology is speeding that transformation. Advanced instant-verification devices are shaving the time it takes to use a card to nearly equal that of a cash transaction. AT&T cardholders can now use Universal in thousands of new pay phones that take only plastic: a practice that helps lock in long-distance business for the firm.