The Products

• Co-Branded Cards One of Six Basic Types of Plastic Payment Cards
• Co-Branded and Affinity Cards
• History of Affinity and Co-Branded Cards
• Early Co-Branded Cards
• Rapid Growth of Co-Branded Cards
• Comparison of Co-Branded and Affinity Cards
• Co-Branded Cards Often Segmented by Industry
• Many Private-Label Cards Convert to Co-Branded Programs
• Others Start Co-Branded Programs from Scratch
• Behind-the-Scenes Network Processes Card Transactions

The Market

• Market to Near $874 Billion by 2002
• Table 1-1: US Market for Co-Branded Credit Cards: Dollar Volume of Transactions, 1993-2002 (dollars)
• Co-Branded Cards Responsible for Majority of Growth in General-Purpose Card Receivables
• Visa Leads in Co-Branded Cards
• Figure 1-1: Estimated Number of Co-Branded/Affinity Cards: Top Four Issuers, 1997 (number): Visa, MasterCard, American Express, Discover
• Factors Affecting Market Growth

The Marketers

• Perhaps 100 Co-Branded Marketers
• Four Major Payment Card Brands
• Visa Is Largest Card Association
• Top 10 Issuers Generate More Than Half of Market
• Citibank Is Largest Co-Branded Card Issuer
• MBNA Thought of as Co-Branding King
• A Tough, Volatile Industry
• Ingredients for Success
• Mergers and Acquisitions Key Strategy for Acquiring Share
• Major Co-Brand Contracts Due for Re-Bidding

The Consumer

• Data Presented for 11 Co-Branded Cards
• Nearly Three-Fourths of Adults Have/Use Credit Cards
• Credit Card Ownership Typical Among Adults
• Cardholders Present Modestly Upscale Profile

Scope and Methodology

• Scope of Report
• Report Methodology

II THE PRODUCTS

Definition of Terms

• Co-Branded Cards Are One of Six Basic Types of Plastic Payment
• Cards
• General-Purpose Cards
• Co-Branded and Affinity Cards
• Private-Label Cards
• Debit Cards
• Corporate Credit Cards and Purchasing Cards
• Stored-Value Cards
• Additional Products and Terms
• Charge Cards
• Credit Cards
• Bankcards
• Secured Cards
• Payment Systems
• MasterCard and Visa Payment Systems
• Issuing Banks
• Acquirers or Payment Processors
• Automated Clearinghouse and FedWire

History of Co-Branded/Affinity Cards

• Early Credit Cards Were Single-Purpose
• Introduction of General-Purpose Charge Cards
• Introduction of General-Purpose Credit Cards
• Bankcard Growth
• History of Affinity and Co-Branded Cards
• Early Co-Branded Cards
• Rapid Growth of Co-Branded Cards
• Comparison of Co-Branded and Affinity Cards
• Table 2-1: Comparison of Affinity Cards and Co-Branded Cards (5 Factors)
• Co-Branded Cards Often Segmented by Industry
• Many Private-Label Cards Convert to Co-Branded Programs
• Others Start Co-Branded Programs from Scratch
• Co-Branding Benefits Three Constituencies
• Consumer Benefits
• Bank Benefits
• Co-Brander Benefits

Overview of Payment Processing

• Behind-the-Scenes Network Processes Card Transactions
• Front-Office vs Back-Office
• Merchant Acquirers and Payment Processors Often Overlap
• One-Stop Shopping Still Not the Norm
• Payment Processing a Less Risky Means of Profiting from Plastic
• Mergers, Acquisitions, and Portfolio Sales Shape Competition
• Card Associations Respond
• Leading Merchant Acquirers
• Table 2-2: Ten Leading Merchant Acquirers: By Dollar Value of Transactions, January 1, 1997
• Ten Leading Payment Processors
• Table 2-3: Ten Leading Payment Processors: By Total Transactions, January 1, 1997
• Trend Profile: First Data Corporation
• Company Active in Seven Business Areas, Five Related to Plastic Payment Cards
• Electronic Bill Presentment and Payment
• First Data Grows by Enhancing Customers' Businesses

III THE MARKET

• Figure 3-1: US Market for Co-Branded Credit Cards: Estimated Dollar Volume of Transactions, 1993-1997 (dollars)

Market Size and Growth

• Market Nears $358 Billion in 1997
• Table 3-1: US Market for Co-Branded Credit Cards: Estimated Dollar Volume of Transactions, 1993-1997 (dollars)
• Co-Branded Cards Responsible for Majority of Growth in General-Purpose Card Receivables
• Table 3-2: Estimated Growth in General-Purpose Card Receivables, 1993-1997 (dollars)
• Co-Branded Cards Constitute More Than 30% of Cards in Circulation
• Visa Leads in Co-Branded Cards
• Table 3-3: Estimated Number of Co-Branded/Affinity Cards: Top Four Issuers, 1997 (number): Visa, MasterCard, American Express, Discover

Factors Affecting Market Growth

• Program Cancellations, Cutbacks Raise Questions About Co-Branding's Future
• But Adjustments to Be Expected
• Some Programs Killed by Own Success
• Citicorp Sees Profits in AT&T Card
• Nearly 40% of Cards Offer Rewards
• Market Outlook Positive Overall
• Economic Forecasts Remain Sunny
• High Level of Consumer Debt Peaks in 1996
• Interest Rates Also Affect Card Use
• Industrywide Shift to Electronic Payments
• Shift to Direct Payments Will Change Banking Fees
• Cards Symbolize Relationships
• For Consumers, Cards Represent Buying Power
• Consumers Continue to Take On More Debt
• For Retailers, Credit Represents One-Half of Sales Volume
• For Card Issuers, Plastic Means Profits
• Plastic Increasingly Offers Benefits Consumers Want
• Various Market Segments Not Saturated
• Marketing Programs Affect Rate of Growth
• Home Shopping Methods Compel Credit Card Use
• Industry Consolidation Enables the Strong to Continue to Grow
• Legislation and Regulation
• Computer Modeling, Risk Assessment, and Market Segmentation
• Co-Branded Cards the Cream of the General-Purpose Crop
• Figure 3-2: US Market for Co-Branded Credit Cards: Projected Dollar Volume of Transactions, 1997-2002 (dollars)

Projected Market Growth

• Market to Reach $873 Billion by 2002
• Table 3-4: US Market for Co-Branded Credit Cards: Projected
• Dollar Volume of Transactions, 1997-2002 (dollars)

IV THE MARKETERS

Marketer and Brand Share

• Perhaps 100 Co-Branded Marketers
• Four Major Payment Card Brands
• Visa Is Largest Card Association
• Table 4-1: Estimated Share of General-Purpose Consumer Card Market: By Marketer, 1990-1997 (dollars): Visa, MasterCard, American Express, Discover
• Top 10 Issuers Generate More Than Half of Market
• Table 4-2: Top 10 Co-Branded Card Issuers and Estimated Market Share, 1997 (number and percent)
• Citibank Is Largest Co-Branded Card Issuer
• MBNA Often Thought of as Co-Branding King
• Household Credit Services
• Banc One and First USA Field More Than 1,000 Programs
• The Chase Manhattan Corp
• First Chicago NBD Corp
• NationsBank
• GE Capital Consumer Card Co
• PNC National Bank
• First National Bank of Omaha
• Other Leading Co-Branders

Competitive Overview

• A Tough, Volatile Industry
• Ingredients for Success
• Competition Most Intense in General-Purpose/Co-Branded
• Consumer Credit Market Is Saturated
• Saturation Pushes Issuers to Develop New Markets
• Card Issuers Compete for Affluent Market
• Blurring of Lines Between Categories
• Mergers and Acquisitions a Key Strategy for Acquiring Share
• Four Companies Have Been Most Active Acquirers
• Smaller Issuers Find It Increasingly Difficult to Compete
• Globalization of Plastic Payment Card Industry
• Major Co-Brand Contracts Due for Re-Bidding
• Despite Consolidation, Bankruptcies, Competition, Most Issuers Survive
• Bank Issuers Face Competition from Specialty Shops
• Card Issuers Compete Against Other Forms of Payment
• Reward Cards Compete with Co-Branded Cards
• Mergers Reorder Ranking of Top 10
• First-Place AT&T Rocks Co-Branding Industry by Calling It Quits
• Termination of Ford and AT&T Programs Spells Out Dangers in Co-Branded Cards

Competitive Profile: Visa USA

• Visa the Largest Bankcard Association
• Strategy Is to Grow Market Rather Than Compete for Existing Share
• Visa Committed to Co-Branding as Growth Strategy
• Develops Co-Branding Programs with AOL, CompuServe, and Yahoo!
• Visa Battles American Express Over Ban on Competing Cards
• Visa and MasterCard Match Programs
• MasterCard Introduces World Card
• Visa Targets Upscale Market with Advertising for Premium Cards
• Visa Sponsors NFL and Olympics
• Visa Adopts "Read Me" Program for Holidays

Competitive Profile: MasterCard International

• Second-Largest Card Association and Co-Brander
• New CEO to Help Company Focus on Global Market
• Strategy Built on "Four Pillars"
• Committed to Co-Branding
• MasterCard Goes Platinum in 1997
• Introduces World Card
• Switches Ad Agencies
• New Campaign Is "Priceless"
• Creative Credit Card Promotions
• MasterCard Sponsors Wide Range of Sporting Events
• MasterCard Breaks Rules on Co-Branded Corporate Card with British Airways
• Mondex and Smart Cards

Competitive Profile: American Express

• In Third Place and Moving
• The Leader in Corporate/Purchasing Cards
• A Change in Philosophy
• Develops Co-Branded Credit Cards
• Changes to Become More Competitive
• Moves Aggressively to Challenge Visa and MasterCard
• American Express Courts Banks for Two Reasons
• Looking for Global Issuers
• American Express Also Challenges Banks on Use of "Platinum"
• American Express Strong in Financial/Travel Services
• Strikes Deal with Wright Express
• Aggressive Advertising
• AmEx Develops Sports Marketing Portfolio
• Seinfeld Commercials a Hit

Competitive Profile: Morgan Stanley, Dean Witter, Discover & Co 109

• The Largest Card Issuer by Accounts
• Fourth-Largest by Charge Volume; Third-Largest by Receivables
• Dean Witter Diversifies Card Offerings in 1994
• New Cards Issued in 1996 and 1997
• Merger with Morgan Stanley in 1997
• Discover Is Committed to Co-Branding
• IGA Approaches Novus for Co-Branded Card
• Merger with Morgan Stanley Opens New Possibilities

Competitive Profile: Citicorp

• Largest Credit Card Issuer and Co-Branded Card Issuer
• American Airlines and AT&T Are Now Citicorp's Flagship Co-Brands
• Decision to Terminate Ford Program Not Citicorp's
• Citicorp Launches New Co-Branded Card in 1997
• Citibank Cards Generally No Fee, Competitive Interest
• Citicorp Offers Enhancement Packages
• Photo Card a Free Security Measure
• Second-Leading Issuer of Visa-Branded Corporate Cards
• Also Offers Private-Label Card Programs
• Processes Cards In-House But Sells Merchant Processing Business
• Citibank Targets College Students
• Keeps Tabs on Smart Cards

Competitive Profile: MBNA Corp

• MBNA America Is Second-Largest Card Issuer
• A Monoline "Specialty" Bank
• The Affinity King
• Professional Associations Are MBNA's Largest Group of Cardholders
• Cause-Related and Special-Interest Cards
• Educational Institutions and Educators
• Military and Law Enforcement
• Sports Affiliations
• Other Prominent Co-Brand Partners
• Place and Special Event Cards
• Cards for Other Banks
• Premium Cards for Brokerage Clients
• Jump Starts Subaru Co-Brand Going Global
• MBNA Scores with Platinum Plus Card
• Company Continues to Pursue New Accounts
• Getting the Right Customers
• The Ability to Say "Maybe"
• Technological Support for Mass Customization
• MBNA Diversifying Into Other Financial Services

Competitive Profile: Household Credit Services

• The Third-Largest Co-Brander
• GM Its Largest and Most Successful Card Program
• Union Privilege Card
• Company Bullish on Co-Branded Cards
• Forays into Commercial Cards
• Growth Through Acquisition
• Operations in Canada and the United Kingdom

Competitive Profile: Banc One/First USA, Inc

• A Fast-Growing Card Specialist
• Also One of Leading Co-Branders
• First USA Takes Over Management of Banc One's Card Programs,
• Gains Branch Distribution Network
• Introduces Many New Products
• Combination Credit/Calling Cards
• New Co-Branded Cards with TicketMaster, Honda
• Even a Card for Homebuyers
• Spins Off First USA Paymentech; Strikes Deal with First Data

Competitive Profile: Chase Manhattan Corp

• The Fourth-Ranked Issuer
• Chase Operates Eight Co-Branding Programs
• Chase's Shell MasterCard Is Largest Gas Card
• Chase Offers Generic Flights Rewards and Retail Rewards Programs
• Chase Active in Commercial Card Market
• Chase Purchases Bank of New York's Credit Portfolio

Competitive Profile: First Chicago NBD Corp

• Ninth-Largest Bank Is Sixth-Largest Co-Brander
• Opportunities for Co-Branded Corporate Cards

NationsBank

• Seventh-Largest Co-Brand Issuer
• Dividend Miles Visa Co-Branded with USAir
• Southern Living Visa
• Discontinues Program with Blockbuster
• Has Big Ambitions
• Sponsors US Olympic Committee

GE Capital Consumer Card Co

• Eighth-Largest Co-Brander
• Four Co-Branded Programs
• Also Active in Commercial Cards

PNC National Bank

• Ninth-Largest Co-Brander
• AAA Portfolio Acquisition a Major Coup
• Launches Multi-Branded Mall VIP Card
• Has National Ambitions

Competitive Profile: AT&T Universal Card Services Corp

• One of Most Successful Co-Branders
• But Opts Out of the Business

Marketing and New Product Trends

• Co-Branding/Affinity Marketing Remains Strong
• Airlines the Most Sought-After Co-Brand Partners
• Generic Frequent Flyer Programs for Issuers Without Partners
• Activation, Rather Than Acquisition, Is Increasingly the Focus
• Card Issuers Penalize Cardholders Who Pay Balances in Full
• Card Issuers Also Hike Late and Over-Limit Fees
• Yet Low Interest Rates Key to Revolving Balances
• Most Successful Awards Mesh with Customer Goals/Aspirations
• Multi-Branding a Strategy for Sharing Costs, Increasing Appeal
• Exclusive Items May Have Big Draw
• Card Issuers Offer Other Enhancement Products
• Many Card Issuers Cutting Back on Rewards and Perks
• Most Reward Incentive Cards Carry Annual Fees
• "Do-Good" Cards Help People Feel Good About Spending
• Affinity Card Issuers Test Political Waters
• Teaser Rates Still a Draw, But Harder to Find
• Platinum Cards Attempt to Recapture the Luster Lost by Gold Cards
• Supermarkets a Growing Target for Co-Branding
• Dillons and Bank IV Card Co Demonstrate Successful Co-Branding
• in Grocery Environment
• Yet Many Supermarket Cardholders Don't Carry Balances
• Secured Cards Avoid Alienating Customers
• Many Innovations Come from Private-Label Side
• "Pre-Selected" Says a Lot, Means Little
• Card Issuers Discover Billing Statement as Marketing Tool

Consumer Advertising, Direct Mail, and Telemarketing

• Big Card Associations Spend $736 Million in 1996
• Most Co-Branded Card Issuers Not Reflected in Estimate
• Television Advertising Dominates Card Association Advertising
• Visa Leads Over American Express, Discover, and MasterCard
• First Half of 1997 Shows Decline
• Direct Mail the Predominant Form of Advertising
• Direct Mail Is Cost-Effective
• Five Issuers Responsible for More Than One-Third of Solicitations
• Co-Branded/Affinity Offers Constitute 31% of Solicitations
• Premium Cards Account for Over Half of Direct-Mail Offers
• Mailings Increase to Non-Pre-Approved
• Offers for MasterCard Are Up
• Telemarketing Another Popular Medium
• Internet Growing as Advertising Venue
• Card Marketing Included on Co-Brander's Site

Consumer Advertising Positioning

• Rewards Are Key Theme of Co-Branding
• Touted Rewards Can Be Intangible
• Value Theme
• Sound Money Management
• Teaser Rates and Bill Consolidation
• Support for Worthy Causes
• Functionality Also a Theme

V THE CONSUMER

Ownership and Use of Credit Cards

• Note on Simmons Market Research Bureau Data
• Data Presented for 11 Co-Branded Cards
• Nearly Three-Fourths of Adults Have/Use Credit Cards
• Table 5-1: Consumer Ownership and Use of Co-Branded Credit Cards by Type, 1997 (number and percent): Any, Any Visa, Any MasterCard, Any AmEx -- Airline/Hotel,
• Automotive/Corporate, Affinity, AT&T Universal
• Credit Card Ownership Typical Among Adults
• Cardholders Present Modestly Upscale Profile
• Table 5-2a: Demographic Characteristics Favoring Ownership and Use of Credit Cards: Have/Use Any Credit Card vs Acquired Last 12 Months (US Adult Population)
• Table 5-2b: Demographic Characteristics Favoring Ownership and Use of Credit Cards: Used Last 30 Days vs Used Last 12 Months (US Adult Population)
• Americans Still Acquiring Cards
• Young People Well-Represented Among Ranks of New Cardholders
• Those Who Use Cards Present Older Profile
• Co-Branded Visa Cardholders
• Airline/Hotel Co-Branded Cardholders Older, Concentrated in West or Northeast
• Affinity Cardholders Have Youngest Profile
• Those Not Employed Indicated for AT&T Universal Visa
• Table 5-3a: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Airline/Hotel Visa vs Automotive/Corporate Visa (US Adult Population)
• Table 5-3b: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Affinity Visa vs
• AT&T Universal Visa (US Adult Population)
• Affinity MasterCard Holders Skew Younger Than Other Cardholders
• Table 5-4a: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Airline/Hotel MasterCard vs Automotive/Corporate MasterCard (US Adult Population)
• Table 5-4b: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Affinity MasterCard vs AT&T Universal MasterCard (US Adult Population)
• Asians Strongly Represented Among American Express Airline/Hotel and Affinity Cardholders
• Table 5-5a: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Airline/Hotel
• American Express vs Automotive/Corporate American Express (US Adult Population)
• Table 5-5b: Demographic Characteristics Favoring Ownership and Use of Co-Branded Credit Cards by Type: Affinity American Express (US Adult Population)
• Majority of Cardholders Use Credit 6-19 Times/Month Singles Identified as Less Frequent Users
• Employed Males More Likely to Be Heavy Users
• Table 5-6a: Demographic Characteristics Favoring Use of Credit Cards by Frequency of Use: 1-5 Times Per Month vs 6-19 Times Per Month (US Adult Population)
• Table 5-6b: Demographic Characteristics Favoring Use of Credit Cards by Frequency of Use: 20 or More Times Per Month (US Adult Population)
• Only One-Third of Cardholders Pay Annual Fees
• Male College Graduates Indicative of Those Who Pay Their Balance in Full Each Month
• Table 5-7: Demographic Characteristics of Those Who Usually Pay Off Their Credit Card Balances Each Month by Type of Card: American Express, Visa, MasterCard (US Adult Population) Lower-Paying Occupations Indicative of Cardholders Who Make Partial Payments
• Table 5-8: Demographic Characteristics of Those Who Usually Make Partial Payment on Their Credit Card Balances Each Month by Type of Card: American Express, Visa, MasterCard (US Adult Population)
• More Downscale Profile for Those Who Make Minimum Payments
• Table 5-9: Demographic Characteristics of Those Who Usually Make Minimum Monthly Payments on Their Credit Card Balances by Type of Card: American Express, Visa, MasterCard (US Adult Population)

Consumer Attitudes

• Analysts Identify Two Types of Cardholders
• Balance-Carrying Co-Branded Cardholders
• Older Cardholders May Be Less Profitable
• JD Power Survey Ranks Customer Satisfaction
• Aspects of Quality Important to Two Types of Cardholders
• Contrary to Popular Belief, Affinity Cardholders Do Pay Attention to
• Economics
• What About Young People?
• Yet Americans Accept Credit Cards as Positive Fact of Life

APPENDIX I: EXAMPLES OF CONSUMER ADVERTISING
AND PROMOTIONS

APPENDIX II: ADDRESSES OF SELECTED MARKETERS