Booming Brands Stalked by Net, DOJ

Brandweek, June 19, 2000 by Terry Lefton

When an economy is roaring, it is axiomatic that credit card brands are healthy. So perhaps it's no surprise that longtime market leader Visa's U.S. charge volume was up 18% and perennial second fiddle MasterCard's was up more than 13%.

What is surprising, though, is that two issues have arisen that could rewrite the market's dynamics so that Visa's enormous advantage in cards, charge volume and receivables could conceivably be erased. We're talking about marketing redefinition in what is one of the most crowded and contentious markets, and that is a scenario few mature markets ever see.

The most overwhelming issue--and the focus of much internal R&D at card brands--is the race for Internet riches. However, unlike traditional dotcoms, payment brands already have legitimate revenue from the Internet. The rush is to create a payment system that is secure enough to store value and interface with the Net. The success (against considerable skepticism) of American Express' Blue brand shows that consumers are responsive to the idea of a card with Internet spin, regardless of its functionality, which is very little in the case of Blue. A card with real Net utility will rewrite the market for whichever brand develops it, be it established or nouveau. Even an issuer that normally marches in lockstep with the big brands might be the one making the Net play Certainly, the issue is up on the big players' radar now.

"We will either unlock the power of e-business, and with it the chance to make serious inroads against cash and checks (which still represent around 85% of all U.S. transactions), or we will be left behind and overtaken by a new generation of companies better able to adapt," said MasterCard president/CEO Robert Selander, speaking at a recent industry conference.

The other issue with the capacity to reshape the industry was an antitrust trial that was scheduled to begin June 7, in which the Justice Department was challenging rules that keep Visa and MasterCard's 6,000 member banks from issuing competitive brands, specifically American Express and Discover.

AmEx has challenged those rules as anti-competitive, noting that Visa and MasterCard, the two leading brands, control 75% of the market. The associations counter that the number of banks for their cards guarantees competition. Depending on the outcome, the capacity for change, once again, is unprecedented. If the banks responsible for sending out the nearly 2.89 billion pieces of direct-mail credit card solicitations shift some of that to competitive brands, or put an AmEx or Discover logo on their customers' ATM cards, it would be a redefining moment.

Of course, given the nature of litigation, expect a solution to the Internet issue long before this politically charged case is settled. The card associations will spend as much as it takes and exhaust every avenue of appeal to retain their exclusivity with member banks.

                               Credit Cards
Brand               Company Name,
                    Location
1. Visa             Visa USA, San Mateo, CA
2. MasterCard       MasterCard Intl, Purchase, NY
3. American Express American Express, NY
4. Discover         NovusBrands/Discover, Riverwood, IL
5. Citibank         Citigroup, NY
Brand               Lead Agency,                  Total       Media
                    Location                      Sales    Expenditures
                                                (billions)  (millions)
1. Visa             BBDO, NY                      $721.0      $260.0
2. MasterCard       McCann-Erickson, NY            352.0       154.0
3. American Express Ogilvy & Mather, NY            175.0       185.0
4. Discover         Goodby, Silverstein, SF         71.0        92.0
5. Citibank         Young & Rubicam (in review)       NA        28.0
Source: Brandweek research (sales); Competitive Media
Reporting (expenditures)