AT&T's Universal Card is growing fast and is already profitable, but where's the synergy?

Computer Industry Report, Dec 23, 1992

Warning signals go up whenever technology companies spend money on non-technology ventures. It usually means one of two things. Either they have relatively little confidence in the technology investments they have made, or they have so much cash they don't know what to do with it all.

The synergies between credit cards and telecommunications is tenuous. AT&T management saw enough of them, however, to invest in the AT&T Universal Card master charge. The apparent rationale: credit cards represent a growing business with some operational similarities to AT&T's core businesses of transaction processing.

To AT&T's credit, the Universal Card has been a success, with over a million new customers in only two years. Of course, when you're giving away cards, measuring success by counting subscribers is misleading. The business unit will be a true success when, and if, it steadily builds on the profits it has shown in the most recent quarter.

Cross marketing appears to be the sole synergy between AT&T's traditional lines of business and consumer credit cards. AT&T long-distance customers can buy products over the phone and use an AT&T card to pay for them. AT&T gets a usage fee for the long-distance circuit, and it gets a fee from the retailer for processing the non-cash payment. It can then creatively finance those purchases: bills are reduced by 10% of the amount of the AT&T long-distance bill. But such a transaction doesn't have anything to do with the credit card.

Is there any benefit to AT&T's owning both pieces? Probably not. Does Universal represent a vehicle for controlling and selling information content? Again, probably not. Those services or information products remain poorly defined at present. Greater synergies than cross marketing will be a long while coming.

Has the Universal Card Hurt AT&T?

Some problems remain. AT&T has lost a degree of credibility in the ultra-sensitive financial community. It has alienated a large block of financial services companies by introducing products that compete with its customers' products. Largely as a result of the Universal Card introduction, MCI has won several major new financial services network contracts.

In addition, with the Universal Card AT&T risks diverting itself from its core businesses. If growth rates start slowing, where does AT&T turn for help? What makes AT&T particularly well-suited for the commercial credit business? So far, the Universal Card business looks good. But these kinds of questions may plague it should business take a turn for the worse.