Citigroup plans to switch credit card business to MasterCard

Journal Record, The (Oklahoma City), Feb 11, 1999

NEW YORK (AP) -- Citigroup, the nation's largest financial services company, is shaking up the credit card industry with plans to give its new credit card business to MasterCard International instead of Visa USA.

Citigroup's chairman, John Reed, and its head of consumer operations, Bob Lipp, resigned from Visa's board of directors on Tuesday, following weeks of debate over Reed's drive to banish the Visa logo to the back of the credit card in order to heighten the profile of the "Citi" brand.

MasterCard, which has seen its share of the credit card market decline for more than 20 years, offered to give Citigroup a discount in its dues, and agreed to move the MasterCard symbol to the back of the card, said David Robertson, president of The Nilson Report, an industry newsletter. Citigroup "got a sweetheart deal from MasterCard," said Robertson. "That's money that flows right to the bottom line." Last year Citigroup paid Visa dues totaling between $75 million and $100 million, according to an industry source. New York-based Citigroup would only confirm that it has resigned from the Visa board and made no comment about its future with MasterCard. A spokeswoman for MasterCard also would not comment. Under the deal, Citigroup would stop issuing Visa cards and any new credit cards would carry only the MasterCard logo. As existing Visa cards expire over the next several years, they would be replaced with MasterCards. Citigroup is already a major issuer of MasterCard credit cards, which make up 53 percent of the company's cards. But the Visa cards are more heavily used, accounting for 55 percent of Citigroup's credit card balances. Community banks and credit unions are outraged over Citigroup's tough stand on promoting its own name over the credit card brand. They fear the move could erode the status of the Visa name and shift power in the industry to a handful of large banks that may follow Citigroup's lead. "We find what John Reed is doing is very distructive to the thousands of banks, credit unions and savings an loans that connect into the Visa brand and find worldwide acceptance through it," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America. "I understand John Reed is not interested in sharing and wants it all to himself." Citigroup is the second-largest credit card issuer in the United States with $69.6 billion in consumer credit card balances, slightly behind BancOne's First USA subsidiary with $69.9 billion, according to the Nilson newsletter. MasterCard, desperate to regain some of its lost business, was eager to please Citigroup. Purchase, N.Y.-based MasterCard has seen its market share fall to 33 percent last year from 38 percent a decade ago, while Visa's share has climbed to 67 percent from 62 percent. But Citigroup is prevented by several contracts from moving much of its existing business from Visa to MasterCard. Citigroup promised to send its new business to MasterCard, and to switch expiring Visa cards with MasterCard credit cards over a three-year period, Robertson said. "Citibank's growth has been lackluster for years," he said. "Unless they begin to turn that around, that is not necessarily a huge change."