Robert McKinley
Payments Expert

ROBERT MCKINLEY INTERVIEWS – BUSINESSWEEK

Robert McKinley was interviewed by Businessweek reporters for scores of articles. Some of the interviews are listed here with links to the either a full description and/or the full text.

 

1. (1996) PLATINUM CARDS: MOVE OVER, AMEX

http://www.businessweek.com/1996/34/b3489117.htm

 2. Online Extra: Q&A with Cardweb's Robert McKinley 4/2/01

The lines are blurring between personal and small-business credit cards, so check the fine print about perks, and limits

The small-business market is getting big attention these days from Corporate America, as companies search for new growth areas. The credit-card industry is no exception. To find out what's new in small-business credit cards, BusinessWeek Small Biz's Kimberly Weisul spoke with Robert B. McKinley, CEO of CardWeb.com, a consultancy that tracks the U.S. credit- and debit-card industries. Edited excerpts of their conversation follow.

Q: Why are credit-card issuers jumping into the small-business market now?
A:
There has been so much saturation in the consumer-card market that the banks have been moving into the business-card area. They had largely ignored it before because they just couldn't see the profitability in it. The charge-offs can be quite high. It's a risky area. Now they see it more as a relationship issue. From a defensive standpoint, you have to have this product in your portfolio.

Q: For an entrepreneur, what's the difference between signing up for another personal credit card and getting a business card?
A:
It depends on the issuer. Sometimes, there's very little difference. MBNA typically issues its small-business card based on the owner's personal credit history. The card says it's a business card, but it would show up in the credit files like any other card would. Other issuers have cards based on the business's financials. You need to have financials for the last two or three years. American Express does it that way. Of course, they've still got the Social Security numbers of the principals, so when it comes to collection it works like a consumer card.


Q: How about credit limits?
A:
You may not get a big credit line if the card is being issued strictly on the business's credit. On personal cards the credit limit can be very high. MBNA issues a lot of very high-limit cards. The $50,000 level limit is very common. For Capital One, the $20,000 to $30,000 range is kind of their upper limit.

Q: Are there any perks worth taking note of?
A:
More issuers are making rewards cards out of their business card by adding mileage bonuses. Capital One just introduced miles on one of its business cards. Advanta has a strong campaign it unleashed the first of this year. And there are programs that, three years ago, would have been considered insane -- like giving miles back on your debit card. When the main revenue stream on many of these cards is merchant revenue, typically 2% on transactions, and you're giving back 1% on points, the margins get pretty thin.

For the business owner, it can be a very compelling deal. In some cases a business can have more than one employee on a card to help consolidate miles. Visa and MasterCard are working to build insurance into their card programs. Interfacing with a small business's accounting software will be a really big thing.

Q: Will these perks last if the economy slips?
A:
A recession could give some pause to the market if we see an escalation in charge-offs, delinquencies, or even bankruptcies. There's no evidence of it yet. There is a lag in the numbers, but there has been no spike yet in delinquencies or charge-offs. Visa did say its moving average of bankruptcy filings upticked last quarter, so there have been a few rumblings.

http://www.businessweek.com/magazine/content/01_14/b3726652.htm


3. Let the Bidding Begin for Providian 11/5/01

The card issuer's woes go way beyond its high-risk customers

 

 

For much of the past decade, math whiz Shailesh J. Mehta's Providian Financial Corp. (PVN ) ran rings around rivals. By using everything from cable TV to the Net to troll for business and offering credit cards to students and other high-risk borrowers, he quickly turned Providian into the nation's fifth-biggest card company, with more than $30 billion in loans outstanding. The company had a finger in the wallets of one in eight American households. Indeed, it was doing so well that it was sixth in BusinessWeek's annual ranking of the 50 best corporate performers.

Today, the sparkle is gone. Mehta is out as chairman and will remain CEO only long enough to find a successor--if one is named. And Providian is effectively on the block. The San Francisco company will "explore absolutely every option" to get a good return for shareholders, promises J. David Grissom, hurriedly appointed chairman on Oct. 18. They could do with a fillip: Shares have fallen 92% since July, to barely over $4 on Oct. 24. But getting a lift may be hard without breaking up the company. "I would question whether this is a viable, going concern," says Prudential Securities Inc. analyst Bradley Ball.

So now, the issue is: Who will buy Providian's loan portfolio, and for how much? Analysts figure Citigroup (
C ), MBNA (KRB ), and Bank One (ONE )--the three largest card companies--might be interested in its $22.3 billion worth of loans to top- and middle-ranking borrowers, and Citigroup's Associates unit or Household Finance in its $9.4 billion in subprime loans. Buyers might pay a 5% to 10% premium on the higher-quality loans, but they might want an incentive to take away the low-rated stuff, says Michael R. Hughes, a Merrill Lynch & Co. analyst.

Lately, times have been hard for all credit-card issuers as bankruptcies have risen, bad debts have mounted, and economic prospects have remained dim. But they have proved especially troubling for Providian, whose charge-offs for uncollectible loans have climbed from 7.6% of assets last fall to 10.3% now and are likely to top 12% by yearend. For most companies, they're still below 5.5%. Worse, solvent customers are charging less and paying down debt. Mehta, who earned a PhD at Cleveland's Case Western Reserve University, partly by researching the math used in the credit-card industry, has complained that consumer purchasing has been well below expectations. After saying on Oct. 18 that he was "frustrated" by Providian's failures, Mehta refused to answer analysts' questions. He declined to talk with BusinessWeek.

In reality, Mehta's brainchild has been troubled for a while. For one, Providian's hard sell to high-risk customers at times may have crossed the line into hucksterism. Last year, it paid $300 million to settle charges by the Comptroller of the Currency and the San Francisco District Attorney that it had "misled and deceived" consumers with less than candid marketing. Officials claimed its telemarketers refused to specify promised "great savings" on interest rates and failed to spell out extra charges on "no annual fee" cards. Providian settled without admitting or denying the charges.

FUMING ANALYSTS. This year, Providian pulled in its horns. In March, it stopped running TV ads with 800 numbers to call to apply for credit cards. It ratcheted down a TV campaign for GetSmart.com, a financial Web site that offered cards with rates as high as 27.99%. It tried to pitch cards to upscale clients. But such moves were too little, too late.

When Wall Street got wind of the mounting problems, Providian's share price went into freefall (chart). In August, the company quietly revised its practices for writing off bad accounts, delaying the impact of customer bankruptcies for up to 30 days. Analysts fumed--and cut their earnings outlooks. Then, on Sept. 4, Mehta warned that this year's earnings will come in some 7% lower than expected. His resignation was the last straw. "They've lost their credibility with investors," says Robert B. McKinley, CEO of CardWeb.com, which tracks the credit-card business.

Now that his numbers no longer add up, Providian's math whiz faces a bleak future. Rather than breaking in a successor, he may have to decide which of his rivals will get the business he built.


http://www.businessweek.com/common_images/bw_rule.gif
By Joseph Weber in Chicago

 

http://www.businessweek.com/magazine/content/01_45/b3756107.htm

 

4. Your New Clout In Choosing A Bank Card

Personal Business: Finances

YOUR NEW CLOUT IN CHOOSING A BANK CARD

Ever since Washington took up the question of credit-card rates last fall, consumers have been on the march. Galvanized by the congressional debate over lofty bank-card rates and President Bush's own remarks that he would like to see credit-card rates come down, cardholders have been demanding an end to 19.8% interest rates now that the prime rate banks charge corporate borrowers has slipped to 6.5%.

Finally, consumers are getting their way. The most telling success was Citicorp's announcement on Apr. 16 that it would reduce rates for roughly 9 million cardholders who have been good customers. Beginning in June, the nation's biggest bank-card issuer will lower rates to 15.9% on new purchases, from the 19.8% that has prevailed through the '80s. Gold-card users will pay 13.9%. Other big banks are bound to follow Citi's lead.

CHOSEN FEW. But before you cut up your existing plastic and apply for a low-rate card, consider a couple of key questions. Remember that not everyone can qualify for bargain-rate cards. In Citi's case, the lower-rate offer is open only to those who have had a Citi Visa or MasterCard for a year or more. Then again, you might not even need a lower-rate card.

The first consideration before selecting any card is your bill-paying habits. If you're like the 30% of the population who pay off their credit-card bills in full every month, a no-fee card makes more sense. Rates are secondary. The average fee for a standard bank card runs $17.24. Gold cards are higher, at $31.50. And the fees can be substantially higher on some very-low-rate cards.

For those who fall into this thrifty category, there are scores of issuers around the country who offer free cards (table). Most are less well-known than big issuers such as Citi, but their versions of Visa and MasterCard are readily accepted everywhere. Consider Security Bank & Trust of Southgate, Mich. It still charges a high 18%, but that shouldn't matter if you pay the bill off each month.

GRACELAND. American Telephone & Telegraph Co., which popularized the free-card concept, is once again offering a no-fee version. But it has limitations. For customers who transfer at least $1,000 owed on other credit cards, AT&T will again offer a no-fee-for-life card. The only catch is that you must use its Visa and MasterCard, dubbed the Universal Card, at least once a year. The offer expires June 15.

Consumers who apply and are approved will receive checks from AT&T to pay off their other card balances. There are no transaction fees. While AT&T's offer isn't a bad deal if you intend to pay off your balance, keep in mind that AT&T's current rate is 16.4%--not the best available.

Regardless of which no-fee card you select, pay attention to the grace period. Most credit-card issuers offer 25 days in which there are no interest charges. Generally, you lose this benefit if you carry over a balance to the next month. Even new purchases are then subject to finance charges.

Still, if you're like the 70% of cardholders who do run a balance each month, grace periods and annual fees aren't primary considerations. It's the rate that counts. Bank-card rates have declined, but they're still fairly steep compared with what banks pay for money. The average rate for a standard Visa or MasterCard stands at 18.59%, vs. 19.05% a year ago.

Gerri Detweiler, a director of Bankcard Holders of America, a consumer group, says someone who charges an average of $2,665 a year and pays only the minimum every month can save $410 a year by switching to a card with a rate of 8.5% instead of 19.8%. If you're a heavy card user, the savings mount.

There are many low-rate cards around the country, and many accept applications nationally. An increasing number of issuers are offering variable-rate cards that move in tandem with a bank's cost of funds, which has been declining. Variable rates may be adjusted monthly or quarterly. Wachovia Corp. offers both a 9.4% variable rate for $39 a year and a fixed rate of 14.98% for $25. The lower rates that go into effect at Citi in June are based on a variable-rate formula. For example, the rate on the standard card is 9.4 percentage points above the prime.

BUSY SIGNAL. Obtaining a bargain-rate card isn't a snap, though. Lower-rate card issuers are choosier about their customers because they can't afford high delinquency rates. Robert B. McKinley, publisher of RAM Research Corp.'s CardTrak, a Frederick (Md.) newsletter, says only 15% of applications for cards charging 11% and lower are approved. The acceptance rate improves as the rate increases. At 19.8%, the rate is upwards of 40% to 45%.

Cards with rock-bottom rates have other drawbacks besides acceptance. Some of the best bargains are available from issuers in Arkansas, where state usury laws limit card rates to five percentage points above the Federal Reserve discount rate, now 3.5%. Banks there, such as Simmons First National Bank of Pine Bluff, are being flooded with calls. With an alluring 8.5% rate, Simmons has been averaging thousands of calls a day. And out-of-state consumers may have to wait up to 90 days to have their applications processed.

What's more, bargain-rate cards can have much lower credit limits. The average balance at Simmons is $800, McKinley says. Nationally, the average balance for bank cards is $1,400.

Then there's the question of service. Many cardholders have become accustomed to the luxury of 24-hour, toll-free numbers to check on their balances. Smaller issuers generally limit account inquiries to normal workday hours. And don't look for elaborate enhancements, such as purchase protection and travel-accident insurance. Most are bare-bones operations.

One exception is Abbott Bank in Omaha. Abbott's Visa and MasterCard offer the same kind of enhancements available from big issuers. The difference is that Abbott's card doesn't have an annual fee, and it charges less interest than larger banks do. Its variable rate, now 16.3%, is pegged three percentage points below the average rate of the top 10 issuers.

LEGWORK. Once you've decided whether you're a no-fee or low-rate user, deciding on a specific issuer will take a little legwork. The chances that you'll find a bargain-card solicitation in the mail are nil: Most of these banks don't do heavy marketing.

To help you in your search, however, you can write to the Bankcard Holders of America (560 Herndon Parkway, Suite 120, Herndon, Va. 22070), or phone the organization (800 327-7300) for its list of 47 no-fee and low-rate cards. BHA charges $4 for postage and handling. Consumers can also send away $5 for an issue of McKinley's CardTrak, which includes a list of bargain cards every month (Box 1700, Frederick, Md. 21702).

You also might check with your credit union. Many offer no-fee, low-rate cards. And don't hesitate to nag your bank. With banks feeling the heat from cardholders, credit-card terms have become largely negotiable.

If you're a good customer and have other business relationships there, such as checking accounts, certificates of deposit, or a mortgage, some banks may give you a break on interest rates. McKinley says that others may also be willing to reduce or waive fees on a selective basis just to hold onto customers. Remember, as a cardholder, you have a lot of power these days. Don't be afraid to use it.John Meehan EDITED BY JOAN WARNER

http://www.businessweek.com/stories/1992-05-10/your-new-clout-in-choosing-a-bank-card