WILMINGTON, Del. - Charles Cawley has long seen gold where others see lead, mining the overlooked business opportunity to the hilt and making it pay off handsomely. Take, appropriately enough, the gold credit card, which despite its hue left many bankers cold.
In 1983, when he was head of the small credit card unit of the Maryland National Bank, Cawley pounced on the new Gold Mastercard, becoming the top issuer of a product that other banks had chosen to ignore. He repeated the feat last year as head of the now-independent unit, renamed MBNA Corp. and based here, when he introduced the first major bank-issued platinum card.
But Cawley's greatest insight was to see the gold in people's sense of identity. MBNA, which went out on its own in 1991, has long been the leader in "affinity" credit cards, which identify the customer's profession, college, hobby or charity. Who would have thought that a credit card affiliated with Ducks Unlimited, -- the hunting group, would draw a crowd? Yet a flock of 165,000 people have taken that card, earning MBNA quite a little nest egg. With 12,000 separate card products, MBNA has grown to be the nation's second-largest card company, after Citicorp, with 25 million accounts and $46 billion in receivables.
Digging deeper and deeper
The question facing MBNA now, however, is whether what it is mining is really fool's gold. With bad credit card loans and personal bankruptcies surging, most other card issuers have pulled back the last two years. MBNA, by contrast, is digging deeper and deeper.
Every month this year, MBNA has mailed an average of 30 million "TC credit card solicitations, offered 6 million people cards by phone and signed up 700,000 new accounts. The result is that it is increasing its loan balances by $1 billion a month, a record for the industry, and a full 30 percent of the nation's total increase in unsecured debt.
Why lend so much money at such a precarious time? Because, Cawley said, MBNA is different from other card companies. Indeed it is, given the way it has married a fixation on details to a mandate to keep customers happy. When it comes to credit cards, such a compulsive approach helps reduce the risks, the company maintains.
Not only does the affinity strategy bring in a better group of customers, but every application is evaluated by one of 400 loan officers, instead of the computer systems used by other lenders. If something is ambiguous - and it is almost one quarter of the time - the officers do something a computer cannot: They pick up the phone and talk to the applicant. This process is more expensive, but MBNA's losses, while rising, are far less than that of any other big card company.
Cawley argues that all of the losses in the industry are from a relative handful of people who run into financial difficulty. With its careful screening, he says, MBNA can keep growing rapidly, lending to the 98 percent of the people who can and will pay their bills.
Betting on honesty
"The whole bet of this company is on the honesty of human beings," Cawley said recently. That other card companies have backed away from the market creates a perfect opportunity for MBNA, he said.
"We love it when other people are distracted from growing," Cawley said. "We are never distracted."
Although bond-rating agencies worry that MBNA's portfolio has been growing faster than its capital, stock analysts mostly approve of the risks it is taking. "This is not a young company with half its portfolio less than a year old," said Mark Alpert, an analyst with BT Alex. Brown. "This is one of the oldest and most experienced companies in the industry, and its credit quality is second to none."
Under Cawley, MBNA has developed an introverted culture that pampers its clients. But don't talk to him about culture. "We don't have a culture, we have an attitude," he said. "Our attitude is every customer gets satisfied."
To get the point across, the 57-year-old Cawley has had motivational slogans painted on the walls of all of MBNA's buildings. A typical conference room wall may read "Complacency is devastating" or "Success is never final." Over every doorway is the motto, "Think of yourself as a customer."
Paychecks are inscribed "brought to you by the customer." The checks have more than words to back up the idea. MBNA has declared a 15-point test of appropriate service - are phones answered within two rings, are credit line increases approved in under 30 minutes and so on. Each day the company beats these standards, money is put in a bonus pool for all employees. The bonus can average nearly $1,000 a person each year.
The company is determined to control every aspect of its business. The 4,000 people who call to solicit new accounts and the 1,250 who try to collect payments from delinquent accounts are all MBNA employees, rather than the outside vendors used by many other credit card companies.
Executives must spend four hours a month listening to customer calls, and none of them can have unlisted numbers, to make sure they receive the same sort of dinnertime solicitations that MBNA inflicts on the rest of America.
Such rules reflect Cawley's strong-willed style. Yet despite his notoriously sharp temper, Cawley also has a strong sentimental streak, and he has made employee satisfaction almost as important a goal as customer contentment.
He has made sure that employees are paid well, with a rich array of benefits, from day care and scholarships to an annual family picnic. Cawley even named MBNA's stock symbol - KRB - after Kenneth R. Bowman, the company's first director of service quality, who died the year before MBNA went public.
MBNA executives are treated especially well. Cawley earned $7.8 million last year, and the company's moves follow his interests. For instance, it has built a big operations center in Camden, Maine, long the site of Cawley's vacation home.
Taking care of employees
Cawley says there are sound business reasons for all these moves. His paycheck, he says, is based on the company's performance. He also points out that MBNA shares the wealth. "The top 100 people in this company do well - it's not just the top five."
MBNA's philosophy, he said, is simple: "If we take good care of the people who work for the company, they'll take good care of the customers and the shareholders will love it."
And they certainly do. Since MBNA was spun out of the teetering Maryland National six years ago, its stock has appreciated more than that of Microsoft or Coca-Cola, Cawley boasts.
Take the $100 million that Alfred Lerner, a Cleveland financier, paid for a 10 percent stake in MBNA in its initial public offering. It is now worth $1.2 billion. Lerner, who has increased his stake to 13.3 percent, is MBNA's part-time chairman. Cawley is the chairman of MBNA America, the main operating unit.
Lerner, a major investor in Maryland National, bought his MBNA stake after being impressed with Cawley's service culture and affinity strategy. But can that culture and strategy continue to produce the same level of growth?
It is getting more expensive to win the endorsement of affinity groups, as others, like First USA, MBNA's Wilmington rival, start to go after that market. But MBNA has long been able to outmaneuver the competition in affinity deals.
For example, in 1995, the American Dental Association, one of MBNA's earliest and most lucrative affiliations, switched its endorsement to Mellon Bank, which offered a more attractive deal. MBNA scrambled to gather the endorsements of a majority of the state dental associations and simply offered a card saying "professional dentistry" in other states. Today, 60 percent of the dentists in America hold MBNA cards, compared with 45 percent before the company lost the national dental group. (MBNA also has 54 percent of all doctors, 25 percent of nurses, 36 percent of lawyers and 27 percent of architects.)
As affluent as these professional groups are, they tend to be big borrowers, making them particularly attractive catches to MBNA, which charges higher interest rates than most of its competitors.
"When a doctor comes back from a vacation, he would rather spread the payments over six months to pay off his credit card bill than take money out of the money market account to pay it right away," Cawley said.
Another example of MBNA's marketing prowess is what it has done with the National Football League. For a number of years, Citibank, the No. 1 card issuer, had the right to market cards with each of the NFL team logos on them, but it distributed only 100,000. Since MBNA wrested the NFL endorsement in 1995, it has issued 1 million, largely by setting up tables in stadiums and asking fans to apply.
The company's most successful innovation involved the platinum card. Last year, it was the first bank card issuer to try to tap into the prestige established by the $400-a-year American Express platinum card. MBNA's strategy, quickly copied by other issuers, was to offer a platinum card with no fee and few benefits over a gold card other than the color.
Platinum was an ideal vehicle for MBNA because it could be altered with slight variations for many of the company's affinity groups. In a year and a half, MBNA has attracted 6 million platinum customers, who have borrowed $8 billion.
Cawley acknowledges that MBNA almost certainly will not open as many new accounts next year as it has this year. But he has high hopes that other businesses will grow over the next three years to represent 30 percent of MBNA's business. These include insurance, home equity lending and credit cards outside the United States. Already, MBNA has 1.7 million accounts in Britain, and it is moving into Canada and Ireland.
The company has 400 insurance agents licensed to sell auto and other policies underwritten by TIG Holdings. It hopes to offer policies endorsed by affinity groups, as it does with credit cards.
And where does MBNA fit into the merger mania sweeping the financial services industry? It stands apart from that, as well, Cawley and Lerner both said. With a market value of about $15 billion, MBNA would be too expensive for all but the biggest buyers. And Cawley and Lerner are hardly tempted to mimic the choice of First USA, which sold itself to the Banc One Corp. earlier this year.
"We are not in the financial transaction business," Cawley sniffed. "We are in the business of building a business to last. We couldn't imagine that the fortunes of MBNA would be improved by being bought by another company."
Pub Date: 11/14/97