AT&T; Reaches Out for Share of Credit Card Market : Marketing: The telephone giant will offer long-distance clients the ‘Universal Card,’ which can eliminate annual fees. Some say the move may spur rivals to devise new benefits.
AT&T; entered the hotly competitive credit card market Monday with its “Universal Card,” a combination calling card and credit card that will give customers a host of free services, including buyer protection, rental car insurance and warranty extensions on products purchased with the card.
The New York-based long distance company said customers who get the card this year and continue to use it at least once annually will not be charged annual fees--ever.
“We guarantee no annual fee for life, as long as customers use the card at least once a year,” said Paul Kahn, president of AT&T; Universal Card Services Corp. “No credit card company has ever made that commitment.”
The card, which initially will be marketed to AT&T; long-distance customers, also will give a 10% discount over AT&T;’s usual calling-card rates, the company said.
However, AT&T;’s initial annual percentage rate of 18.9% is no bargain, said Robert B. McKinley, publisher of RAM Research’s Bankcard Update, a credit card newsletter. The AT&T; credit card interest rate is adjustable and will float at 8.9% over the prime rate.
There is a 25-day grace period on ordinary purchases before interest charges accrue. There is a 30-day grace period for calling card charges.
Industry experts had expected the telephone company, which has been studying the credit card business for three years, to offer its card at a discount interest rate to spur demand. However, McKinley said waiving the annual fee may be more attractive to customers, who accept the fact that credit card interest rates are high but are consistently annoyed about having to pay for their plastic.
Meanwhile, the company’s main competitors--Citibank and American Express--acknowledge that AT&T; will present a formidable challenge and may further spur the “enhancement wars,” which have caused many of the nation’s biggest card issuers to offer a wide variety of free services to cardholders.
“It is really beneficial to the consumer in the long run,” said William Ahearn, a Citibank spokesman. “We believe the marketing of credit cards today and in the future will be based on what services you can provide and what benefits you can provide. I wouldn’t be surprised to see other people coming in with the benefits we’ve innovated.”
Both Citibank and American Express offer buyer protection plans, supplemental travel insurance, rental car insurance and 24-hour hot lines for problems and to report stolen cards. American Express charges a $15 annual fee and a 16.5% annual interest rate on its Optima card, while Citibank charges $20 annually and 19.8%.
AT&T;, which is matching the enhancements offered by Citibank and American Express, will also give unhappy customers $10 gift certificates as part of its “service guarantee.” That and the company’s marketing muscle are expected to further heat competition in the industry and spur more credit card issuers to provide free services to consumers.
“It will definitely contribute to the further use of product enhancement services by financial institutions trying to differentiate their card from their competitors,” said David Robertson, vice president of the Nilson Report, a Santa Monica-based credit card newsletter.
Because AT&T; has so many customers--including 40 million calling card holders--it could become a major player in the credit card market virtually overnight, McKinley aded. However, the entree is likely to be expensive.
Sears, Roebuck & Co. spent $232 million to get its Discover card in 33 million wallets, he said. And McKinley expects AT&T; will have to spend between $100 million and $200 million to gain a similarly large market share.
AT&T; will not say how much it plans to spend nor will it reveal its goals on how many consumers it hopes to sign up within the next year.
It is offering the card in conjunction with Universal Bank, a limited service financial institution affiliated with Synovus Financial Corp. of Columbus, Ga.
