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MBNA is a company of people committed to: Providing the Customer with the finest products backed by consistently top-quality service. Delivering these products and services efficiently, thus ensuring fair prices to the Customer and a sound investment for the stockholder. Treating the Customer as we expect to be treated--putting the Customer first every day--and meaning it. Being leaders in innovation, quality, efficiency, and Customer satisfaction. Being known for doing the little things and the big things well. Expecting and accepting from ourselves nothing short of the best. Remembering that each of us, the people of MBNA, makes the unassailable difference.
Delaware-based MBNA Corporation is a bank holding company. It is the parent company of MBNA America Bank, N.A., the third largest issuer of credit cards in the world and the top issuer of affinity credit cards, issued in cooperation with professional associations, charitable organizations, and recreational groups. The firm also offers other loan and deposit products, including money market accounts and CDs, as well as insurance services. MBNA provides home equity loans through its MBNA Consumer Services subsidiary and services Canadian customers through MBNA Canada, which was formed in 1998.
An Affinity for Credit Cards: 1980s
Charles Cawley founded MBNA in 1982. The small bank, based in a Newark, Delaware supermarket, was formed as the credit card subsidiary of MNC Financial, a regional bank holding company headquartered in Baltimore. The credit card industry was growing rapidly at the time, and Cawley was eager to expand the enterprise. Rather than pursuing the same strategies as his competitors, though, Cawley was looking for a marketing strategy that would separate his product from the homogenous horde of credit card lenders that competed mostly on price.
In 1983 Cawley approached his alma mater, Georgetown University in Washington, D.C., about partnering with him. His idea was to get the Georgetown University Alumni Association to endorse a credit card that would be offered exclusively to its members and generate a royalty or percentage of all revenues derived from the cards. The enticement for cardholders was that their use of the card benefited the alma mater and that the card displayed their affiliation with Georgetown. The alumni association agreed to the project, and Cawley's first direct mailing effort was a hit. In addition to signing up an unusually large percentage of its prospects, MBNA benefited from the overall credit quality of its new customers, who were categorized generally as having relatively high income and education levels, thereby resulting in lower delinquency in charge-off levels.
As a result of his success with Georgetown, Cawley was convinced that he was on to something. By issuing 'affinity' cards and focusing on customer service, MBNA added value to an otherwise commodity-like service. He realized that if he could duplicate the results working with other groups, he could substantially increase MBNA's profit margins by capturing a more upscale and, therefore, less risky and higher spending segment of the market. Significantly, marketing costs per account could be greatly reduced because the response rate of direct sales efforts would be much higher than the industry average. Indeed, other credit card companies at the time often resorted to mass mailings targeted to broad groups identified by zip code or income level. In contrast, MBNA's prospects were motivated to review the credit card offer simply because of their affiliation with the group sponsoring the card.
Cawley next succeeded in getting the American Dental Association to sponsor an affinity card, and he followed that program with an affinity card for the Aircraft Owners and Pilots Association. Both efforts were successful. Throughout the mid-1980s Cawley aggressively approached new partners, focusing on various clubs and associations with an upscale membership. By 1985, in fact, MBNA was managing more than $1 billion in outstanding loans, compared with just $250 million going into 1983. MBNA's net income surged to $67 million in 1986 as outstanding credit vaulted to the $2 billion mark. Revenues and profits continued to surge as MBNA added affinity cards for major groups like the Sierra Club, Association of Trial Lawyers of America, the University of Texas, and National Education Association.
MBNA sustained its swift growth rate during the middle and late 1980s by scouting out upscale groups like college alumni associations and professional societies. After it selected an organization, it would offer future royalties in exchange for the group's membership list and permission to use its name and letterhead in direct-advertising efforts. By the early 1990s some groups were generating hundreds of thousands of dollars annually as a result of credit purchases under such agreements. For example, the Sierra Club arranged to receive one half of one percent of every charge made by its group members. MBNA had succeeded in signing up 45,000 of the environmental group's members by 1994, bringing more than $400,000 to the Club's coffers annually.
Although Cawley's strategy was unique for the early 1980s, by the mid-1980s other credit card companies were employing similar tactics. Nevertheless, MBNA continued to boost market share. Steady gains were in large part the result of fruitful marketing programs. MBNA marketers regularly solicited prospective groups with phone calls and by attending trade shows. Once they had the accounts, they utilized aggressive telemarketing and direct mail techniques to constantly boost the sizes of the accounts. For example, the Penn State Alumni Association entered into an affinity card agreement during the mid-1980s with a local bank, which succeeded in signing 15,000 members to the card. MBNA took the account over in 1989 and proceeded to boost membership to more than 120,000 within four years.
MBNA maintained its high-quality customer base by relying on credit reports to identify the most affluent and responsible customers. The strength of its credit base was reflected in its extremely low percentage of uncollectible loans, which was well below the industry average. Once it got the customers, it focused on keeping them with good service. For example, MBNA was the first credit card issuer to offer 24-hour-a-day service to all of its customers, and its phones were answered by people rather than by machines. In addition, people, rather than computer software, also reviewed individual account applications.
As MBNA's accounts swelled, so did its profits. By 1987 MBNA was managing more than $3 billion in credit card loans and netting a healthy $75 million annually in income. Managed loans surpassed $4 billion and then $5 billion in 1988 and 1989, as profits ballooned to more than $100 million annually. By 1990, MBNA was managing about $8 billion in credit card loans and pulling down nearly $130 million in profit. Those figures reflected an annual growth rate of more than 17 percent between 1987 and 1990. MBNA had become the largest single issuer of gold MasterCards and the fourth biggest provider of premium Visa cards. Its gold cards, in fact, made up about 42 percent of its accounts and were responsible for nearly 60 percent of MBNA's outstanding loan balances. Going into 1991, MBNA was marketing affinity cards for about 1,400 groups, including 223 medical and 70 attorney associations.
Independence and Expansion in the Early 1990s
MBNA's rampant growth during the late 1980s mimicked the gains of its corporate parent, MNC. MNC invested heavily in real estate during the period and enjoyed solid profits. Unfortunately, the commercial real estate market collapsed before the end of the decade. By 1990, MNC, swimming in red ink, was desperate for cash. After losing more than $240 million during the first three quarters of 1990, MNC put its crown jewel, MBNA, on the auction block. Several credit card companies inquired, including Sears's Discover Card unit, but they balked at the $1.1 billion price and waited to see if the desperate MNC would go lower. Instead, MNC spun off MBNA in January of 1991 in a public stock offering that raised about $955 million. The offering took place just two weeks before MNC's deadline to pay a $271 million debt.
Among the big winners of the MBNA spin-off was Alfred Lerner, a magnate with a personal worth estimated at $600 million at the time. Lerner was a major MNC stockholder. He had sold his bank, Equitable Bancorporation, to MNC in 1990 in exchange for MNC stock. Within weeks after the sale, however, MNC was drowning in real estate losses. Lerner was called in to run the bank, and he made the decision to sell MBNA. Shortly after the public stock offering, MBNA's stock price soared, and Lerner realized more than enough profit from his MBNA shares to offset his losses from his ownership in MNC. Lerner, who still owned about ten percent of MBNA in the early 1990s, became CEO of the newly formed MBNA Corporation. Still, Cawley, as president, continued to run the company.
By the early 1990s, MBNA's work force had grown to more than 5,000. To house its thriving operations, MBNA developed new facilities, including several important new regional marketing centers in Atlanta, Dallas, Cleveland, and Maine. From those facilities, several hundred representatives would conduct direct-marketing campaigns throughout their region and also provide service and information-processing functions.
The Northeast Regional Marketing Center in Camden, Maine was representative of the marketing centers, and it also marked a tie to Cawley's past. Cawley's grandfather had once operated dress factories in Camden and adjacent Belfast, and Cawley was familiar with the area because he had summered nearby at his family's Lincolnville Beach estate. By the time the facility was completed in 1993, it was housing 250 people, and within two years MBNA had boosted that number to 600 and was planning further expansion in the area.
Despite the U.S. economic downturn of the late 1980s and early 1990s, MBNA continued to advance throughout the early 1990s. Managed loans nearly topped the $10 million mark in 1992 as MBNA's net income clambered to an impressive $170 million. By 1992, one-third of all U.S. doctors and about 20 percent of all attorneys were carrying MBNA credit cards, and their accounts were proving to be surprisingly profitable. Indeed, some analysts had questioned the wisdom of marketing credit cards to high-income individuals, few of whom would be expected to keep a running balance at high credit card interest rates. The average annual income of MBNA's cardholders in 1992 was an industry high of $54,000. However, MBNA's typical customer kept a running balance (at an average interest rate of 17.3 percent) of $2,200, about 35 percent higher than the industry average. By 1995, the customers' average annual income had risen to $59,000 and they were carrying an average balance of $2,886 (at an average interest rate of 16.4 percent).
Furthermore, MBNA charged its customers annual card fees of $20 to $40. Despite a flurry of new competition in the credit card industry, though, MBNA's affinity strategy allowed it to continue to successfully charge fees while many competitors dropped fees or slashed interest rate charges. MBNA also profited by selling much of its receivables forward at a fixed rate, a practice that essentially allowed the company to finance its portfolio at relatively low interest rates. Although that strategy left MBNA vulnerable to rising short-term interest rates, it paid off big during the early 1990s when rates were depressed.
MBNA's strategy was to sell to people with a common interest. In addition to the organizations and financial institutions that endorsed the company's products, MBNA began looking for 'created affinities.' For instance, it began offering cards displaying family coats-of-arms, as well as cards picturing regional landmarks to people proud of their home towns or states. By the mid-1990s, it was marketing to fans of nearly 200 different professional sports organizations, including National Football League teams, motor sports fans, and teams in every other major sport.
Because of MBNA's efficient financing strategies, marketing tactics, and customer service, profits surged going into the mid-1990s. Managed loans jumped to $12.4 billion in 1993 as net income topped $200 million. By 1994, MBNA had issued more than 14 million cards and was partnering with more than 3,600 different organizations, including the Telephone Pioneers of America, American Legion, and more than 400 universities and colleges. Managed loans grew to nearly $19 billion by the end of 1994, and the credit quality of its accounts was still much better than the industry norm. MBNA began to augment its operations in 1993 with home equity loans offered through its subsidiary, MBNA Consumer Services, Inc. It also launched initiatives overseas: it started in the United Kingdom with an affinity card for members of the Rolls-Royce Enthusiasts' Club.
Continued Growth in the Late 1990s
MBNA continued to strengthen operations and grow its credit card business in the latter half of the decade. The company added consumer retail loans to the list of offerings provided by MBNA Consumer Services in 1996, thus allowing customers to finance costly purchases such as computers. Also that year the firm established the MBNA Insurance Services division to offer credit-related insurance, a service the company had offered since 1987. In 1997 MBNA Insurance Services began to market property and casualty insurance, primarily auto, as well as health and life insurance products. In 1998 MBNA established MBNA Canada Bank and began marketing credit cards to Canadian consumers.
In the late 1990s MBNA grew not only through credit card growth but also through acquisitions and partnerships. In 1997 MBNA purchased the credit card operations of Fidelity Trust Company, a subsidiary of Fidelity Investments. The acquisition included about 300,000 credit card accounts and $450 million in assets. In 1998 alone MBNA completed 25 acquisitions, including the acquisition of the credit card operations of PNC Bank Corp. in December for about $2.9 billion. Ventures the following year included a partnership with CCB Financial Corp., under which MBNA bought $150 million from CCB banks located in the southeastern United States, and the acquisition of the credit card portfolio of SunTrust Banks Inc. The estimated $1.5 billion purchase included the outstanding loan balances from about 1.4 million credit card accounts.
Hoping to capitalize on the intensive growth of the Internet, MBNA brokered deals with Internet companies in the late 1990s. MBNA's agreement to issue an affinity credit card with EarthWeb, an Internet-based company that sold business supplies online, was promoted by MBNA and EarthWeb as 'one of the first affinity credit card programs in the business-to-business Internet space,' according to Asset Sales Report. MBNA also entered into a marketing partnership with Infoseek Corporation, which operated the GO Network. The GO Network included such high-profile Web sites as ABCNEWS.com, ESPN.com, NFL.com, Mrshowbiz.com, and Infoseek.com. Infoseek claimed that the GO Network had eight million members. The deal, estimated by MBNA to be worth up to $100 million, included an affinity credit card aimed at online consumers.
Net income in 1998 reached $776 million, up from $622 million in 1997. Managed loans increased 21 percent from 1997 to reach $59.6 billion. MBNA announced that it had added 9.3 million new accounts and arranged endorsements with 475 new organizations, including the Canadian Nurses Association, the University of Hawaii, the Canadian Football League, the American College of Dentists, and Miami Heat. MBNA's share of the U.S. credit card market grew to 12 percent in 1998, and its share of the credit card industry in the United Kingdom reached ten percent. The company's international operations grew rapidly to reach $4.9 billion in loan balances in 1998, an increase of 75 percent from 1997. MBNA managed to keep its loan losses low by remaining true to its proven tactic of carefully selecting responsible consumers with steady incomes; the company's characteristic customer in the late 1990s earned an average household income of $60,000 and was a homeowner.
As MBNA approached the end of the 1990s, it had successfully become a leader in the volatile and competitive credit card industry, with a solid history of increasing revenues. In 1999 MBNA acquired endorsements from 400 new groups, including the Marine Corps Association, Northwestern University, the American Automobile Association, and Carnegie Hall. Total managed loans grew $12.6 billion over 1998 to reach $72.3 billion. MBNA's net income in fiscal 1999 topped $1 billion, the best performance in the company's history.
Principal Subsidiaries: MBNA America Bank, N.A.; MBNA Consumer Services, Inc.; MBNA International Bank Limited (United Kingdom); MBNA Marketing Systems, Inc.; MBNA Canada Bank; MBNA Insurance Services; MBNA Hallmark Information Services, Inc.; MBNA Delaware.
Principal Competitors: BANK ONE Corporation; Chase Manhattan Corporation; Citigroup Inc.
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