Affinity cards threaten Canadian banks

The business beat

By Daniel Huot

Newly settled U.S. companies are brewing competition in one of the most ignored banking spheres — the affinity card market — and are making Canadian banks fear for their plastic.

Projected bank mergers could mean more affinity card business for our neighbours.

Affinity cards are usually personalized credit cards that can carry a corporate or institutional logo such as GM cards, or university credit cards.

The Bank of Montreal and the Royal Bank, who plan to merge their institutions, sell MasterCard and Visa credit cards respectively. Canadian credit card associations only allow banks to sell one of these two credit cards.

That means one of the two credit card giants could be brushed aside.

Imagine the Bank of Montreal giving up its 6.7 million MasterCard cards under circulation simply because it has to convert to Visa or vice versa in the Royal Bank’s case.

Millions of credit card owners across Canada might be confused if card company rules don’t change.
Moreover, merged banks might have to issue new cards with their new logos, and this will involve expenses.

Our southern friends could profit from the situation and gather important customer segments.
But don’t complain about a southern invasion because U.S. credit card companies are bringing jobs to Ottawa.

MBNA Bank Canada, a U.S. affiliate based in Gloucester, plans to increase its share of employees by 100 people, up from its present 220 worker staff.

And Bank One International, the second largest affinity card dealer in the U.S. is opening its doors in the capital region within the next month and expects to have 600 employees on its payroll within the next five years. At least 90 employees should be working by December.

MBNA Bank Canada and First Bank International could be employing almost as many people in Ottawa as the Bank of Montreal employs in its Toronto credit card division within the next five years.

For now Canadian banks are rolling patriotic drums and warning us that Uncle Sam’s companies are not going to invest in Canadian technology and will only hire minor representatives.

While Visa and MasterCard issuers have $14 billion US in loans and outstanding assets in Canada according to a reliable source, Bank One International quadruples the Canadian market at $57 billion US.
Last year Bank One International mailed over 780 million card offers across the U.S. and had a $375-million US marketing budget.

Stiffer competition for our banks means more local employment.