NEW YORK — Beneficial Corp. is testing the sale of certificates of deposit and individual retirement accounts by mail and phone through its Beneficial National Bank (USA), Wilmington, Del., subsidiary.
If the program is successful it will be rolled out on a nationwide basis to selected consumers this fall, according to Finn M.W. Caspersen, chairman and chief executive of Beneficial Corp. Mr. Caspersen made these comments in an interview here Tuesday.
The corporation is also close to cutting a deal with a major, national automated teller system to allow its own credit card and loan customers to get cash from machines all over the country. However, Mr. Caspersen does not envision allowing customers of the bank to get at their CDs or IRAs through this national ATM net, at least “not at this juncture.”
Beneficial National Bank (USA) is a limited-purpose facility which at this point neither accepts demand deposits nor makes commercial loans. With less than $250,000 in consumer deposits, it exists primarily to house Beneficial’s growing credit card portfolio, which currently services about 750,000 card-holder accounts and $700 million in outstandings. Beneficial is the nation’s largest issuer of the Visa premium card.
Mr. Caspersen downplayed the magnitude of the National deposit-gathering effort somewhat, stating that he didn’t even expect it to produce enough deposits to fund the credit card operation. That is because, he said, “we are targeting our customers very carefully.”
The credit card customer base, he said, is principally an upscale base, with two-income families earning $30,000 to $40,000 annually — “yuppies,” as Mr. Caspersen calls them.
The CDs to be offered will range in maturity from six months to three years and rates may vary with local market conditions, Mr. Caspersen said. An ancillary product possibility, he said, would be offering people loans to fund their IRAs, once all legal ramifications are examined.
The current IRA and CD test, he said, will determine whether these products are sold most easily by phone, mail or a combination. To date, a combination seems to be working best, Mr. Caspersen said, but “which comes first and the timing between the two is crucial.”
Mr. Caspersen declined to say which ATM network Beneficial was working with but said an announcement would be forthcoming in the next few months.
He made it quite clear that Beneficial is not interested in offering transaction accounts, unless competitive pressures force the firm into that business. If Beneficial decided to get into that business, he said, “we would do it centrally, through the credit card operation.”
“We are interested in the direct marketing of financial services which are profit centers within themselves. Although you can make money on transaction accounts,” Mr. Caspersen said, “that isn’t our game.”
He said Beneficial “has the ability to collect deposits very efficiently and give consumers a better rate — about 30 to 50 basis points better” than local institutions because the delivery system will not include the expense of branches.
Mr. Caspersen has for some time questioned whether success in the financial services business will go to those with the most services or those which offer only those products which can make a profit: “You have to look at all products very carefully and see what is profitable. You have to be very bottom-line oriented about which products to offer.”
He agreed that Beneficial’s loan-centered strategy is contrary to what seems to be Citicorp’s — where the checking relationship is seen as a core from which to offer other services. Beneficial, Mr. Caspersen said, uses loans as the core because “we want to be their lender. Period. If in order to do so we have to add other services, we will, but we want to add to the banking system, not compete with it.”
He was referring to Beneficial’s strategy over the past few years of buying and servicing bank credit card portfolois, keeping the bank’s name on the card and in front of the customer base. This program, he noted, helps community banks maintain visibility with their credit card customer while not having the expense of generally unprofitable card operations.
Futhermore, he noted, “The community bank still gets the deposits because we will not compete for deposits where we have an agreement to operate a card program for a bank.” Thus, Mr. Caspersen argued that Beneficial is a “procompetitive force in the financial services industry.”
Discussing Citiphobia — the fear that Citicorp will eventually gobble up every community bank’s customers — Mr. Caspersen said, “no one is going to be able to dominate this market. Everyone is worried in East Oshkosh that Citibank is coming for their customers. There won’t be a big winner or loser like that.
“We do have a strategy, however, to compete with Citibank’s perceived dominance in the marketplace,” Mr. Caspersen said. He emphasized that Beneficial, because of its size and the nature of its principal business, does not perceive itself as interstate banking competition for the giant Citicorp.
Mr. Caspersen noted that Beneficial will be happy to get back into unsecured lending, a business it was forced out of by the liberal bankruptcy law passed four years ago. A new, less liberal, version was expected to be signed by President Reagan late Tuesday.
Beneficial’s number of unsecured personal loan accounts dropped from 2 million to 700,000 over the past four years, Mr. Caspersen noted, as a result of the old bankruptcy law’s provisions. The firm has charged off between $150,000 and $200,000 worth of loans while that law has been in effect.
Mr. Caspersen acknowledged that Beneficial has gotten a lot smarter about credit cards and credit card customers than it was when it originally got into the business in the middle and late 1970s. The company was far from being alone in that situation. Along with many banks and other lenders, Beneficial lost a bundle — $14 million after taxes — by not realizing card customers are totally different than personal loan customers and that a good card program requires concentration on different demographics, better security, higher floor limits and other such factors.
He was especially concerned Tuesday with the amount of leverage in the banking industry, stating that banks have to start making money on assests and stop using leverage to boost return on equity. Bank stock price earnings ratios show that “something is wrong and it isn’t just foreign loans,” he said.
He said he isn’t worried about the security of the banking industry, however, because the “lender of last resort will always be there for them.” But, he emphasized, “the financial services industry had better understand that you can’t have the right to succeed without the right to fail.” The public should not be responsible for the industry’s inability to make a profit, Mr. Caspersen added.
About the possibility that Congress will give banks expanded insurance, real estate, and securities powers, Mr. Caspersen said, “when you accept manna from heaven, there are bound to be some strings attached to it. You are beginning to see those strings get pulled now in Congress as a result of the Continental situation which Congress says came from deregulation, but which we know came from overregulation.”
All financial services companies, he said, need to stop fighting among themselves and concentrate on which services will be profitable, “not which are synergistic or which make me first in the market or which I can get the most of.”