NEW YORK, Nov 2 (Reuters) - General Electric Co.'s consumer finance unit on Wednesday said it plans to enter agent banking, hoping to win business from retail banks seeking to outsource their credit card businesses.
The conglomerate's move into the low-profile but potentially lucrative area comes as MBNA Corp., a force in agent banking, prepares to be acquired by Bank of America Corp. in a $35 billion transaction.
GE's finance unit is betting that banks won't want to give some large competitors, especially ones with branch networks, access to their customer credit card relationships.
"GE's prospects are very good," said David Robertson, publisher of the Nilson Report, the credit card industry newsletter. "It can offer an agent bank program without being a competitive threat to any commercial bank, because it does not have deposit account relationship opportunities."
Robertson estimated that agent banking could add as much as $250 million to Fairfield, Connecticut-based GE's profit within five years. GE reported net income of $13.3 billion in this year's first nine months.
GE's consumer finance unit sped up its push in the last six months, after establishing co-branded card relationships over the last couple of years with merchants such as Wal-Mart Stores Inc., the world's largest retailer.
"The agent bank space has always been considered a logical next step," said Scott Young, a senior vice president in GE's consumer finance unit, in an interview. "About a year ago, we started thinking more seriously about it once we had our retail co-branding relationships in place. Now that a number of those launches are behind us, we felt we were ready."
As an agent bank, GE would handle collection, application processing, back-office operations and other services. Its array of businesses also includes such things as jet engines, health care, plastics and NBC television.
In agent banking, Robertson said GE's main competitors would include JPMorgan Chase & Co.) , Wells Fargo & Co., U.S. Bancorp and Bank of America/MBNA.
It is the latter that has the most to lose, he said, with about $17 billion of card receivables tied to companies such as Wachovia Corp., AmSouth Bancorp, Merrill Lynch & Co. and Charles Schwab Corp.
"Agent banks (can) receive fee income from accounts they generate at their branch networks," Robertson said. "MBNA doesn't have a branch network, but Bank of America does. The last thing a Wachovia or an AmSouth want to do is give Bank of America access to their credit card relationships."
Charlotte, North Carolina-based Bank of America has estimated MBNA next year will lose about 3.15 percent of the revenue it generates from its 350 agent bank relationships, and lose 7 percent by 2009.
"We have confidence that the impact of that lost revenue will be minimal on the combined operations of Bank of America and MBNA," spokesman Ernesto Anguilla said.
Young, who has worked at GE for three years and worked at MBNA for 12, said about five to 10 employees are working daily on building the business, and soliciting and negotiating with potential customers. This number should grow, he said.
"In the next couple of years we hope to have a number of relationships and at least a few billion in served assets," Young said. "There is an opportunity for some fairly large regional banks and perhaps some national banks to come to GE. We look at this as a long-term growth opportunity."