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A few weeks ago, the Visa CAL credit card company began offering direct loans to consumers. Even though CAL extends credit, it has never given out cash loans, serving instead as an operative clearinghouse for transactions in which the bank was the creditor. The new twist in CAL's activities is that consumers who are not depositors at either the Israel Discount Bank or the First International Bank (FIBI), which owns CAL, will now be able to obtain direct loans. CAL will raise funds from the open capital market and will provide loans for which it will bear the risk of non-repayment. As a result, CAL will be competing with the banks.

In Israel, CAL is almost completely identified with the banks due to the historic structure of the credit card industry. The banks own the credit card companies, and therefore, have no interest in internal competition. On the other hand, in the United States, the credit card companies are independent and they, not the banks, provide consumer credit. With the establishment of Alpha Card a few years ago and recent structural changes in CAL's ownership, a number of players from outside the banking industry have been brought in and are precipitating even further changes.

CAL is owned jointly by Discount, FIBI, Eliezer Fishman and the Harel Investment Group. This ownership structure dictates a different attitude toward credit than that practiced by the large banks - Bank Hapoalim and Bank Leumi - each which outrightly owns a credit card company. The arrangement among CAL's shareholders calls for the company to attract non-banking customers and to offer them services that are not necessarily marketed by Discount, which has a controlling stake in CAL (60 percent).

Isracard and Leumi Card (owned by Hapoalim and Leumi respectively) have not yet promoted the extension of loans to non-bank customers for the simple reason that the two banks already provide such loans.

At first, CAL will grant loans only in shekels for up to 18 months. CAL General Manager Dov Kotler notes that this type of loan meets the particular needs of customers and additional types of credit linked to other currencies and for longer periods may be developed in the future. The current difficult economic situation has prompted Kotler to proceed with caution and not expose the company to unnecessary risks.

CAL is now offering loans ranging from NIS 3,000 to NIS 50,000 at interest rates between prime minus 0.2 percent to prime plus 3.5 percent, depending on the borrower's type of card and credit rating. These terms are similar to those offered by the banks. The target market for CAL's loans is clients who do not have bank accounts at either Discount or FIBI. Kotler says CAL already has about 100,000 such clients, in addition to 130,000 card owners - primarily members of consumer clubs such as Power Card, Sakal, and Hamashbir Fashion Warehouse - who switched to CAL when Alpha Card closed down. CAL has 1.25 million clients after the departure of about 700,000 Leumi clients who gave up their CAL cards and switched to Leumi Card.

The basic idea behind the new loan plan is to encourage consumers to take advantage of unused credit available to them on their credit cards. Sources at CAL claim that many clients are unaware that the credit card companies grant them a line of credit (LOC) in addition to credit granted to them by the banks through their current accounts. The level of credit being used by the public via the LOCs provided by the credit card companies is quite low and stands at about only 30 percent.

"The average use of credit card LOCs is not high, and it is crystal clear that the average consumer has available credit [that he is not using]," says Kotler. "We are trying to get consumers also accustomed to using us for ongoing credit needs and not just for purchases. This is a conceptual change in our activities."

The idea of providing loans to non-banking customers - ones who received their credit cards via consumer clubs and not the banks - was initially raised in 1997 with the inauguration of Alpha Card. The company, which was founded by FIBI, had to reach a critical mass of customers and could not survive solely on the bank's clientele. That is why Alpha Card appealed to the general public, offering a form of credit different from overdraft. Alpha Card did not succeed in attracting enough customers and was ultimately disbanded, transferring its customers to CAL and its technology to Leumi Card. CAL has no lack of clientele but is still seeking to attract non-banking customers.

CAL's loans are being marketed as express loans. They can be obtained via the Internet or an automatic telephone answering system and they offer additional or alternate overdraft credit. "This is a simple product that does not require going to the bank, negotiating or signing documents," explains Kotler. The loan can be used for any purpose, and does not require consumer club members to make purchases at specific stores.

CAL solves the problem of the inherent risk in extending such loans through a questionnaire that non-bank customers must fill out when applying for a loan. The customer is required to provide information on personal income, credit card history and expenditures, including mortgage payment, rent and other loan repayments. Customers are given a credit rating based on this information, although Kotler emphasizes that CAL does not use the same credit scoring system employed by Alpha Card.

Even though 18 percent of CAL's customers do not bank at Discount or FIBI, the company's credit risk remains low because a considerable number of CAL's clients use their cards as secondary credit cards for purchases at specific stores only.

Kotler says that there has been a good public response to the express loans, but the company is not going to let this branch of business grow too fast due to the uncertain economic situation. "We are being cautious," he says. "It is not hard to give out credit. The problem is collecting on it."