On Friday, we began looking at the charge and credit card industry, trying to get a better feel for Rule Maker American Express' (NYSE: AXP) advantages in the card industry.  Today, we continue by examining the card business of financial services giant Citigroup (NYSE: C)

This means we need to understand a few things about Visa and MasterCard, the world's most popular bank cards. (Bank cards are issued by banks, unlike Discover and American Express cards, which are issued by those institutions.)

Even though merchants have been offering credit to their best customers for thousands of years, the first widely distributed credit card, Diner's Club, has only been around since about 1950. Visa traces its roots back to 1958 when Bank of America launched its BankAmericard, but it didn't become branded as Visa until about 1976. MasterCard got its start with a group of banks in the 1940s, but the MasterCard name didn't appear until the 1970s.

Consider that there were about 47.6 million total credit card accounts in 1970, according to banking journalist and author Martin Mayer in his book, The Bankers. By the end of last year, Citigroup alone had 100 million card accounts worldwide.

Through the first three quarters of 2000, credit card issuers sent out more than 2.5 billion pieces of mail (credit card offers) to consumers nationwide, almost four times the number of pieces sent during that period in 1992, according to industry research firm BAI Global. That's more than nine offers per person in the U.S. At the same time, the average response rate from direct mail has fallen from an average of about 2.9% through the first nine months of 1992 to about 0.6% for the same period last year, so you can see how tough things are getting in the credit card business.

Both Visa and MasterCard are associations that operate with banks as their members. The system is set up such that Visa and MasterCard manage the brands, work to innovate cards, and improve technology, while member banks actually issue the cards. Between issuing banks and merchants lies one more agent, the acquiring bank or independent sales organization (ISO), which acts as an intermediary between the merchant and issuing bank. The acquiring bank manages the merchant relationship. It's a complex system of players, all of whom share in profits.

Visa is by far the most widely held card in the world. It has issued more than 1 billion cards and claims to have 60% market share of total payment card volume.

While it's easy to shake your head at the number of credit cards and rising consumer bankruptcies, it's worth putting credit cards in perspective. They serve as an important source of liquidity for the average consumer. Remember that if you pay off your credit balance at the end of each month, you're essentially receiving an interest-free loan from the bank while your other accounts continue collecting interest. That ain't bad.

Originally, the only consumers with access to lines of credit were the rich and well connected. The pendulum may have swung too far, leaving us too reliant on high-interest credit card debt, but the credit card industry has had a hand in equalizing the differences between haves and have-nots in this country, at least in terms of access to basic financial services such as fast cash.

Citigroup's credit card business is monstrous and growing fast thanks in large part to a series of acquisitions, including its $31 billion purchase of Associates First Capital in September, which brought in millions of new card accounts. Citigroup's total global accounts grew 10.4% in 2000. This compares to 10.6% growth in accounts for Morgan Stanley's (NYSE: MWD) Discover, and growth in basic cards in force (a rough equivalent of new accounts) of about 12.4% for American Express. Citigroup's 100 million accounts tower over Discover's 43 million and American Express' 40 million.

This gives Citigroup a powerful platform of customers, and a base to which it can sell additional financial products such as insurance, annuities, and planning services.

In fact, all three companies work to leverage their card-member base in the same way. A fast-consolidating credit card business is speeding the trend along, so look for more of this effort to maximize card-member profitability from all three companies.

In 1999 at American Express, for example, card members accounted for 30% of all new clients at American Express Financial Advisors, up from virtually zero a few years earlier. Customers with "linked relationships" with American Express, meaning they have a credit card or other lending relationship with the company in addition to a traditional charge card, can be up to six times as profitable. I've made fun of cross-selling in columns before, but it's real in the financial services industry. In fact, this bundling of financial services seems to be taking off the way it never did for full-service telecom providers.

Here's a look at the growth of Citigroup's card business (numbers in millions):

                    '00      '99     '98 
Total Revenue*    $6,293   $5,686  $4,899
Core Income**     $1,381   $1,182    $806
(* Net of interest expense) (** North America cards)

No question, Citigroup is positioned at the center of the world's bank card business. With a growing card-member base, the company's efforts to improve economies of scale by collapsing its credit card payment system onto a single platform, and a growing base of receivables -- $118 billion at the end of last year -- Citigroup is the global player in the bank card business.