One of NextCard’s first moves to transform its credit card into a broader financial tool is the eWallet online shopping enhancement.

This summer, MBNA launched two digital wallet programs: mbnabuy.com, powered by CyberCash and mbnawallet.com powered by Brodia. It also endorsed a third, PowerWallet from HNC/Qpass.

For any virtual product to work, especially one as sensitive to user perceptions as banking, it must pass three tests:

1. Is there obvious value to the user?

So far, online banking as a standalone product is a bust. Security First Network Bank, the first virtual bank, attracted just a few thousand households from its Oct. 1995 launch until it was absorbed by Royal Bank in mid-1998.

Banks have found that it takes more than online checking to attract new accounts. Why would a customer spend half a day transferring accounts to a virtual bank just to save a few bucks a month? The savings offered in monthly fees aren’t nearly enough to compensate for the hassle, especially when local banks are offering nearly identical packages of online services.

For those reasons, we think the combination of two useful products, credit cards and bill payment, could be a powerful way to generate new business. The credit line will attract users’ attention, while the bill payment feature differentiates it from thousands of other cards.

We’ll call this new product eCardPay.com, because it sums up the winning combination (and we happen to own the domain name, but would gladly transfer it to a subscriber for a reasonable fee).

2. Is there value to the service provider (you)?

The integration of a credit card into the product greatly enhances the income potential including these revenue streams:

•  net interest margin on integrated bill payment credit lines
•  net interest margin on credit card revolving balances
•  interchange from credit card transactions
•  paid links to merchants
•  marketing sponsorships/advertising
•  commissions on cross sales

Why VTAs Could Take Off
 

Sounds Like a Net Breakthrough: We think the press and your customers will seize on the VTA as a breakthrough, a new business model for the Net. Good for consumers and good for banks by driving costly and inefficient paper out of the system.

Free: A huge factor on the Web.

Easy Signup: Because credit cards are designed for remote signup (typically through the mail), the steps to sign up for a new account are simpler than for a traditional checking account.

Doesn’t Require Behavioral Changes:
Because the virtual account rides on top of the user’s existing checking account, users don’t have to drastically change behavior.

Good Word-of-Mouth Candidate: It’s the kind of thing people like to brag about using: hip, saves money, saves time, and is very wired.

3. Is there a cost-effective way to attract users?

This is a difficult part of the equation; how do you attract customers without (literally) breaking the bank? It won’t be easy. Even well publicized first movers such as NextCard are spending more than $100 per new account
 

• By leveraging the credit card portion of a virtual transaction account, you can use some of the techniques popularized by the credit card giants:
• preapproved credit
• card activation schemes
• premiums
• loyalty programs

In our view, the successful Internet banks will be those that are able to attract customers without making them completely give up their existing financial relationships. Wingspanbank, the heavily marketed entrant from First USA and Bank One, has already torn down one important barrier: users are able to pay bills from the Wingspan Web using funds from any U.S. bank account .

We think companies can and will make a business case for virtual checking programs, a likely early mover is NextCard, which all along has said it wants to be much more than just a card company.
It has already added online shopping features to its card including:

• safe shopping guarantee (OBR 4/99)
• shopping marketplace
• eWallet from Pasadena, CA-based idealab! www.ewallet.comom

The company also just announced an insurance distribution deal with InsWeb, the clearest signal to date that NextCard is expanding its product
line beyond credit cards.

Over time we expect a broad base of users will embrace virtual checking. It won’t catch on like free email, but it will be adopted much faster than traditional checking accounts with an online component. What that means for existing banks is that their wired customers will increasingly be offered inexpensive, feature-laden credit and payment programs. But as long as you offer similar online functionality, your customers will have no reason to go elsewhere

Source: Online Banking Report, 7/99

* Partial listing of available digital wallets, a Web utility that allows users to automatically populate shopping cart forms with personal info. and credit card numbers, some require the cooperation of the merchant, some do not.