First USA/Lending Tree

www.lendingtree.com

Lending Tree’s clever credit card promotion
with First USA pays up to $500.

First USA (Wilmington, DE; $69.5 billion; 46.1 million accounts with 59.1 million cards), the credit card division of Bank One, has teamed with privately held loan marketplace, Lending Tree (OBR 6/98), to offer a clever promotion. Lending Tree loan applicants earn up to $500 when their loan closes if they agree to take a credit card from First USA. To request the card, applicants simply check a box on their loan application. The card is a no-fee, 9.99% fixed rate (with 4-5 month 3.9% teaser) Platinum product similar to that used with Yahoo! (OBR 2/98), WingspanBank, and its own e-Card (OBR 11/98).

Loan Bonus Program

Source: Online Banking Report estimates, 7/99

1) Bonus on closed loans only; to claim, user sends credit card number, closing loan statement, and Lending Tree password to First USA.

2) Assumes First USA pays an estimated $125 per card acquired whether the bonus is claimed or not.

3) Estimated Lending Tree promotional cost per closed loan.

The program appears to be a real winner for both companies. From Lending Tree’s standpoint, it gets to advertise a $500 bonus with little out-of-pocket expense. We don’t know how much First USA is paying for the cards, but we would guess it’s in the $100 to $150 range, given the quality of the applicants, and the fact that First USA gets to evaluate an entire mortgage application when underwriting the loan. Since only closed loans can earn the rebate, and applicants must jump through hoops to claim it, we would estimate only half of the new cardholders actually are paid a bonus. That means the actual cost to Lending Tree is only $125 or so per booked mortgage, zero for home equity loans, and a small profit for each auto loan (see table above). Any way you cut it, it’s a whole lot less expensive than the $900 PC systems Microsoft HomeAdvisor was offering most of the summer (OBR 3/99).

It’s also a good arrangement for First USA as well. The card company picks up a few quality credit cards, but more importantly gets valuable marketing data on what type of customers are using Lending Tree, how they respond to the offer, and whether they end up using the card. All this info can be put to profitable use at First USA, and at its sister companies, WingspanBank and Bank One. Certainly, First USA and company must be weighing the pros and cons of getting into the loan marketplace business themselves.

Given the investments Bank One has made on portal deals, we are surprised they let Providian outbid them for GetSmart and its 750,000 visitors per month earlier this year (sold for a reported $30 million, OBR 2/99). Maybe they have their sites set on Lending Tree instead.

Contact: Douglas Lebda is Founder, (704) 541-5351.