We are convinced that the credit card is the key to attracting, activating, and retaining online transaction accounts. For supporting evidence, you need look no further than the summer’s biggest virtual bank story, Wingspanbank.com, which was developed by Bank One’s credit card unit. Another major launch, which didn’t get the same amount of attention, but could be far more threatening is American Express’s Net bank.

1. Consumer Comfort/Trust: Multi-merchant credit cards have been around for more than 40 years. The public understands their benefits and doesn’t need to be taught how to use them. The well promoted MasterCard and Visa brands have played a large role in building trust to such high levels.

2. Highly Automated Account Opening: Credit card companies have the account opening process down to a science. Applicants answer a few questions on a preapproval form or give the go-ahead to a telemarketer, and voil´, they have a new card and credit line. But that’s only the beginning of the marketing process. Next comes the battle for activation and ultimately revolving balances. Cardholders are bombarded with convenience checks, balance transfer incentives, line increases, and other offers.

Compare that to the typical checking account opening process where the prospect must report to a branch, vie for attention from someone on the floor, wait for that person, determine which checking account to buy, fill out a bunch of forms, sign off on a fistful of disclosures, pony up an opening deposit, and agree to pay a bunch of fees, sometimes including a hefty one should the user try to close the account prematurely.

3. Consumer Protection: In the U.S., credit cards come with a host of consumer safeguards including:

•  charge dispute: 60 days to dispute the validity of any charge, even those authorized by the user
•  $50 maximum fraud/theft liability in the case of lost or stolen cards or card numbers (often waived)
•  immediate worldwide reissue if lost or stolen
•  gold card enhancements such as rental insurance, travel emergency assistance, and so on

4. All Electronic Infrastructure:
Credit cards are already Net-ready with an all-electronic infrastructure developed during the past forty years, including:

•  worldwide acceptance with automatic foreign exchange conversion
•  payment authorization based on sophisticated algorithms weighing dozens of factors
•  interchange structure that incents issuers and acquirers to promote card usage
•  transaction records that contain a rich amount of data that can be viewed and categorized by the end user (transaction date, posting date, merchant name, location or phone number, SIC industry code, amount)
•  worldwide cash advance capability at ATMs or financial institutions

5. Remote Customer Service: Credit cards were the first financial service to be sold on a remote basis, without relying on a brick-and-mortar support. This tradition continues today, with most large card issuers employing state-of-the-art 7 x 24 telephone support systems. Leading companies such as Capital One (Falls Church, VA; $14.1 billion; 19.2 million accounts) have even developed systems that predict what each customer is likely to be calling about based on past behavior, then deliver the answer automatically as soon as the customer connects to the call center.

6. Transactions are a Profit Center: Because card issuers are paid a percentage of each transaction, the more transactions the better. In contrast, paper checks are usually considered a cost, something to be minimized. Although, if you factor in the profit from check printing and NSF/OD fees, paper checks may also be a profit center.

7. Integrated Credit Line: The primary reason credit cards have been so profitable is that the built-in credit facility is so easy and tempting to use. As a result, credit card issuers have become the major providers of revolving credit in the United States. Whoever is closest to the transaction has the best chance of booking the loan balance. That’s why it’s so important to get users paying bills from your Web site. When available cash falls below that needed to pay all the bills, the bank hosting the bill payment session will be have first crack at lending the money to make up for the shortfall.

8. Ideal eCommerce Partners: Because Web sites need payment mechanisms to survive, credit card companies make ideal partners. They not only facilitate transactions, but also can finance incremental purchases. Another avenue of partnership is demonstrated by First USA’s innovative relationship with FreeMac.com, which recently announced plans to “give” away one million iMacs beginning in September. To ensure the recipients of this largesse are top prospects for FreeMac’s advertising partners, prospects will have to apply for and be approved for a FirstUSA credit card. They will also be required to buy Internet access from Mindspring for three years at $19.95/mo ($718 over three years).

While few companies can afford to compete with FirstUSA for the mega-deals, there are plenty of opportunities for financial institutions of all sizes to participate in local and niche Web sites. Some ideas:

•  branded buy or pay buttons at online merchants (see 1999 Predictions, OBR 1/99)
•  third-party shopping guarantees, e.g., purchases charged to yourbancard are guaranteed to be what you expected or you won’t have to pay
•  incremental buying power, e.g., open a new yourbancard to pay for your purchases, receive a $50 discount, and pay for your purchases over time
•  merchant linkages: cardholders reviewing their transactions online can be shown links to the merchants where they spent their money; for example, if a cardholder makes a purchase at Toys ‘R Us, First USA could show a hyperlink and advertisement for Toys ‘R Us, or more profitably, a banner for eToys.com saying, “Compare our price to Toys ‘R Us and shop online next time.”

9. Merchant Processing Tie-ins: Credit card issuers that are also merchant acquirers can tie together processing services with card issuing programs listed above (see OBR 1/99 for an example of how this might work)

10. One Way to Pay: The integration of POS and bill payment simplifies the user’s life by creating a single archive of electronic payments with a single interactive statement and search function. To add value, the archive could support manual entry of paper transactions, and/or download capabilities in ASCII/QIF/OFX format.

11. Scan & Pay Integration – Scan & Pay ebilling could jump-start the stagnant bill presentment market. A fundamental part of the service is smart agents that watch over your bills, make the payments on your behalf, and report oddities via email. These agents could also be applied to the credit card statement to compare individual charges against previous statements. Charges that don’t fit past spending patterns would be flagged and emailed to users.

12. eWallet and Other Capabilities: Eventually the process of purchasing on the Web will be automated to the point that a single click will be all it takes to from any merchant, even one you’ve never visited. The addition of a computer chip to the plastic, a.k.a. smart card or chip card, will provide even more possibilities to savvy issuers.

13. Ease of Direct Marketing:
Because consumers are accustomed to buying credit cards through the mail from companies they’ve never heard of and regulatory requirements are easier to satisfy remotely, it is far simpler to sell credit card-based accounts than deposit-based accounts.