Without expansive brick-and-mortar operations to generate business, card companies typically devote far more resources to direct marketing and cardholder retention than retail banks. You can learn a lot by watching what the card companies do online.

One

Develop a Killer App

Profitable online originations involve good marketing and a great application. It must be short and sweet and loaded with imbedded help for every term, otherwise only the desperate or dishonest will submit it. Most major credit card applications today are a model of simplicity. For example, Juniper’s online application (below) consists of a single screen posing just seven questions beyond standard identification information (name, address, phone number, etc.).

Two

Screen Out Improper Applications Before Submission

One of the main problems with non-preapproved credit card applications is all the worthless applications received. Not only has time been wasted researching the applicant’s credit report, but also your company must carefully follow regulatory requirements for communicating denials, lest you become a target of class-action litigators. Financial institutions, especially credit card issuers, now start the application process with two or three screener questions to reduce the number of applicants applying for products for which they are completely unqualified. This is a win-win, saving the bank application-processing costs, and helping applicants prevent lowering of credit scores due to application denial. Juniper uses a popup to deliver the screener questions (below).

Three

Segment Your Base with Regular, Gold, Platinum, and So On

We believe that premium channels will be the next big thing in online banking. That’s why we selected Money HQ from Online Resources as our top innovation of 2003. A review of the credit card industry provides clues as to how online banking may play out. American Express was a segmentation pioneer, rolling out a Gold Card in 1966, only eight years after the introduction of its standard charge card. After the huge success of the Gold strategy, widely copied by bankcards in the late 80s, the company further segmented its card base with the Platinum in 1984—again, widely copied by bankcards in the mid-to-late 90s. Now American Express operates a half-dozen card lines: Green, Gold, Platinum, Optima, Delta SkyMiles, and Blue, with plenty of sub-segments of each.

We expect to see the same thing happen with online banking. Now that leaders such as BofA, Wells, and Citibank have offered online banking for 15 years or more, and with penetration closing in on 50% of their checking account bases, the companies will begin offering different versions of their online programs. Expect to see differentiation around payment capabilities, credit access, account aggregation, service levels, human attention, and account alerts (see Table 9, below).

Table 9
Premium Online Banking Offerings

possible features and benefits

Source: Online Banking Report, 2/04

Four

Use Real-time Payments to Drive Users Online

According to Gartner’s latest research,* in the United States, biller direct payment is used by six million more adults than online bill payment through a bank, 18 million vs. 12 million. However, according to Gartner, respondents prefer bank sites for payment by almost two-to-one, 19 million vs. 10 million, although both options trail preauthorized debit, preferred by 26 million, and snail mail preferred by 116 million.

Banks can tap into the growing popularity of electronic payments by offering simpler bill-payment sites that allow users to make one-time payments or setup preauthorized debits, without a lengthy signup process.
Banks can also win more user by offering more choices, such as paying via credit card.

Table 10
Bill Payment According to Gartner

millions of U.S. adults paying bills online

Source: EBPP Future Blends Direct Bank Aggregation Models, Jan 13, 2004, by Avivah LItan, Gartner, http://www.gartner.com/  $95,
data from survey fielded May 2003
AutoPay =  preauthorized electronic debit
*Can choose more than one option, so the sum is higher than 100%
**Total the still wants to receive bills via snail mail

Five

Cross-sell

Credit card issuers have long been far more aggressive than banks pitching ancillary services, such as credit card registration, credit report monitoring, and credit insurance. They are beginning to take that approach to online marketing. For example, last year, Chase’s credit card group sent me more than 40 sales/service email messages. Issuers have also found profits selling all types of unrelated products and services from flashlights to magazine subscriptions. While, we don’t think banks should start pitching knife sets online, they could be more aggressive in selling related products, especially credit report monitoring, insurance, and value investments.

Six

Use Email for Retention

Credit card issuers are much further along in providing email messages to users. Card companies are using email to remind users of payment due dates, confirming charges and payments, marketing messages, balance transfer offers, line increase notifications, credit card check offers, e-statements, credit report and other ancillary product sales, holiday messages, and other relation-enhancing messages: even early collection efforts have gone electronic. Chase is one of the most prolific emailers. During 2003, we received  at least 70 email messages from the bank about our active credit card account, 46 of the messages (at least the ones we saved), were marketing/service oriented (see example left) and the other 24 had to do with scheduling and confirming payment of the bill (see OBR website for more examples).

Seven

Provide Compelling Online Account Management

Card issuers provide an online experience on par with similarly sized banks; however, some are becoming more creative with their account-management websites. For example, American Express offers its Small Business Dashboard to manage charge card (see screenshot left). One of its distinguishing features is a credit-status bar that graphically shows whether the charge account is approaching its limits (e.g., green means in good standing, yellow means charging privileges at risk, and red is account suspended).

Card issuers are also making online statements interactive with the ability to click through to get more information or dispute a charge, contact the merchant, or re-sort transactions.

Eight

Make Transfers Simple

For several years, companies such as Bank of America www.easybt.com  have provided simple online balance-transfer solutions for cardholders. Banks too should make it simple for users to consolidate deposit and loan balances in a similar manner using account aggregation technology and interbank-funds transfers. Citibank’s new A2A service and Money HQ from Online Resources are on the right track.

Nine

Integrate with Direct Marketing

The latest trend is to provide special URLs and/or application numbers in preapproved snail-mail solicitations so recipients can respond quickly online. For example, Fleet’s www.applybizcard.fleet.com  This is a win-win, giving the customer faster direct access to the special offer and providing an interactive environment for the card issuer to encourage balance transfers or other upsells. This integrated technique will quickly become a standard practice for financial direct marketing.

Ten

Get Rid of the Paper

With ever increasing printing and postage costs, the business case for e-statements continues to grow stronger. Although paper-suppression efforts are still in their infancy, we expect credit card issuers will be the first to successfully wean a critical mass of users off paper. Although it will take years of marketing efforts, for example, we’ve already received eight messages from Chase encouraging us to switch to a
credit card e-statement; the formula for adoption is relatively simple: