In the early commercial web era (1995 to 1998), there were five financial startups that inspired me in terms of their innovative products and services: 

• E-Loan for mortgage
• E*Trade for stock brokerage
• Netbank for deposit-taking
• NextCard for credit cards
• LendingTree for lead generation

These were my go to companies for ideas and inspiration when covering the space in the mid-to-late 1990s. In those days, traditional financial institutions were just getting started, and were not as far along in features and functionality. 

Sadly, two of the five have failed, NextCard in 2002 (here) and NetBank in 2007 (here). And the other three are struggling through the credit crisis.

The latest downer: This week, E-Loan, owned by Banco Popular, announced its exit from the online mortgage origination business. Reading the headlines, I first thought they'd thrown in the towel altogether. But it turns out they are only discontinuing direct mortgage originations. The company will continue to use its popular website (see traffic below) to attract potential borrowers who are handed off to other lenders, something it already does today for student, auto, personal and business loans, along with credit cards. This is a potentially lucrative fee-based business with zero credit risk.

It's a cautionary tale of how critical, and difficult, the execution piece is. These were industry darlings, always in the news and at the top of the search results. Yet, in financial services especially, you have to temper innovation with prudent underwriting and business practices. All three were brought down by credit-related problems. 

E-Loan traffic has stabilized at around 250,000 uniques per month:

<Updated 12/1/06 with more details>

Two new entrants in the so-called high-yield savings market launched this week:

• E*Trade Bank <etradebank.com>: Its new 5.05% Complete Savings Account was advertised in the Wall Street Journal today and took next-to-top honors in Google search results for "best savings accounts" (see end note 1, screenshot below).
• iGoBanking <igobanking.com>: The new online brand from Flushing Financial launched Monday with a 5.3% rate on an online savings account (see end note 2, screenshot below).

iGoBanking (click to enlarge)

As previously reported, Flushing Financial launched its entry into the online savings market. The 5.3% APY no-minimum account ranks as the fourth highest in the nation according to the Bank Deals blog (see list here). The rate leader continues to be E-Loan's at 5.5% (see our coverage here).

However, iGo can claim the highest no-minimum rate in the nation since E-Loan and the others require at least $5,000 to qualify for the higher rate.   

The bank will focus on deposits, CDs, and savings in 2007 and may expand to home equity and mortgage lending in the future.

Analysis
The website is attractive and relatively well designed. The online application is hosted by CashEdge (see related post here). Unfortunately, the outsourced application fails to maintain the look and feel of the main website and may cause a few applicants to second guess their decision to sign up (click here for a more thorough analysis of its application design). 

E*Trade Bank (click to enlarge)

E*Trade's Complete Savings account builds on the direct bank's lineup of award-winning products (see previous coverage here). The bank flat-out understands the market and the medium.

The landing page for the new savings offering is brilliantly laid out with Google-like simplicity using just 25 words of copy (other than the table and the below-the-fold fine print). Notice how they show specific competitive prices, including high-yield market leader ING Direct. But what most consumers will remember from the chart is the "6X national average" rate.

Finally, the "Open an Account in Minutes" and "Free, one-click transfers to and from any institution" address user concerns on both those issues. And the small padlock with E*Trade's protection guarantee helps users understand security issues.

End notes:

1. Search conducted at noon PST, Nov. 29 from Seattle IP address (see screenshot below).
2. Source: American Banker, 29 Nov. 2006 (article here)

Google search results for "best savings account"

Six months after announcing its intention to enter the direct-banking deposit market (NB 29 March), Popular Inc. launched a 5.5% deposit account through its E-Loan subsidiary. The fee-free account requires a $5,000 minimum opening deposit. The rate drops a quarter-percent if the balance falls below $5,000. The news was covered this morning in American Banker and The Wall Street Journal.

Popular execs clarified the timetable of its $3 billion deposit goal, saying it hoped to bring in that amount within a year. With few U.S. deposits to cannibalize and no branch network, the company expects to be aggressive with its pricing. To prove the point, it launched today at 5.5%, a full half-percent higher than Citi's E-Savings (NB Jun 26), Wamu (NB Sep 21) and HSBC, and a quarter-percent above Countrywide (NB Sep 20).

The Delivery
The E-Loan homepage has been remodeled to include a Savings tab across the top and a deposit box in the middle of the page (click on inset for a closeup; click on continuation link below for a screenshot of the entire homepage). There is also a high-yield savings category in the drop-down menu in the upper right.

The main savings page is laid out in a modern style with clear rate and APY in the upper right and the beginning of the online application on the lower-left side (see screenshot below).

Analysis
Since this had been expected for six months, there's nothing earth-shattering here. The decision to market deposits under the E-Loan brand makes sense given its awareness level online as demonstrated by the four million loan applications since its 1997 launch. It will take some advertising and promotional efforts to make consumers aware that the pure-play lender is now in the deposit business. But it will be less expensive than if Popular had tried to create an entirely new brand.

E-Loan has not yet begun marketing on savings terms at Google, but they'll likely have to join Citi, Wamu, HSBC, Emigrant, ING Direct and others if they are serious about making the $3 billion goal.

New E-Loan homepage with "Savings & CD" tab

Chris Larsen, who helped invent financial e-commerce by creating E-Loan <eloan.com> in 1997, is back on the scene mere months after selling the company to Popular Inc. last summer for $300 million. His new company, Prosper.com, is built around the idea of creating “communities” of people with similar interests who lend to and borrow from each other. The idea, he says, isn’t too far away from Jimmy Stewart’s savings and loan in Frank Capra’s film, It’s a Wonderful Life, where ordinary people lent to each other and made them all more prosperous.

Continue reading "Prosper.com Re-launches Chris Larsen of e-Loan Fame" »

In a logical extension of the auto industry's "employee pricing" gimmick, online lender, E-Loan launched a similar program for loans. This email arrived in our in-box yesterday morning. We are not customers, but have signed up for marketing messages (click on inset for closeup).

According to the email message, the discount on an auto loan amounts to 0.25%. On a mortgage, the savings are 0.5% of the loan amount. The sale runs through Labor Day weekend only, ending Sept. 6, 9am Pacific Time (click on inset on right, for an archived copy of its landing page).

In addition to the email blast, the special is splashed across its website (click on inset for archived copy of E-Loan's homepage, Sept. 2, 2005).

Note also, the prominent Red Cross link in the middle of the page for making donations to aid Hurricane Katrina victims.

--JB

Since its launch in mid- 1997, E*Loan has consistently had one of the best online lending sites. Right now, it suffers from www.Amazon.com bloat with 6 major areas, 6 tabs across the top, rate tables down the right side, and half a dozen other sales messages tossed in the mix. But if you can get past the home page, each major tabbed area is a work of art.

The Company

Even though the company has been a first-mover and innovator for nearly four years, its anemic stock performance has cast a cloud over most of its accomplishments, another victim of the irrational exuberance of 1998 and 1999. Its stock has traded around the magic delisting value of $1 per share for the last six months, as the company posted losses of $73 million in 1999 and $92 million in 2000.

But E-Loan may have turned the corner financially. Although it reported a net loss of $16.4 million for in Q1 2001, on a pro-forma cash-flow basis, its loss was only $3.2 million, and the company is predicting a break-even (cash flow) quarter in Q4 2001. Thanks to the refi boon, E-Loan continues to grow its revenue, booking $36 million in 2000 vs. $22 million in 1999. On April 26, after announcing $16.4 million in Q1 2001 revenues, the company predicted revenues would nearly double in 2001 to a total of $67 million. During Q1 2001, the company closed 18,500 loans with a total volume of $890 million.

table 1

Spring 2001

Source: Gomez Advisors, www.gomez.com , 5/15/01

table 2

E-Loan’s Best of the Web 2001 Features

table 3

E-Loan Originations by Type

Q1 2001 vs. Q4 2000

Source: E-Loan, 5/01                 *Excludes non-cash items         **HEQ revenue is included in the mortgage category

After registering, we now have a “personalized Web page,” the core of which is the rates section. After entering details of our current home value and mortgage-rate target, it shows current rates and whether our target is met. You can see that our 30-year mortgage target price has been met.

E-Loan does a great job keeping its toll-free help line visible throughout the process.

A pop-up window upon entering the Refinance area provides timely reinforcement for those considering a refi: an April 21 quote from the Washington Post plus copy that says, “Rates are near 30-month loans,” and “Is refinancing right for you?”

Refi shoppers can start in one of three ways depending on how confident they are in the process:

Results from refinance analysis. All the terms are clearly compiled and the savings highlighted in a different color. Users select links to learn why the loan is superior, what the closing costs are, and loan details. The top portion of the screen allows users to sign up for a rate alert with a choice of receiving it as frequently as daily or as infrequently of every 2 weeks.

Why this loan is better” shows 3  sets of tables/graphs:

• Forecast rate comparisons
• Periodic payments, points, and closing costs
• Present value payments, points, and closing costs

Results from rate search (top half of page). Note the box with the following rotating text:

No lender fees. Nothing hidden. Just a great rate!

Results from rate search (bottom half of page). Note the money back guarantee.

Credit Score (page 1): It took just 3.5 minutes to set up a new account, be authenticated, and see my credit score.

Note to your Webmaster

This is how to handle one of the most sensitive items submitted over the Web, social security number. Mask the number with asterisks in the same way you do for passwords. And do something E-Loan neglected, have users enter it twice for accuracy. This is a simple usability improvement that will pay for itself a thousand times over with a higher application-completion rate.

Credit Score (page 2): Account authentication requires the user to input two account numbers which must match those found in their credit bureau file.

Credit Score Results (page 1): A numerical credit score is provided, along with a graphical representation and percentile rank against the U.S. population. The score is NOT from one of the three major bureaus, but rather a similar one derived by CreditXpert using a proprietary algorithm.

Credit Score Results (page 2a):
E-Loan also provides a detailed explanation of why your score was less than perfect, and useful advice on how to improve it. In our case, we received the very actionable suggestion to pay down or transfer balances from one of our credit cards that was more than 49% utilized.

Credit Score Results (page 2b):
E-Loan details factors that caused your score to be higher or lower.

 

E-Loan uses third parties to handle credit card and commercial financing. LiveCapital handles business credit needs and Providian has the credit card relationship.

E-Loan offers two incentives on purchase mortgages (not applicable to refinances):

• United Airlines miles, 1,250 miles per $10,000 borrowed; that amounts to a free ticket for each $200,000 borrowed.
• Appraisal fee rebate (up to $500 value, credited at closing). This discount is designed to motivate prospects to stop rate shopping and move forward. Applicants only earn the rebate if they order an appraisal within 3 days of applying (also must pay by credit card).

Like E*Trade Mortgage, E-Loan offers home value reports, although the service wasn’t working when we tried (5/29/01).

E-Loan provides an Express Loan option for those with exceptional credit. But it’s not particularly well integrated into the loan process. We missed it the first few times through the Web site. The option was introduced in Q2 2001, and accounted for 20% of applications during that first quarter.

E-Loan’s Email Rate Update

Date: Sun, 8 Jul 2001 11:28:46 -0700 (PDT)
From: E-LOAN  mortgagemonitor@eloan.com
To: jim@netbanker.com
Subject: E-LOAN Alert: We can save you $26421 on your mortgage.

On May 23 2001, you asked E-LOAN to monitor the mortgage market to find a loan that would save you at least $1000 over the next 10 years. A loan that meets this criteria is now available. Here’s what our database of hundreds of products showed as of Jul 8 2001 for your loan amount of $350,000.

Loan Type           Rate           Points/(Rebate)          APR

-------------------------------------------------------------------------------------

5 Year Fixed     6.250%         1.811                    6.390%   

5 Year Fixed     6.625%         0.708                    6.625%   

5 Year Fixed     7.000%         -0.159                   7.000%   

5 Year Fixed     5.625%         3.978                    6.319%   

3 Year ARM      5.500%         2.085                    6.169%   

3 Year ARM      5.625%         1.841                    6.178%   

7 Year Fixed     6.750%         1.543                    6.750%   

7 Year Fixed     6.250%         3.699                    6.567%   

7 Year Fixed     7.000%         0.737                    7.000%   

To take advantage of this great loan, go to www.eloan.com , search for todays up to the minute rates and complete the streamlined online application. Your personal loan consultant will call you with a credit decision and give you the opportunity to lock the interest rate at that time. Your loan consultant will then be your single point of contact throughout the loan process.  And of course you can monitor your loan’ progress at your convenience through your password-protected E-Track account, available online any time.

To change your Mortgage Monitor settings or to unsubscribe from this

email, please visit www.eloan.com/cgi-bin/monitorinput.  From there you

can re-submit your loan comparison information or use the delete function to be unsubscribed from this email.

E-LOAN: A better way to get a home loan.

--------------------------------------------------------------------------------------------

Please note that interest rates may change daily and that today’s rates are subject to change at any time in response to market fluctuations.

This is not an offer to enter into an interest lock-in agreement.

E-LOAN is an Equal Housing Lender

Source: E-Loan, 7/8/01            

Sizing the Web-based lending market is difficult:

•  The public pure Web-based lenders provide useful sales data, especially E-Loan, Mortgage.com, Finet (Table 4 to 6) and Lending Tree (Table 7 - 9); but they have relatively low share compared to traditional lenders who originate the majority of online loans but don’t usually report Internet volume separately.
•  Many loan applications are multi-channel; applicants may have surfed the Web for rates, then applied in person or by phone.
   

At year-end 1998, the total outstanding debt by U.S. households amounted to approximately $5.4 trillion (source: U.S. Federal Reserve). There were more than 21,000 financial institutions providing the credit (source: U.S. Census Bureau). Forrester Research projected that $1.9 trillion in new loans were originated during 1999, with $25.7 billion (1.3%) originated online. It expects the online share to grow to $168 billion (9.5% of total) by 2003 (Table 2), for a compounded annual growth rate of 60%.

Table 1

number in thousands, dollars in billions

OL %= percent of the dollar volume originated online            

¹Total originated on- and off-line

Table 2

billion $

Source: companies

Table 3

billions of dollars

Source: Piper Jaffray, 4/00

Table 4

billion $

Source: company reports and Piper Jaffray, 4/00

¹B2C share of total company volume

Table 5

Online Average Loan Size¹, 1999

Source: Piper Jaffray

¹Includes all types of consumer loans originated by the companies

²Average loan size fell due to acquisition of BofA’s Internet auto loan unit

Table 6

Online Acquisition Cost for Mortgages, Q1-Q3 1999

Source: Piper Jaffray

¹Includes home equity and sub-prime loans referred to other lenders

Lending Tree

Lending Tree first revealed its operating metrics in registration statements prior to going public Feb. 15. The company has continued to provide enough operating details to make it a good source for online lending trends.

In 1999 the company transmitted 186,000 loan applications (aka “qualification forms”) to its network of 104 lenders (Table 47). The total dollar volume transmitted was $16.2 billion. The average loan amount applied for was $88,000. More than 27,000 loans were closed amounting to $941 million in loans and lines. These results sound a little better than they really are because a substantial number of the loans (60% in Q1 2000) were credit cards cross-sold to applicants for other products (see Table 45 for a breakout in Q1 2000). Applicants earned rebates as high as $500 for taking the credit But even backing out credit cards, in Q1 2000, Lending Tree closed 7,500 loans for an annualized rate of 30,000 loans worth nearly $2 billion, a healthy amount of activity in a market sector barely two years old.

Lending Tree’s current tag line, “When banks compete you win,” strikes a chord with consumers.

Table 7

dollars in millions

Source: company, 5/00

¹Does not include 14,569 cards, $73 million in credit lines, and $232,000 in revenue cross-sold to other loan applicants

Table 8

Top Lending Tree Lenders* by Closed Loan $

Source: company, total lenders as of 3/31/00; top lenders for the month of Oct. 1999, based on loans closed

Table 9

¹Includes a large number of credit cards cross-sold to other loan applicants which earns the applicant a substantial rebate at closing; in Q1 2000 there were cross sales of 14,569 cards, $73 million in credit lines, and $232,000 in revenue (see Table 7); ²Excludes revenues from licensing its platform technology; ³ Does not include the cost of the sales staff

Table 10

unique monthly visitors (thousands)

Source:  PC Data Online www.pcdataonline.com ; Gomez Advisors Summer 2000 Mortgage Scorecard, rank of 26 total www.gomez.com ; 5/00          

 n.r.=not rated

Net banking companies and service providers have finally jumped into the IPO market. We were beginning to think the sector might be passed by Net mania. If all goes according to plan, within the next four to six weeks, five Internet banking companies will go public. NextCard was the first out of the gate selling 6 million shares at $20 per share on May 14 to raise $120 million. The stock briefly hit $40 before settling into a trading range in the low 30’s for a market capitalization of about $1.3 billion, or $20,000 per credit card account.

NextCard and E-Loan are leading Net-only providers of credit cards and home loans respectively. Online Resources and nFront are Net banking platform providers. Princeton eCom (formerly Princeton Telecom) is an ebilling provider and payment processor.

The companies’ S-1 registration documents paint a mixed picture. While the companies are all well positioned strategically, their end-user account totals prove that online banking is not yet a bona fide consumer hit. For example, NextCard with 66,0000 accounts, the most of any Net-only player , only approved 2.9% of 900,000 credit card applications it attracted in Q1 1999.

NextCard Approval Rates

Source: company reports, 4/99

E-Loan, the exclusive mortgage provider on Yahoo!, turns out to be primarily a California phenomenon, booking 84% of its 1998 volume and 69% of Q1 ’99 volume in the home state.

E-Loan’s California Connection

Source: company reports, 4/99

Online Resources and nFront, despite success in attracting bank clients, only have an average of 350 end-users for each live bank installation. In comparison, Wells Fargo is adding 10,000 new users every week (OBR 3/99).

nFront & Online Resources Client Bases

Source: company reports, 4/99

¹Average calculated across launched banks only.

²Percent of bank customers at launched banks using online banking.

What does all this mean? Something you already know; it’s extremely difficult to attract new deposit and checking accounts on or off-line. The first Net bank, SFNB, still has only about 15,000 accounts after 3.5 years. NetBank, after 2.5 years of offering premium rates, has only 29,000 accounts. NextCard, who we think has one of the best Net financial services businesses in the country, has only 66,000 accounts, despite taking 1.7 million applications. And E-Loan with an exclusive and very prominent position on Yahoo!, only booked 703 loans outside of California during all of 1998, less than 60 per month.

This is great news for existing financial institutions. Your customers are “sticky” whether through loyalty or apathy. But don’t count on it to last. Your most profitably customers, the 30-to 45-year old, high income, high borrowing user is growing increasingly comfortable with ecommerce, and will head for the exits once the online players come up with more compelling product offerings.

IPO Scorecard

Source: company reports, all figures as of 3/31/99 unless stated otherwise

Notes: (1) Market cap based on common stock outstanding after offering times maximum offering price in prospectus, except NextCard which is actual on 5/17/99; (2) Includes loan referrals; (3) Company also incurred $2.32 million in activation costs for another $58.00 per account, so acquisition costs might be better stated as $58.00 plus $108.25, or $166.25; (4) Company also incurred $1.52 million in activation costs for another $58.46 per account, so acquisition costs might be better stated as $58.46 plus $98.27 or $156.73; (5) Assuming company had 100 clients as of 12/31/98; (6) Assumes constant client base of 250.

According to Red Herring, E-Loan (Palo Alto, CA) expects to raise an additional $25 million in capital this fall to build out its transaction fulfillment and customer service center. The 115-person company is profitable on revenues estimated at $9 million in 1998 (which would equal 4,000 loans if they booked $2,250 in fees per loan), up nine-fold from $1 million in 1997. E-Loan is planning an IPO in Q2 1999.

The company saturated the Seattle market earlier this fall with advertising; we’ve watched TV spots during the 11 p.m. news; heard radio ads during drive time; read small ads in the Seattle Times Sunday Real Estate section; and were shocked to see a full page ad in The Wall Street Journal. Seattle must be a test market, given the company’s entire promotion budget is $2.5 million, according to Red Herring.

Contact: Christian Larson is CEO, (650) 617-0400. Previous articles: OBR 5/98; 10/97.

Telebank

www.telebank.com

Telebank has partnered with E-Loan to build a co-branded mortgage loan site.