In direct mail, sometimes "big & ugly" beats "short & sweet." But when it comes to preapproved credit card applications, we're pretty sure the 8-screen form posted by Bank of America's FIA Card Services (formerly MBNA) isn't going to help improve response rates (see the full form by clicking the continue link below).

My wife received a preapproved, direct-mail offer from Fidelity Investments where she has an investment account. The solicitation included the usual one-third sheet mail-back "acceptance form." Recipients could also either call a toll-free number, or go online to www.ibscredit.com.

Those that went online were greeted with this almost-blank screen operating under a different URL www.applyforcreditnow.com and had no reassuring message or graphics to assure users they had not arrived at a phishing site.

After entering the 6-digit code from the mailing, prospective cardholders are transported to this boring form, which surprisingly includes MORE fields than its paper-based counterpart (click on inset for closeup; click on continuation below to see the full 800 x 5200 screenshot). For example, it contains a section to be completed by students, who are unlikely to be receiving this particular Fidelity Investments WorldPoints Visa card with no preset spending limits.

Not only are the layout and design dull, but also two major design flaws are readily apparent:

1. No reinforcement of product benefits above the fold, especially the "0% through Nov. 2007" offer
2. No division into smaller segments, the first of which should gather the email address

See Online Banking Report #104 for more on application design.

--- JB

Endnote: Full online application (820 x 5200)

People have grown wary of credit cards. They’re paying them off faster; generally, debit cards are edging them out as payment vehicles. And at least for now, home equity loans are increasingly more popular than credit cards among consumers (click on inset for more details and see tables below).

The result? Credit card portfolios are losing profitability, even though net losses and delinquencies are down, and serious questions about the industry’s future are surfacing. So are questions about how wise banks were when they snapped up most of the monoline credit card operations last year. The business model needs an overhaul, says observers, but so far, issuers are just changing the oil. And there may be no way out.

Continue reading "Credit Card Portfolios: More Pressure, Less Profitability." »

Last week’s news that First Data Corp. will spin off its Western Union operations to First Data shareholders and create a company worth an estimated $20 billion is probably good news for Western Union. Noting that the parent company will be keeping its card processing, card services, and international business lines, observers were asking what had otherwise changed.

The answer: Nothing. “The bottom line for me is that this doesn’t change the realities, which are that even though they’re going to reconstitute what First Data will be, it doesn’t change the facts that Western Union, while it’s a good business, is facing increasing competition around the world, that the card business is struggling mightily, and that merchant processing is a commoditized business,” says Scott Kessler, who follows First Data for Standard & Poor’s.

Continue reading "Western Union Spin Off May Do Little for First Data" »

MBNA Egg.com?

The Wall Street Journal today reported that MBNA was considering a purchase of Egg, the UK-based Internet bank and credit card issuer. While the primary purpose of the acquisition would be to pick up the bank's 2.8 million card accounts, MBNA would likely consider expanding the Egg.com Internet banking franchise into the United States.

We think the U.S. market is ready for another innovative Internet banking brand. Look at what ING Direct (USA) has accomplished in under four years: built a successful franchise with more than one million accounts and $16 billion in deposits (year-end 2003).

The credit card giant offers online payment of outside bills even if the merchant payee does NOT accept credit cards.

MBNA ($142 billion, 40 million cardholders) offers something we’d been expecting for years, a bill payment program that draws payments from a credit card. The company even posts the transactions as cash equivalents, offering the same 15- to 45-day float afforded regular card purchases. However, bill payments do not earn points in MBNA’s reward programs. Furthermore, payees are limited to those that can be paid electronically by CheckFree, although that’s now covers 70% of the processor’s volume.

Consumer Benefits

Pros

•       Added float, as one message board poster said, “why worry whether you get a few days float (from your bank), when MBNA provides a whole month”
•       Convenience of tracking more expenditures through the card-management system.
•       Ability to repay over time.
•       Option of charging bills to an MBNA card or debiting from any checking account.
•       Free, so long as the cardholder initiates at least two payments per month from their card account (see fee schedule opposite)

Cons

•       No real drawbacks, except for the confusing price schedule. Consumer advocates might argue that it encourages cardholders to take on more debt, but they could already do that by paying bills with convenience checks.

Financial Institution Business Case

We’ve long maintained that loan generation is the most important institutional benefit of online bill payment because. Why? If given the opportunity, users will likely charge several bills per year to an integrated credit line .

While you will lose money on convenience users who repay the charges each month, revolving balances should more than compensate. For example, in our back-of-the-envelope calculations, we estimate a total net profit of $60 per year per user of credit card bill-pay, or $600,000 annually across a 10,000-user customer base. 

The Most Confusing Fee Schedule in the World:
MBNA’s Bill Pay Choice may be among the most flexible online, but its fee schedule is utterly confusing. Perhaps the company should consider charging a nominal flat fee that’s waived if charging 2 or more bills.

Of course, any new credit card program must be monitored closely for abuse, both outright fraud, by setting up a phony electronic merchant, and less sinister gaming of the system where a user becomes an electronic merchant on CheckFree’s system and pays himself each month to earn the float. However, since no reward points are awarded, there is far less incentive to play games.

Card issuers could limit their exposure by setting a maximum monthly amount of bill payments, especially for new cardholders.

How it Works

MBNA cardholders must first register for online access at MBNA’s NetAccess www.mbnanetaccess.com  After that, they register for Bill Pay Choice. Users can pay bills either by charging to their MBNA card or debiting any U.S. checking account. MBNA does not offer its own checking account; however, payments can be drawn from MBNA’s money market account.

The service is free unless the user pays bills only from their checking account, in which case the fee is $0.75 per transaction. Users may qualify for unlimited free checking-account bill payments provided they charge at least two bills to their card each month.

Table 13
Mini Business Case: Card-based bill payment

monthly benefit, assuming 6 payments totaling $1000

Source: Online Banking Report estimates, +/- 33%, 2/04
Revenue assumptions: 1 out of every 10 bills will be revolved (10%); revolving balances will be repaid in equal installments over 12 months (6 months average life); interest rate spread = 5% (net of charge-offs)

MBNA
http://www.mbna.com/

Free Credit Report Monitoring for New
MBNA Worldpoints Cardholders

NEW! Free Protection
from identity theft

MBNA E-lert

-- teaser copy on direct mail 9/12/03

MBNA, the Wilmington, Delaware-based credit card giant, is bundling daily email credit report monitoring with its WorldPoints Platinum Plus MasterCard. The MBNA e-lert service, powered by Intersections Inc., checks the cardholder’s Equifax credit file every day and provides email notification of significant events such as a credit inquiry, new account opened, address change, and so on. Users also receive a monthly email if no changes have been detected.

Innovations:

<     Offered free-of-charge compared to $9.99/mo on the MBNA/Intersections co-branded PrivacyAssist site  http://www.mbnaprivacyassist.com/ 

<     In a preapproved direct mailing we received Sept. 13, the e-lert service was featured prominently with “teaser copy” on the outer envelope (see above, a 0% interest rate offer was also on the envelope) and a one-page insert dedicated to the new feature.

<     The sales rep we talked to on the phone was conversant in the benefits of the service.

Caveats:

<     There is no mention of the service on the MBNA website  http://www.mbna.com/  the rewards site  http://www.mbnaworldpoints.com/  or the account access site  http://www.mbnanetaccess.com/   so it’s probably a test.

<     In order to maintain the free credit monitoring service, cardholders must make at least one retail purchase every 90 days.

<     The service does not include access to full credit reports; presumably they would be cross-sold, perhaps even paid for with rewards points.

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.