It’s way too early to write the definitive history of credit cards on the Net,
but here are the leaders in the online movement (so far).

First USA launched an answer to NextCard, e.card, “E-Commerce Services from First USA.”

First USA

While E-Loan and NextCard have pioneered Web-based sales and marketing tools and techniques, First USA (Wilmington, DE; $65.2 billion; 60.5 million customers), a division of Bank One (Columbus, OH), through massive marketing expenditures, has captured the lion’s share of business online. The Brittain study found that First USA’s share of online buyers was three times higher than its nearest competitor, MBNA, which is advertising on 500 of the 4,500 Web sites hosted by its affinity partners. MBNA has experienced a 20% approval rate online.

First USA’s online reach is remarkable. One analyst estimates First USA will have more than 1.5 billion online advertising impressions next year. Besides co-branded efforts with Yahoo! launched in Feb. (OBR 2/98 ) and AOL (launched in June 1996; OBR 7/96 ), the card giant has a $90-million, five-year exclusive pact with Microsoft, and will likely be part of parent Bank One’s $125-million deal with Excite.

While the company has primarily relied on co-branded offerings to build its Web-based portfolio, the company has just released its own Net-branded product, the e.card (screenshot above). The card has a great name, although the ecard.com domain is currently owned by Internet Outfitters in Santa Monica (310) 664-4800. The card features a 5% cashback feature from Amazon.com and several other merchants including eToys. Initial rate is 3.9% and normal “go to” rate is 9.9%.

The First USA e.card site www.getecard.com is obviously a work in progress as it only includes three pages: home page (left), online application, and regulatory-required terms and conditions.

NextCard

NextCard (San Francisco, CA) continues to lead the race to become the first Amazon.com of financial services. Through November, the company has received more than 750,000 applications. According to the company, approval percentages are, “consistent with industry averages.” The company’s animated “2.9%/Apply Now” banners are seemingly everywhere on the Net, not surprising considering the company is now a top-20 banner advertiser and has some 2,000 affiliates pitching its product for a $10 per approved application.

Bottom line, less than 9 months from start-up, NextCard
is pulling in more than 10% of total online credit card applications—a phenomenal performance considering its deep-pocketed competition. As a result, NextCard bagged an immense $38 million round of financing in Nov. from three blue chip Silicon Valley VC firms. The money will be used to continue the company’s aggressive online marketing efforts and capitalize an Internet banking operation. We wouldn’t be surprised if they simplified the process by purchasing an existing bank or thrift.

American Express

American Express (New York; 42.7 million cardholders) has clearly been the leader in online card services, first offering online account access in February 1995 via America Online (OBR 5/95 ) and the Web in April 1997. The company’s early 1995 AOL offering also included online card member and merchant account applications. The company was also the first to integrate value-added non-financial info, primarily travel-related, into its online presence (on AOL) in 1995 and on the Web in 1996 and 1997. Finally, and most significantly, industry sources unofficially peg AmEx’s registered online base at one million. 8

Honorable Mention
Company	Date	Milestone	OBR Ref
Block Financial	1992	first card with online statement data (via CompuServe)	2/96
Capital One	March 1995	first interactive credit card Web site including online application and financial calculator	5/95
Wells Fargo	July 1995	first MasterCard/Visa issuer with Web-based statement data	8/95

Source: Online Banking Report, 11/98

 

Portal Banner Advertising: 1998 vs. 1997

Source: Online Banking Report, 11/98 and 10/22/97; only financial service advertising is listed; search terms were put in parenthesis (except Yahoo) so only Web sites containing the exact phrase are counted; each term was searched on 10 times at each portal site (130 searches per portal); access was from a Seattle POP; no attempt was made to alter the normal cookie file on OBR’s Netscape 4.0 browser; percentages indicate how many times out of 10 searches the banner appeared, if no percentage is listed then the banner appeared 100% of the time, percentages may not add to 100% if non-financial banners were present. Notes: 1.) GetSmart has a paid link; 2.) HomeShark has a paid link

Abbreviations: AmCent = American Century; AmDebt = AmeriDebt www.mercuryseven.com CCC = Consolidated Credit Counseling Services www.debtfree.com CityLend = City Lending, a division of City National Bank of West Virginia www.citylending.com ConsInfo = ConsumerInfo.com; DataTransAssoc = Data Transfer Association www.evsistore.com MM Int’l = Money Management International www.mmintl.com Mtg Net = MortgageNetwork.com; Mtg Qte = MortgageQuote.com; Nations CC = NationsBank credit cards; Wells = Wells Fargo

Portals, previously referred to as search engines, are used by the majority of Web users (87% in one survey). Financial services companies have been advertising on these sites since they first accepted advertising in 1995. But even as recently as 12 months ago (see table right), less then half of the lending “inventory” was used. The times have changed. This month, we found 95% usage. Of thirteen loan-related search terms across the five largest portals, only three weren’t at least partially sponsored by financial companies (“auto loan on InfoSeek, “credit card” and “personal loan” on HotBot). If you factor in partial sponsorships, financial company share of the loan terms was 86%.

The most interesting result of this research: portal advertising is dominated by non-banks including mortgage brokers, Web-based loan marketplaces, and other specialty lenders. The day we tested, only two traditional financial institutions were advertising: NationsBank was pitching its card under “credit card” on Yahoo and Infoseek; while Wells Fargo was a partial sponsor of various “loan” phrases on HotBot (see table below).

*Number of loan terms with a financial services banner ad appearing
in at least one out of 10 searches of 13 loan terms at five portals
(65 total sponsorship opportunities)

**Taking into account partial (rotating) sponsorships of certain words, the actual financial services share of loan terms is 56.1 of a maximum 65 sponsorship opportunities, or 86%.

If this trend continues, it will have profound implications on Web-based lending. In this new world, it will be necessary to partner with one or more of the new loan marketplaces: The Lending Tree, Get Smart, Quicken Mortgage, iQualify, MortgageAuction.com , eStudentLoan.com , and others.

After reviewing the latest research and projections from various technology companies and research organizations, we are sticking close to our January 1998 (OBR 1/98) forecasts for online banking usage, although we’ve slightly broadened and clarified the definition of “online banking household.”

In the past, we only counted users that had banking or bill payment activity during the past months. We’ve lengthened that window to 90 days. We also now include the relatively small number of users who access credit card and loan data online, but are not yet hooked up to their checking accounts. These changes had the effect of increasing projections by 5% to 10%.

Definition: Online Banking Household

For the purposes of our forecast, we consider a household to be using “online banking” if they have done any of the following during the past 90 days*:

•  Registered for online** access to checking, credit card or loan (including mortgage) data.

•  Signed up to pay bill(s) online.

•  Paid a monthly fee for an online banking or bill pay program.

•  Accessed balance or transaction data online for a checking account, credit card, or loan (including mortgage).

•  Authorized a bill payment online.

* Households that haven’t used the system for more than 90 days are considered non-users.

** Online is defined as any use of a computer and modem connection through a private line, proprietary dial-up connection, Quicken, Money, Managing Your Money, or the Internet; access can be from home, work, school or public terminal.

1998 Trends

It looks like we are on track to hit our mid-range projection of 7.5 million U.S. household users by year-end 1998. Here’s what’s going on:

Negative Impacts to Forecast:

•  Bill presentment looks like a non-starter this year. We figured MSFDC, Checkfree and other bill
  
  presentment providers would have contributed a half million new users by year-end 1998.
  (Note: To fit our definition, a user need only pay a single bill online every quarter to be counted). Next year should be different, barring any unforeseen catastrophes. We figure 1 to 1.5 million incremental users industry-wide by year-end 1999.

•  Y2K debugging/hysteria is sapping more resources than anticipated.

•  The merger mania among the banking titans has diverted resources from some of the larger online banking programs, especially NationsBank, Bank of America, and Bank One.

Positive Impacts to Forecast:

•  Low mortgage rates and the proliferation of solid mortgage and home buying sites such as GetSmart, QuickenMortgage, and NextCard have resulted in higher-than-expected adoption of online lending services (see OBR 5/98).

•  Despite merger uncertainties, Internet banking has finally arrived at a number of major banks including NationsBank in February, First Chicago and Citibank in June, Fleet, PNC and National City in July; and BankBoston in August.

The Bottom Line

With the usual annual fall marketing blitzes, total online banking enrollment will likely near 10 million by year-end, resulting in 7 to 8 million households meeting our definition of “online banking” (see sidebar at left). When and if the enrollees are converted to actual users depends on how well the industry executes activation and education programs.

More importantly, migrating your online program from a pain-in-the-budget cost center to a growing profit center hinges on marketing and delivering credit products, preferably on a preapproved basis, to your captive audience of Web users.

NationsBank/CarFinance.com

www.carfinance.com

CarFinance.com’s interactive home page.

Adding Interactivity to the Home Page

At first glance, CarFinance.com’s home page (above) seems cluttered and out-of-control. It even commits a Web faux pas with two scrollable frames even on a 17-inch monitor. But other than the scrolling problem, the home page is very clever, engaging users with several interactive elements. It’s almost impossible to leave the site without checking out their auto financing service. In fact, the company reports some 3% of visitors end up applying for financing.

The heart of the home page is an interactive questionnaire designed to give you a financing quote within seconds of hitting the site. The lefthand frame shows examples of popular cars, such as the new Beetle, and the monthly payment under its user-friendly “$0 down” program.

NationsBank’s (Charlotte, NC; $310 billion; 9.2 million ATM cards) CarFinance.com unit, acquired in the Barnett Bank merger, is blazing a new trail in auto finance with zero down payment, preapproved and prefunded car loans with APRs as low as 6.99% for new car loans with a 36-month term.

The conundrum for financial institutions looking to expand their car loan business is how to fight the indirect and captive programs that snap up the financing while the buyer is at the car dealer. Even with 12.5 million adults searching out car information on the Web last year (source: Cyberdialogue, 6/98), all but a few hundred thousand ended up at a dealership at some point in the process to finalize the purchase and pick up the car. And if you’ve bought a new car in the past 10 years, you know the final step of any car buying “adventure,” a pressure-packed interview with the finance guy (or gal) pitching financing, extended warranties, and whatever else is on the commission schedule that month. CarFinance.com may have invented a better way, though it doesn’t always work (see box below).

How it Works

1. Users entering CarFinance.com are greeted with a five-question form that results in an initial financing estimate complete with APR, payment amount, and savings compared to the national average loan rate (see screenshot right). Final APR is determined after a full application.

2. Users submit an online mini-application (see table at right for details).

3. Once approved, a purchase draft is mailed to the user (via overnight mail if necessary). The draft is good for purchasing a new or used vehicle from any nationally franchised new car dealer and a few major used car dealers. Any car or truck can be purchased providing the price is less than or equal to the amount of the draft.

Never Give a Reporter a Car Loan

Apparently the process looks better on paper than it really is. In order to cash the draft, dealers must fax paperwork to NationsBank including proof of insurance, proof of buyer’s income, and bill of sale. InfoWorld Net Prophet columnist Dylan Tweney recently wrote about the glitches he experienced using CarFinance.com to finance a car at a Toyota dealership in Silicon Valley.

The dealership deposited the check without faxing the necessary documents. The check bounced and the dealer freaked out and initially refused to honor the deal. The reporter had to run interference between NationsBank and the dealership, even faxing documents himself over the course of a stressful week of negotiations before finally getting the loan closed.

He indicated that CarFinance.com’s customer service personnel were ill-equipped to deal with the situation. It left him very disillusioned with online lending. You can read his full story at www.infoworld.com/cgi-bin/displayIcommerce.pl?/prophet/980615prophet.htm

The story has a happy ending. In a follow-up conversation he reported that several readers told him that the process has worked fine for them. And CarFinance.com president called to explain how customer service issues were being addressed. It’s not called the bleeding edge for nothing.

The results from the initial questionnaire are shown in an easy-to-read table. Terms of up to 84 months are offered with a sliding rate scale beginning at 6.99% APR for 36 months to 10.5% for 84 months. They offer a unique 66-month term priced at just 100 basis points above the 36-month rate. The righthand column includes the savings over the life of the loan compared to national averages compiled by Banx Quote.

4. Buyers head to the dealer with the money literally in their back pocket. It can simplify dealing and insures the customer gets a competitive rate on car financing. Users can still see whether the car dealer can beat the NationsBank rate.

Questions in CarFinance’s Mini-Application

•  name
•  address
•  email
•  social security number
•  length of residence
•  type of residence
•  rent/mortgage payment
•  day phone
•  evening phone
•  employer
•  occupation
•  gross pay
•  length of employment
•  other income source
•  other income amount

 

Approval is promised within 48 hours with email notification, but the customer testimonials listed on the site talk about same-day approval. Checks can be sent by overnight mail so that applicants can buy the car within 48 hours of applying. Applicants also select a password so they can check back on their loan status.

The only limitations on what can be purchased with the draft are:

•  Must be purchased from a franchised car dealer representing a major automobile manufacturer, or certain used car chains.
•  Used cars can have no more than 75,000 miles and be no older than 1992 (terms of 61-72 months may be no older than 1994).

Analysis

The program is simple to understand, easy to use and only takes 60 seconds to complete the application. There is no down payment required and few rules and regulations to master. Good for users, and very good for the bank. If they can resolve procedural problems with dealers, they may have invented a new way to finance a car.

Indeed, CarFinance.com’s application volume is encouraging. In early June, NationsBank SVP Joe Martucci said that the company was closing loans to 1.5% of visitors to CarFinance.com, an impressive number. But the company won’t reveal traffic counts.

Contact: Robert Ferber is President CarFinance.com; Joseph Martucci is SVP of Consumer Credit Policy in Jacksonville, (904) 987-2074.