There's been substantial progress made in website design by banks. Sure, there's still the occasional clunker, but most we look at today (see note 1) rate solid grades in the B+ to A- range. That's up from many Cs and Ds at the turn of the century.

However, as good as banking websites have become, they still tend to be relatively busy, making visitors spend more time than necessary finding their way through the site (note 2). It's rare to find a financial institution that dares to follow Google's "less-is-more" approach.

The lone major bank in the U.S. with a 25-word or less homepage is ING Direct, which like Google, has maintained the same look and feel since launch (see screenshots below, today and eight years ago). NextCard (prior coverage) also did less is more, but in its case, that mantra unfortunately was also embraced by its underwriting department, and the company failed in 2002.

But now we have another example: Progress Bank (note 3). While the depth of its online capabilities could be improved (how about online account opening?), the homepage is brilliant (screenshot below).

The Florida-based community bank uses just 26 words to describe its five major areas AND pitch a high-yield checking account. Each major area: online banking login, personal banking, business banking, and About Us, has its own circle. And as you mouse over each one, the image in the center circle changes. It's quite striking.

In addition, the brightly colored circle in the lower left contains a pitch for the bank's featured product, its green 5% APR checking account (note 5).

Bottom line: I love the look, although I hope they did some A-B testing before springing it on users. It's a great branding statement, but it is also so different, there's a risk that customers might not perceive the bank to be as trustworthy as one with a more traditional layout.

Progress Bank homepage (11 May 2009)

ING Direct homepage (12 May 2009)

ING Direct homepage (2001)

NextCard homepage (2001)

Notes:
1. Online Banking Report All-Access subscribers are entitled to a complimentary high-level website review. Please email our website analyst to schedule a  review.
2. The exception is online banking login visibility, which is very good. Most financial institutions follow the industry standard of displaying a prominent login area in the upper left or right.
3. Credit Jeffry Pilcher at The Financial Brand for the find.
4. For more info, see our Online Banking Report on Website Usability.
5. Unfortunately, the ingenuity disappears as soon as you click on the offer. The pitch is then delivered via a bloated 2-page brochure in PDF format. And there is no ability to apply or inquire about the account online.

In the early commercial Web era (1995 to 1998), five financial startups 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 discontinuing only 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:

Pop-up form greets users abandoning online applications.

With the Feb. 7 seizure of NextCard’s NextBank subsidiary and the halt in trading of NextCard stock, it appears the final chapter of this Internet pioneer’s story has been written, although we still expect its widely recognized brand to live on under new ownership. Evidently, fatal errors in underwriting and risk management brought the company down. We were surprised and disappointed by its sudden demise.

Whether taxpayers were best served by its shutdown will never be known; in these Enron-sensitive times, we can’t blame regulators for moving quickly. Regardless, the company will long be remembered for its 4-year string of online product and marketing innovations.

Ironically, as we looked in on NextCard’s Web site on the evening of Feb. 7 to see if they were still taking applications (applications were halted early on Feb. 8), we noticed the company was using a simple, but very effective marketing tool aimed at gathering the email address of users which had clicked on the NextCard application, but had abandoned it prior to completion.

Users exiting from the first page of the application are greeted by a popup message offering various incentives to leave an email address for future contact. After 50 to 75 tests, we determined that the company was testing five different offers: (1) O% APR bulls-eye (above); (2) Tired of high rates (below); (3) No Time? (below);
(4) subtler 0% teaser (below); (5) Free credit report offer (not shown). Great idea; hopefully someone else can put it to profitable use.

Following are some of the better emails we’ve seen from financial providers in recent months. Because we only see those from financial institutions where we have established relationships, we would appreciate seeing others you’ve received. Send them to: info@onlinebankingreport.com .

Wells Fargo/ShareBuilder

This is our favorite holiday email. It was marketing NetStock’s ShareBuilder on behalf of co-branding partner Wells Fargo. It was sent the week after Thanksgiving (Nov. 28) and featured a engaging graphic of a young child and just 32 words of text (not including the mousetype fine print).

The pitch was for starting ShareBuilder accounts for children, with a $25 bonus for accounts opened prior to Dec. 31. A unique, if somewhat complicated, holiday gift idea for parents and grandparents.

First USA

This is a good example of a simple old-fashioned holiday greeting. FirstUSA punched it out on Christmas Eve and included a well-crafted P.S., “Maximize your holiday time by managing your accounts online at: Cardmemberservices.firstusa.com.

PayPal

PayPal sent several emails during the holiday period promoting a usage sweepstakes that rewarded users for shopping with PayPal. Taking a page from Visa’s annual holiday promotion , winners received their PayPal purchase free of charge. This message kicked off the program on Nov. 30.

PayPal also provided shopping ideas and a link to a directory of PayPal shops (right-hand side of the screen). The look of the emails was crisp and clean like the company’s Web site, but we would have preferred a bit more holiday cheer in the graphics.

DeepGreen Bank

DeepGreen Bank sent this message on Dec. 10 promoting holiday usage of its Home Equity Line of Credit. The message was pretty straightforward and was signed by DeepGreen CEO Jerome Selitto.

It’s a good email overall, but it’s a bit boring. The usual, great rates, great convenience, yada, yada, yada. To increase readership, it would be better to put some of the info into eye-catching graphics.

The company made a serious error by not putting DeepGreen in either the email subject or sender field. Unless you know the CEO, it looks a lot like a SPAM until you open it.

Intuit’s Quicken.com

We received our first holiday email from Intuit on Nov. 15, with a message entitled, “Holiday Gift and Sending Guide.”  The message had the usual format of Intuit’s monthly Money Matters email letter, with no holiday graphics. Beside the spending and gift advice, it featured a fifth anniversary sweeps for NetBank.

Although much of the advice is boilerplate, we like how it positions Quicken.com as a provider of thorough and timely advice about all aspects of your financial situation.

Normally, we don’t like to see outside advertising, but the NetBank sweeps added interest to the message.

NextCard

The December installment of NextCard’s monthly email newsletter was full of shopping discounts. The full newsletter was a bit cluttered taking up about four screens (at 800x600 on a 19-inch monitor).

The newsletter also promoted the Visa Magic Moments sweepstakes that awarded cardholders free purchases at a randomly selected second every day (box on the right).

To help differentiate its message from in-box SPAM, NextCard incorporates the cardholder’s first name in the email subject field.

New Account Sign-Up

Over the years, we’ve signed up with hundreds of Web sites, including dozens of banks and brokerages. Every year the process becomes easier. There are even third party utilities like NextCard’s Concierge which promise to complete routine Web forms automatically.

In our experience, banks have lagged their peers in other industries in making signup a snap. Bank signup forms have been tedious, confusing, and laden with disclosure traps (see table below). It’s no wonder industry application abandonment rates have been 70% to 80% according to eFunds unit. Efunds is marketing a product that automates the initial funding of an account via ACH. The Deluxe Data unit recently filed an S-1 to be spun off in an IPO.

E*Trade places its signup form front and center. On April 13, it featured a 3-Minute IRA.

Online Application Problems*

*We are not trying to embarrass these companies. In most cases, the reason we tested its signup process was because the company was a pioneering a new feature or product; most, if not all, the problems listed above have been fixed.

The Dream Application

Source: Online Banking Report, 4/00

my.nextcard.com

The Virtual Front Door: Log-in Screen

For most banks, their Web’s primary role is servicing existing customers. So your first line of service and cross-selling is not on your home page, it’s on your log-in screen. Users will either go directly to that page from their bookmark file, or click through to it from your home page without even bothering to download home page graphics.

Notice how NextCard uses every inch of the login real estate to make cardholders aware of its latest services (screenshot above). The “NextCard Insider” uses a newsletter style to tell customers about two important account retention devices:

•  PictureCard – Cardholders can download any personal picture to be put on the plastic.
•  Concierge – Its ewallet has been reincarnated as an all encompassing Concierge service.

The company also promotes its shopping portal, holiday sweeps, and eCommerce Index

Not So: SFNB uses its login screen to: (1) scare off prospective hackers (as if a large block of text will do any good), and (2) promote its 6% checking account (even though I already have a checking account). The company misses the boat by neglecting to install a link to customer service in case you need help logging in.

Your single most important Web page is the one that greets customers after they successfully login. It’s where you deliver the benefits users expect and cross-sell the products your senior management expects. The service vs. selling trade-off is a fine line that is different for each customer. We recommend erring on the side of soft sell until you get a better idea of what customers want (or will tolerate) as they do their banking online. One universal bit of advice: keep download times to a minimum.

NextCard walks this line by using two navigation bars. The top bar promotes relationship services and Refer-a-Friend. The main bar directly above the user’s Account Summary features four important self-service items:

•  Customer service – Addresses, phone numbers.
•  Mailbox – Secure mailbox for interacting with customer service via email.
•  Account alerts – Triggered alerts based on account activity.
•  Click pay – Electronic payment of monthly minimum or any card balance

After login, the first screen summarizes account info and provides simple navigation to the major service areas. A “ticker” runs across the top in the box labeled “NextCard Insider News” with several short messages such as “Go Shopping – Your personal shopping tool,” and “Travel – Perks – Free flights or free nights.”

The results from Web-based customer service will play a significant role as to whether your entire Web site is viewed as a corporate cost savings tool and career stepping stone, or a “necessary evil” forever exceeding budgets and becoming a “career-limiting” event for those in charge.

A well-designed and professionally written customer support area is crucial for encouraging self-service to drive down costs. Conversely, a poorly designed area simply sends frustrated users to the phones with more questions than they had in the first place, driving up costs. And the cost differences can be dramatic. Soft•letter, a software industry newsletter, recently surveyed Web managers (Dec. 1999) and found the cost per Web-based service incident varied by 1,000-fold* from best to worst. The most efficient said that the cost per incident was merely pennies, while the worst reported average costs of more than $200 per question solved.

The NextCard Customer Service front-page adds a third navigation menu with three common functions:

•  Change user profile
•  Change password
•  Request second card

Note: These functions all require users to reenter their password.

*Cost was determined by taking the entire Web budget and dividing by number of service issues solved; self-reported by software publishers.

NextCard’s front door to e-service (screenshot below) includes a Webmail link for contacting customer service, 24-hour telephone number, and payment address. Finally, the first four questions in an extensive FAQ are listed along with a link to the full list, which is delivered in a pop-up window.

NextCard relies on free-form Webmail for customer questions. Even though NextCard provides live Web-based customer service chat, it doesn’t display that choice until after you have sent an email. The company apparently prefers an email first.

Note the reassurance at the bottom of the screen: “This is a secure environment. Your message will be viewed by authorized NextCard personnel only.”

The LiveHelp button appears only in certain parts of the customer service area, such as above the user’s Sentbox. In our test, we found the interface slightly confusing, but it worked fast. Within 30 seconds we received a complete answer from Liz about our rewards program question.

The full FAQ is displayed in a pop-up window.

Customer service nirvana is achieved when you answer customer questions before they are asked. We called this “embedded service.” On the Net, the primary way to embed service is to create a stream of user-defined email messages triggered by events within the user’s accounts, i.e., notifications, alerts, triggered messages, account watchdogs, Q-Cards (from Q-UP). Although checking account balance notifications have been in limited use since mid-1996 NextCard is the first company to implement a full suite of notifications (see table, upper right).

NextCard Alerts

•  Credit limit is reached or exceeded
•  Balance is within $_____ of my credit limit
•  Balance exceeds $_____
•  Current statement [period, cycle] closes
•  A payment posts to my account
•  A credit posts to my account
•  An item posts from merchant: ______________
•  A posted item exceeds $_____

Source: company Web site, 12/99

The only major thing missing from NextCard’s alerts are fraud-related triggers, such as an alert “if card used outside the country,” “if card used more than ____ times in ____ hours,” and most importantly, “if my profile is changed or a second card is requested.”

NextCard Account Alerts features four user-defined alerts and four standard alerts. The process of establishing alerts is a bit tedious; only one can be set at a time, but once set, you needn’t ever be surprised by a credit card statement again.

As NextCard expands to become a full-service online transaction provider with checking accounts, bill pay, funds transfer, P2P payments, and shopping support (receipts, returns, etc.), expect the company to improve their service capabilities even further. With such a high online profile, including being the exclusive card issuer for Amazon.com, NextCard cannot afford poor service. The consumer backlash online, not too mention the account churn, would undermine its hyper-growth plans.

NextCard

www.nextcard.com

Although investors haven’t been so enthusiastic of late, the startup’s stock trades at a 20% premium to its May 99 IPO value, NextCard continues to push forward on a number of fronts.

On Aug. 23, the company showed its Web savvy by repositioning its customer data in the same way Amazon.com displays its top selling products. The eCommerce Index provides a running list of the most popular ecommerce sites as measured by its cardholder spending (see screenshot upper right). Not only is the data interesting, it’s being used in The Industry Standard and Yahoo! Life, drawing publicity for NextCard month after month. Very smart.

NextCard’s eCommerce Index includes rank, 1 month movement, and 3-month movement, along with short comments.

On Sept. 17, the company’s previously announced acquisition of Textron National Bank (Costa Mesa, CA; $2.7 million in assets) was finalized and the bank’s name changed to NextBank. The new banking operation did not have a Web site at press time.

Contact: Dan Singer is Marketing Dir., Richard Goebel is Dir. Biz Development, (415) 284-9217.

NextCard Allows Online Payment

NextCard users can now pay their card bill online via ACH. For security reasons, two service levels are offered: (1) ClickPay allows users to pay up to $500 each month; the first payment can be made immediately by simply entering checking account and routing numbers. (2) ClickPayPlus has no cap on monthly payments, but requires users to enter their bank’s name, address, and phone number and wait five to seven days for verification. The NextCard system allows payments from multiple checking accounts, selected from a drop-down box.

NextCard

www.nextcard.com

Customers or prospects can click on this link to begin an online “conversation” with customer service.

NextCard (San Francisco, CA; 100,000 credit card accounts) became the first credit card lender to offer real-time online customer service via chat mode. Initially the live customer service will be available between 8 a.m. and 5 p.m. PST, weekdays www.nextcard.com/frame_contactus.html The technology is from New York-based LivePerson.com.

After clicking the “talk” button, a chat window pops up on the screen. In this case, outside of normal hours, the window invites you to leave a message.

Although it would be difficult, if not impossible, to develop a business case to support this customer service enhancement, we expect that it will become a standard online feature of any consumer company serious about adding Web-based accounts. By being first, NextCard benefits by showing it’s committed to state-of-the-art Web service. For more on the company, see OBR 5/98, p 12-19; 10/98; 11/98; 4/99). In other news, the company hit the 100,000-account mark in late July.

Contact: Robert LoCascio is CEO, LivePerson, robert@liveperson.com (212) 277-8950. Richard Goebel is Biz Dev. Director at NextCard, (415) 284-9217 Rich.Goebel@nextcard.com

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.

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.

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.”

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 (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 (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

Source: Online Banking Report, 11/98

Portal Banner Advertising: 1998 vs. 1997

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.

In just nine months, NextCard (San Francisco, CA) www.nextcard.com has gone from unknown to powerhouse (OBR 5/98). It’s one of the better examples of harnessing the Internet to grow a business. Compare your results to these:

Source: Company 10/15/98; OBR estimated market share +/- 33%

*Derivation: According to Cyber Dialogue some 4.6 million Americans reported having applied for a loan online, assuming that all those applications were in the last 12 months, that means Americans are applying for 400,000 loans/mo as of the date the survey was fielded (6/98); assuming that the total has increased to 500,000/mo in Q3 (annual run rate of 6 million applications), NextCard is pulling in 20% of all U.S. loan applications on the Net.

NextCard has made some subtle changes to its home page since May (see the before look,OBR 5/98). A graphic of a credit card and the tag-line changed from “The First True Internet VISA,” to “The Visa card for Internet users. (Use it offline, too!).” Both changes help grab the surfer during the critical first few seconds.

NextCard

www.nextcard.com

Neat trick. Nextcard’s pop-up advertisement on CBS MarketWatch is impossible to miss. It comes up on the screen just as you’re reading the column, and you have to click the x in the right corner to get rid of it. As a user, hate it. As a marketer, love it.

NextCard (Palo Alto, CA) continued building momentum for its launch of a full-service Internet bank next year (OBR 5/98). Since early July, it has added Platinum card options, introduced a rewards program, pioneered a “choose your own upgrade program,” revamped its Web site, and booked application number 200,000. Not a bad way to end the summer at a time when many financial services companies are taking a breather before the fall campaigns.

NextCard Rewards, from BonusMail www.bonusmail.com is a comprehensive rewards program with something for everyone, airline miles for the frequent traveler, restaurant meals, and merchandise. It’s a bit hard to follow in its initial incarnation, but given NextCard’s track record of simple, down-to-earth copy, we’re sure it will be improved shortly.

NextCard’s latest upsell technique. User’s select an upgrade, either Gold or Platinum. The Gold upgrade bumps the credit limit and puts users into the rewards program; Platinum further bumps the credit limit and provides double reward points. The catch: each upgrade requires a larger balance transfer.

NextCard’s elegant main screen downloads fast, uses white space just like they teach you in graphic design 101, and employs just 25 words to convey who they are, why you should buy from them, and how to do it. A perfect 10!

Internet Access Financial Corp.

www.nextcard.com

A couple times each year we run across a product that truly advances the state-of-the-art in online financial services. Nextcard, from Internet Access Financial Corp. (Palo Alto, CA) and issued through Heritage Bank (San Jose, CA; $268 million), is our first such find for 1998.

From top to bottom, this is the best financial services Web site we’ve seen. It’s a textbook example of good design, consumer-friendly copy, and effective selling techniques. It’s that much more impressive considering it’s just a few months post-beta. Here are the five most important attributes:

•  It Sells – You don’t often see a home page that sells. Nextcard posts its four primary benefits where they can’t be missed (see screenshot above). From the moment you enter its site, you know exactly what is going on and what to do next.
•  It Provides Instant Gratification – The instant, interactive credit application provides provisional credit approval in about 60 seconds.
•  Balance Transfers are Integrated with the Credit Application – During the application and approval session, users must complete a balance transfer (assuming they accepted an offer with that condition). NextCard makes it painless by presenting a summary of outstanding revolving credit balances gleaned
  from the credit report. Users simply select which balance(s) to transfer and press enter (see screenshot p. 18).
•  Users Can Easily Review and Sort Transaction Data – NextCard’s Transaction Sorter brings Quicken-like analytics to an easy-to-use Web site (screenshot below).
•  No-Fine-Print Fraud Protection – Finally, a financial institution with an understandable guarantee (see screenshot p. 14).

NextCard’s Transaction Sorter. The power of Quicken in an easy-to-use Web site.

Lessons from NextCard

1. Make your First Screen Sell; but not like a six-panel brochure, more like the cover of a direct mail piece. CEO Jeremy Lent describes the Web as “a new direct marketing arena.” You can see that philosophy played out on the NextCard home page (left) which consists of just 25 words divided into one slogan, one money-saving offer, three icons, three logos, and three choices of what to do next (remember what your speech teacher told you about grouping main points into threes). NextCard effectively demonstrates how “less is more” when engaging users on an entry page.

“The first true Internet Visa” assures users they have come to the right place to be on the leading edge. While this slogan has great appeal to early adopters, it may have to be retooled for the pragmatist mass market who just want to know if the thing works properly. In 2000, the slogan may need to be, “Join the 2 million users of the first true Internet Visa.”

1. NextCard – Cleverly designed with the emphasis on CARD so users know what is being sold.

2. Visa – NextCard wisely leverages the ubiquitous Visa brand not once, but twice in the upper right and lower left areas of the screen.

3. Member FDIC – This all-important logo instantly signals a legitimate banking organization rather than some shady credit repair outfit. Moreover, NextCard doesn’t squander this essential asset by relegating it to the bottom of the screen where users must scroll down to see it. That would be like Microsoft leaving its Windows 95 logo off the box.

NextCard summarizes its main benefits in three animated icons designed with a graphic of the key feature overlaid on rotating text with more details:

1. INSTANT Online Approval – A major benefit for the short attention spans on the Web, plus a major differentiating factor from the hundreds of other credit card applications on the Web.

2. 100% SAFE Online Shopping – Addresses a significant concern while further differentiating the card from the pack.

3. ONLINE Everything – Delightful words for hard-core Web users.

Many Web sites have ten or more choices of where to go from the main page, and rarely is one of them a “buy now” button. That’s an appropriate layout for news and entertainment sites, but as a financial institution your Web site exists for two reasons:
(1) to sell products, and (2) to serve customers.

NextCard addresses those two needs and adds a third: a user feedback button, a function that is often relegated to some far off corner of the site.

1. Apply Now! – There is absolutely no confusion on how to buy the company’s product.

2. Customer Login – Existing customers are given prominent attention with a well-situated login button.

3. Feedback – Wow, a company that really wants to hear from users. It’s a great first impression (even if they never act on it).

In the upper righthand corner of the main screen a “rates as low as 2.9%” teaser (not shown) rotates with the Visa logo (shown). Web users, like most people, like to find a good deal. NextCard promises one with a 2.9% teaser rate (although it lasts only three months).

Web-based credit card statements:
state-of-the-art, circa 2000.

2. Highlight Online Features and Benefits: This might seem obvious, but think about it. By definition, every visitor to your Web site is an Internet user. Do you speak to them in their terms? Do you highlight the benefits of banking with you online? Even if you don’t have the bells and whistles funded by $3.5 million dollars of venture capital, you can emphasize your email responsiveness, self service options on your Web, discounts at online merchants, and so on.

*industry firsts **potential industry first

3. Turn Fraud/Privacy Fears into a Product Feature: There’s an old high-tech adage: “It’s not a bug, it’s a feature.” Internet users have expressed fears about entering credit card numbers online. Some established credit card issuers have used consumer hesitancy as an excuse for moving online slowly. Upstarts such as NextCard can use the fear to their advantage by guaranteeing cardholders against liability for fraud. The irony is that Reg. Z mandates fraud protection, except for the first $50, to all U.S. credit card holders.

Other issuers have toyed with fraud protection, most notably AT&T Universal Card, now owned by Citicorp and more recently First USA/Yahoo. NextCard has the most succinct wording (below). Again, less is more with an 18-word no-nonsense guarantee. Read the entire 100% Safe FAQ, a marketing masterpiece at www.nextcard.com/safeonlineshopping.htm

NextCard 100% Safe Shopping Guarantee:
When you use your NextCard Visa to make purchases over the Internet, you are never liable for fraud*
*No conditions. No exceptions. No excuses. Guaranteed.

An understandable credit card fraud guarantee.

Nextcard is advertising on InfoBeat’s popular Closing Bell, an HTML email that reports closing stock prices and news related to stocks in your portfolio.

4. Deal with Security Issues: Sometimes it’s easier to just ignore tricky subjects like security. There are dozens of reasons not to deal with it:

•  We’ll just be making ourselves a more appealing target for hackers.
•  Legal will never approve it.
•  Compliance will never approve it.
•  Who is going to write it?
•  Who is going to keep it up to date?
•  We don’t want to provide any clues on how to crack our system.
•  We don’t want to scare users.

Sorry, these excuses aren’t good enough any more. Users are concerned and looking for answers. A financial institution that doesn’t offer answers and assurances isn’t doing its job and risks losing credibility with customers.

NextCard deals with the issue head on in the best security discussion we have seen at any Web site www.nextcard.com/security.htm The reason: It’s written from the perspective of the user, at their level, addressing their concerns. It even deals with one of the biggest weaknesses of Internet commerce, physical security of the server.

They also name drop: Coopers & Lybrand has reviewed its procedures; Exodus Communications handles physical and network server security. It’s especially important for an unknown company such as NextCard to associate with better known companies to increase credibility.

NextCard’s “Our Commitment to Security” really is.

5. Design the Online Application from the User’s Perspective: All the brilliant marketing would be for naught if the actual credit application was poorly done. It’s a common problem. The marketing department and/or high-flying Web designer creates a killer loan area, but the application itself is just an HTML version of the bank’s 8.5 x 14 inch paper form.

NextCard doesn’t make that mistake (maybe because it starting from scratch without the paper form). Its online application is surprisingly bright, informative and absolutely a breeze to fill out. The places where the user must input information are highlighted in yellow (see screenshots on the next page, or read the remainder of this article on our Web www.onlinebankingreport.com so you can see the screens in color to better appreciate the top-notch design work).

Bright red and blue instructions and arrows assist users in completing the form or finding additional information. For example, in the first screen of the online application (below), users are provided links to the Security page and the company’s Privacy Policy.

The company informs users where they are in the process (e.g., screen 1 of 2) and posts plenty of helpful instructions (though no 800 number). At every step its clear what to do next (e.g., big bright red “continue” button), and there is little, if any, scrolling required.

Pre-application Screen: Links to security and privacy make users feel more comfortable with the process. Unlike paper forms, Web forms need to sell/educate every step of the way since users can bail out at any time. Note: The “continue saved application” button.

NextCard’s Two-Screen Application

Screen #1: Get the easy stuff first:
name, address, and phone number.
Note how the form is placed in reverse highlights.

Screen #2: Now that the applicant is engaged, ask for the sensitive info: social security number, employer, income, mother’s maiden name, and e-mail address. Note the tone, “This is the last page (short, huh).”

6. Make the Approval Process Interactive: We usually don’t submit a live application when testing. But we just couldn’t resist pressing “submit” for the NextCard. And we are glad we did. The real-time balance transfer function was worth whatever hit to our credit rating we’ll get for adding yet another unsecured credit line to our file.

After the on-screen celebration of your approval (confetti falls down the left side of the screen), you are whisked away to the Design Your Own Offer page, an empowering exercise with the makings of a powerful cross-selling tool. Think how you could upsell home equity-secured credit at this point.

However, at least in my case, the “design your own offer” was anticlimactic. I could qualify for the 2.9% teaser rate if I transferred $5,000 to the card, but the credit line was only a puny $6,000. And the promised choice of offers was mostly illusory. The vast majority of users will select the Best Deal because it has both a higher credit line and lower teaser rate than the other three choices. It does require a balance transfer nearly equal to the credit line. The company plans to expand product/price options dramatically later this year, so this portion of the application process will become far more meaningful.

Application Approval-in-Process Screen: You look at this screen for the 30 to 120 seconds it takes to approve your application (57 seconds for mine). The red button on the bottom of the screen pops on when completed.

Approval Screen: Upon approval, you’re greeted with a big congratulation, complete with virtual confetti, and strokes about being part of history. Then you are invited to “design your own card offer.”

Design Your Offer Screen:
Requires users to select one of four offers.

7. Allow Users to Come Back to Applications in Process: Dial-up users experience all kinds of disruptions when using the Internet: call-waiting, crying babies, Windows 95 freeze-ups, dropped connections, and so on. NextCard wisely includes a “Continued Saved Application” function that allows users to re-enter the application process at any step of the way by entering name, social security number and mother’s maiden name. Applications are kept “active” for 72 hours, after that it’s considered a withdrawn application.

Choosing “save application” gives you 72 hours to return and complete the application.

During our test application, we had to reenter the saved application four times over three days before we finally finished the process. It seemed the problems were on NextCard’s end, but in discussions with customer service and later with upper management, I’m convinced my experience was an anomaly.

The agony of defeat. Before I could accept the offer, I was hit with multiple “404 Not Found” error messages. After logging back in several times, I eventually completed the process.

8. Get the Balances Transferred Online: Another marketing tenet: The best time to get someone using a product is right after they’ve bought it. Therefore, NextCard integrated the balance transfer process right into the application. After selecting an offer, a personalized balance transfer form is created by pulling data from the credit report. The form includes creditor name, outstanding balance, suggested balance transfer (equal to outstanding balance), and account number (with last four digits truncated for security). To complete this final step, users enter transfer amounts equal to or greater than the minimum required in the offer selected, and fill in the last four digits of the account number(s). The Javascript form automatically keeps a running total at the bottom of the form.

Balance Transfer Screen: Actual revolving balances are shown. The transfer is completed by entering an amount and filling in the last four digits of the account number.

9. Don’t Leave Applicants Hanging: NextCard’s Web site does a good job of reminding users what they’ve just done and what comes next. For example, after completing the application the following steps are listed (screenshot right):

•  Step 1: Customer service rep to call to verify info within a “few days.”
•  Step 2: Account info and card to arrive 7-14 days after completion of step 1.
•  Balance Transfers: To take place within two weeks with email notification promised when completed.

We were surprised at the lack of proactive communication from NextCard. We haven’t received so much as a single email during the three days it took to submit the application, nor in the seven days since we finally completed the process. We have no idea if our application is still pending, whether it’s been lost, or even cancelled. To address this weakness, the company is planning to integrate email communications into the process later this year.

Confirmation Screen: One last look including a recap of credit line, teaser rate, and balance transfer details before pressing Confirm Offer to make it official.

10. Learn from Cancelled Applications: It’s the nature of the Net that users will test your application then bail out before hitting submit. NextCard learns from unfinished applications by posting a mini-feedback form for those exiting the process (screenshot right).

Final Screen: Congratulations and detailed next steps, plus FINALLY a toll-free number.

Cancellation Screen: If you choose to cancel the application after receiving your offer, the company throws a short questionnaire at you to find out why.

As much as we liked the company’s marketing approach and Web site, based on the problems we encountered with our test application, there are still bugs and glitches to work out. But it’s a new site, so we figure the company will iron out the bugs before full-scale marketing efforts kick in later this year.

We are also disappointed that NextCard has elected to follow the borderline bait-and-switch tactics common in direct mail today: three months at 2.9%, then prime plus 9.9%. Compare that to the Yahoo/First USA card with a 9.9% fixed rate. After all the effort the company expends impressing users with a high-quality Web and application, it’s a shame to end up with a product many users won’t want to use. The APR is too high for heavy revolvers and there are no miles for the heavy transactors. CEO Jeremy Lent told us that NextCard would be rounding out its product line in the near future. Presumably, that will include lower APR options and an airline mileage program.

Another major improvement promised by Mr. Lent is integrated email and telephone access to service reps during the application process. Had I been a normal applicant, I never would have continued after being locked out four times.

Finally, a minor flaw. The address listed on the Web is a P.O. Box. As a skeptical prospect, we would feel more comfortable with a street address. It could be Heritage Bank’s address.

We talked to CEO Jeremy Lent about NextCard’s business plan. The company has big plans, and not just for credit cards. NextCard expects to become a fully-chartered thrift by year-end marketing a full line of banking products. It also plans an aggressive online marketing program this fall. They intend to concentrate exclusively on the online medium, keeping far away from the overused direct mail approach.

This will require money, buckets of it. Last fall Brentwood Venture Capital invested $3.5 million in a first-round financing. NextCard expects to announce additional funding in the near future.

The company has purposely kept a low profile so far, issuing just a single press release in February. It’s fine-tuning and expanding its operations before all-out marketing. Even so, the company is ahead of plan and will be releasing volume figures in the near future.

NextCard is rapidly building an infrastructure to process tens of thousands of credit card applications per month. The company has 39 marketing/ credit/technical positions posted on the Yahoo/ Monster Board alone employment.classifieds.yahoo.com/california/employment/n/nextcard/index.html.

It is also building a credit card lead-generation site called CreditChoice at www.creditchoice.com (screenshot right). While it’s currently little more than a “Web placeholder,” if it receives the same attention as the flagship site, it could grow to compete with GetSmart, Ram Research,Bank Rate Monitor and others.

Although Lent has no plans to license the NextCard platform, or sell the business, future strategies will depend on how successful the company is in attracting profitable customers in the next 18 months. If that strategy doesn’t work, the company still has a number of attractive options available:

• Develop leads for other issuers through its NextCard and CreditChoice sites.
• Expand into other loans using the NextCard engine, especially home equity-secured loans and lines of credit.
• License its marketing and delivery platform to other card issuers, financial institutions, and non-banks.
• Sell the company to another bank/card issuer.

All in all NextCard is a fascinating story, one that we will follow closely in the coming year. It’s the first of several sophisticated, and well-funded, efforts to build the Amazon.com of financial services. The mega-card issuers, Citicorp, Bank One, Chase, First Chicago, and others, might want to make Jeremy Lent and his investors an offer they can’t refuse before this company goes public and becomes a $200-million entity.8

Contacts: Jeremy Lent is CEO of Internet Financial Access Corp. in Palo Alto, CA, (415) 836-9770.

CreditChoice is NextCard’s consumer info and lead generation site that’s mostly under construction.

Nextcard is a sponsor of webcal, a personal datebook advertised on AltaVista www.webcal.com