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ECommerceTimes.com

Internet Credit Cards Boom While Banking Struggles

By Paul A. Greenberg
Feb 23, 2000 12:00 AM PT

By all accounts, the much-ballyhooed concept of online banking is still struggling to assert itself. In fact, according to a recent report by research firm eMarketer, about half of all customers who sign up for online banking cancel the service.

Internet Credit Cards Boom While Banking Struggles

While online banking has struggled, online credit cards have done relatively well. Online Visa card provider NextCard, for example, recently announced that it has grown from 134,000 customers and $268 million (US$) in outstanding loans at the end of September 1999 to 250,000 cardholders and loans of $500 million by mid-February 2000.

Credit card giant Providian Financial Corp. also recently announced that it has signed up 220,000 credit card customers on its new online credit card service. Providian is one of the largest providers of credit cards in the offline world.

Rosy Projections for Online Banking

While online banking may be struggling today, International Data Corporation (IDC) still predicts that 32 million U.S. households will bank online by 2004. What's more, IDC is not alone in its rosy projections.

Numerous other firms, including Forrester Research and Jupiter Communications, predict a strong future for online banking.

The reason is that most commercial banks are now executing plans for online banking that will allow their customers to access their accounts via the Internet as another alternative to ATMs. While growth may be slow today, analysts expect online banking to increase rapidly as it becomes a routine part of the banking landscape.

Another reason is that firms like CheckFree are moving strongly to develop the market for paying bills online. The CheckFree service does not require an online bank account, but instead uses an offline account to send payments over the Internet. CheckFree's success should help pave the way for customers to do all of their banking online.

Marketing Ploys on the Horizon

In order to spark the growth of online banking, there will likely be a number of marketing ploys to develop new business. New online bank VirtualBank, for example, recently unveiled a plan to offer co-branded banking services to employees of high-tech firms.

VirtualBank, which lists Bank Atlantic, General Electric, DaimlerChrysler, Donaldson, Lufkin & Jenrette and Textron, Inc. as investors, is hoping that high-tech employees will take a more progressive approach to online banking, particularly if the bank represents a joint initiative with their own company.

Market To Get More Competitive

While online banking will grow almost by default as brick-and-mortar banks go online, it will also get competition -- and a big potential boost -- from the world of online credit cards.

NextCard, for example, has announced that it is setting its sights on online banking as a natural adjunct to online credit cards. The company sees those people who now use credit cards to purchase goods and services online as the most likely candidates to move into online banking.

NextCard recently received a patent on its automated procedures for allowing a credit card user to transfer balances from an existing credit card to a NextCard Visa. While one might question whether such a capability is patentable -- much like the furor over Amazon.com and its "one-click" shopping capability -- the U.S. patent office has issued the patent.

The patent illustrates that providing both online credit cards and banking services requires developing expertise in providing such services.

NextCard CEO Jeremy Lent, for example, recently told the E-Commerce Times that success in the online financial services market has only come after developing special procedures for instantly issuing credit to customers without compromising security.

He said that his firm can now issue credit cards instantly online with no more credit losses than when the company was manually evaluating credit and approving the cards in several days.

Online Banking in Europe

Online banking is also more than a U.S. phenomenon. Investment bank Goldman Sachs is reportedly in talks with California Internet incubator fund Idealab! about launching a Europe-wide online bank.

The two firms are currently trying to determine the cost of launching the venture. Just last month, Goldman Sachs and Idealab! invested $23 million for a one-third stake in PayPal.com, a private firm that provides electronic cash payments through e-mail.

Deutsche Bank Teams with AOL

Earlier this week, Deutsche Bank, Europe's largest bank, announced an alliance with SAP and AOL Europe to jointly provide financial and trading services for electronic business transactions.

Deutsche Bank has reportedly teamed with AOL to set up a platform for online banking and brokerage services. AOL Europe has 3.8 million members across the continent.


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