Discover Financial Services and American Express Co., both pursuing changes that would make them more banklike, are taking very different paths to get there.

Unlike Amex, whose application to become a bank holding company was approved last week, Discover said it is unlikely to attempt such a conversion. The company also said last week that it would consider buying a traditional banking operation; Amex has played down the possibility it would pursue such a deal.

And Discover is pursuing rapid growth for its "direct" deposit platform; it started its online platform about 18 months ago. In that sense, it has a lead over Amex, which has just started collecting retail deposits.

The shift by nonbank financial companies to bank charters and deposit funding is adding to an already intense competition for deposits and could lead to a sustained rise in rates. But for the companies now trying to build deposit bases, this alternative is better than relying on dysfunctional wholesale sources.

"What all these companies have learned from this experience is that they were probably too heavily reliant on one or two sources of funding, which were largely very sensitive to the ups and downs of the capital markets," said Michael Taiano, an analyst at Sandler O'Neill & Partners LP.

Competition resulting from the turn to deposit funding by a wide range of financial companies "ultimately will lead to deposit rates' staying high relative to Treasury rates," Mr. Taiano said. "But, given the alternative, which is having to raise money in the capital markets," deposit funding "is much cheaper and easier to do."

Carlos Minetti, Discover's executive vice president for cardholder services and consumer banking, said in an interview Friday that the direct deposit operation started this year with about $3 billion of deposits and expects to double that total by yearend. It hopes to double the portfolio again next year.

Direct-to-consumer deposits have a "central role" in the company's funding structure, Mr. Minetti said. Its deposit portfolio goals are determined by its funding needs, and the company might ultimately seek a direct-to-consumer portfolio of $20 billion to $30 billion. At Aug. 31, Discover had managed assets of $65.6 billion.

Shifting away from brokered accounts, which accounted for about 73.9% of Discover's $26.8 billion of deposits at Aug. 31, is a part of the company's strategy, Mr. Minetti said.

It is not seeking to pile up deposits immediately by offering a market-leading rate but is focused on somewhat more gradual growth and developing long-term customer relationships, he said.

About half of Discover's customers open accounts by phone, and one goal for the company is to "integrate the online environment with the phone call center environment" to let customers conduct complex transactions by phone, Mr. Minetti said. (Discover touts its ability to answer calls for its cards in 60 seconds; all its call centers are run in-house and in the United States.)

Account holders can gain access to funds through cash-reward debit cards, their Discover cards, and checks, and they have access to bill-payment services. Discover plans to start a redesigned account-opening subsection of its Web site this Wednesday, and it plans other improvements, including functions that allow rate comparisons with online competitors.

About one-third of new deposits this year are from Discover cardholders. "We do have an advantage with Discover customers," Mr. Minetti said, "because we have a relationship, and they trust us, and they know who we are, but we don't want to limit ourselves to Discover customers."

Still, Discover "will consider" buying a physical branch network, he said. "It is certainly something we will take a closer look at. It's a changing environment, and what maybe was not attractive a year ago could be attractive now."

Harit Talwar, the executive vice president of Discover's network business, said in an interview this month that the American Automobile Association offers its members Discover certificates of deposit bearing the car association's name. Similar "white-label" arrangements might offer an opportunity, he said. Direct-to-consumer CDs are "a big priority for us and, therefore, we are looking at the network relationships" to see "whether they provide any opportunity for affinity marketing" and "distribution," Mr. Talwar said.

During a presentation last week, CEO David Nelms said he is confident the company could use deposits to fund $2.9 billion of securitizations maturing next year if needed because collecting deposits "is not something that's new for us. We've been growing our deposits significantly since the time of the spinoff" from Morgan Stanley last year.

Despite the competition for deposits, Mr. Nelms said, "There's a lot of consumer demand for FDIC-insured deposits" from "consumers who are pulling back from money market funds, who are pulling back from stock market investments … . The pie will be much larger."

Also, "while there are a number of new players coming in, there is some demand that's gone away as well," he said. "Some of the big players in this market over the last year were Wachovia and Countrywide and IndyMac" — companies that have been sold or failed.

The Federal Reserve approved Amex's application to become a bank holding company last week, a sudden move that echoed similar conversions in September by Goldman Sachs Group Inc. and Morgan Stanley. The latter Wall Street firm announced the creation of a retail banking division last week.

Amex said its charter "provides opportunities to expand its deposit-taking capabilities" and enhances its "access to the capital on offer under the current and any future government-sponsored programs."

A quarterly financial filing with the Securities and Exchange Commission last month said Amex has traditionally raised deposits from institutional investors. In August, it started a program under which it sells unsecured bonds to retail investors in increments of $1,000 through InterNotes, a joint venture between Bank of America Corp.'s securities arm and Incapital LLC. Last month, Amex started a retail CD program, which depends on brokers. It had raised about $1.1 billion through the two initiatives by Oct. 28. A spokeswoman for Amex identified the InterNotes and retail CD programs as "the sorts of activities that we will continue and build on" in an effort to increase deposits.

During a conference call last month, Daniel Henry, Amex's chief financial officer, said diversifying funding sources, including increasing deposits, "will be a focus of ours over the next year or two." However, Amex's CEO, Kenneth Chenault, said on the call that the company was not actively looking to buy a deposit franchise.

According to First Manhattan Consulting Group, "direct" banking deposits in the United States have grown from about $65 billion in 2004 to $200 billion in 2007, or 35% to 60% per year, compared with 3% to 4% per year in total retail deposits.

James McCormick, the firm's president, said he would have expected the overall rate of growth in direct deposits to moderate if capital markets were not so fickle.

Normally, he said, institutions enter the market, ramp up quickly, and meet their funding needs. For example, a finance company with $30 billion of assets might target $6 billion in consumer deposits to change its funding mix.

"They price up at the higher end of the rate structure, and grow very rapidly for a while, because they're growing from a base of zero," he said. "When they get to $6 billion, they change their approach" because "they're only looking for growth in proportion to the growth rate" of the overall company.

But this year, "with the financial crisis and the concern over liquidity coming into play," that pattern has not determined the trend.

For those seeking deposits through the direct channel, Mr. McCormick said, "it is inappropriate to assume that direct banking is a total commodity," where a Web site, FDIC insurance, and a high interest rate is sufficient.

Effective call centers are also important, for example. "A lot of customers will explore options on the Internet but" want to ask someone on the phone basic questions before opening an account, Mr. McCormick said.

A fundamental question for companies is whether the costs of building a direct deposit-gathering platform, and the advertising and high rates needed to attract account holders, are less than those in wholesale markets, Mr. McCormick said.

"Before liquidity was so valuable, that calculation" would not justify a direct platform for those "that had access to wholesale funds and a strong debt rating," he said. But "at times like these, being short on liquidity is sometimes the end of the game."

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