Having cast his lot as one of the banking industry's biggest Internet proponents, Richard W. Vague of Bank One Corp. on Monday articulated a future in which consumers lock a few credit card account numbers into an electronic wallet that they will rely on for all on-line payments.
Not surprisingly, Mr. Vague, chairman and chief executive officer of Bank One's First USA division, envisions his company as a top provider of the accounts that consumers will register with on-line merchants.
"Inertia would suggest that consumers only put in one or two accounts," said Mr. Vague, speaking at the American Bankers Association's Future Payments conference. "We plan to be the bank they choose."
With enthusiastic backing from Bank One chief executive officer John B. McCoy, First John B. McCoy, First USA has made an enormous financial commitment to attracting and serving customers electronically. Mr. Vague oversees not only the nation's second-largest credit card portfolio (only Citigroup Inc.'s is larger), but also WingspanBank.com, the Internet bank that Bank One introduced in May. As head of consumer lending, he also supervises other product lines and how they are sold and marketed on the Internet.
Troubles in the credit card business recently prompted Chicago-based Bank One to lower earnings expectations for 1999, but Mr. Vague is still seeking to rally faith in the Internet in his public appearances.
In addition to this week's ABA conference a revised version of the old national bank card conference with an emphasis on electronic commerce Mr. Vague is scheduled to headline a conference on card marketing sponsored by Faulkner & Gray in November.
He said most consumers are willing to do business on-line without elaborate security guarantees. "The industry continues to overestimate the issue of trust and the need for security and certification," he said.
Three years ago, when debate raged over creation and implementation of the Secure Electronic Transaction protocol for Internet credit card payments, the assumption was that consumers would be reluctant to do business "without security and authentication," Mr. Vague said. But "I didn't know what SET was then, and I don't know what it is now."
Five or six years ago, transactions made by telephone and mail order comprised 7% of total purchases, Mr. Vague said. Today, he said, 30% of transactions are "non-face-to-face," a category that includes the Internet.
Mr. Vague said the payments system taking shape around the Internet confers greater power to on-line merchants and portals, which aggregate consumers' personal information for marketing and payment purposes.
He said he envisions an "Internet-only" payments system in which large merchants, portals, and billing companies cooperate to clear consumer transactions on-line.
"It is increasingly difficult to tell apart e-wallets, on-line banks, and financial information aggregators," Mr. Vague said. "I see these three things as similar and converging."
Though electronic, on-screen wallets such as one purveyed by Cybercash Inc. are not yet in wide use, Mr. Vague said, he expects wallet vendors to become prominent facilitators of consumer payments. In addition, he said, major on-line merchants such as Amazon.com could help orchestrate transactions for smaller on-line merchants that do not gather consumer payment information.
Recurring payments are central to the system Mr. Vague outlined. When consumers return to certain Web sites and make purchases without having to re-enter credit card numbers or other personal information, they offer a potentially steady stream of revenue and information to the companies involved.
Such data are increasingly falling into the possession of nonbanks, Mr. Vague said. Cooperation among various on-line companies is enhanced by what Mr. Vague called an "outsourcing mentality" on the Internet. "There is more openness to third-party companies," he said.
Robert Heller, executive vice president of Fair, Isaac and Co., said these nonbank collaborations could be cause for alarm. "It would be the biggest mistake of banks if they give away their core competencies" as the central part of the payment system, he said during a panel discussion after Mr. Vague's speech.
Mr. Heller, a former chief executive officer of Visa U.S.A., said banks are not moving fast enough to capture business on the Internet. As a result, a number of start-ups and other nonfinancial companies are stepping up to facilitate on-line consumer payments, particularly in the area of electronic bill presentment and payment.
PayMyBills.com, launched in July, provides on-line bill payment services directly to consumers for a fee. John Tedesco, chief executive officer and founder of the Los Angeles-based company, said two-thirds of PayMyBills' consumers have submitted their bank account information.
According to research Mr. Tedesco's company conducted, 50% of consumers who sign up for on-line banking later drop the service.
"Trust is something that can be built and gained by other (lesser-known) institutions," said Robert Orgel, director of business development of a Natick, Mass.-based company called edocs.com, which provides on-line bill presentment services for billers. "Look at what Amazon.com did to Barnes & Noble."
Michael Beindorff, executive vice president of marketing and product management for Visa U.S.A., said banks' brand names and Visa's still trump others in the on-line world.
"We are a long way from consumers placing their trust in unknown brands," he said. WingspanBank.com and other Internet-based brands are experiments that prompt executives to "re-think the value proposition," Mr. Beindorff said. "Wingspan couldn't be done within the bank, but over time it will converge with the bank again."
Mr. Vague said he is happy with Wingspan's results so far. Wingspan, he said, "forces us to have a clean, neat, and complete solution without having to rely on anything but the Internet."
One of First USA's newest and perhaps most formidable competitors on the Internet is American Express Co., which launched its on-line Membership Banking program on the heels of Bank One's. America Express also made waves last week with a new product called the Blue card, a credit card with a computer chip on it.
Mr. Vague called the Blue card an "attractive product" with a modern look that will probably encourage consumers to use it. He said "the chip gives it that space-age feel," but the 9.9% interest rate is most compelling. He downplayed the significance of the chip on the card, saying it does not have many uses yet.
Mr. Vague said First USA is testing a smart card tied to a loyalty program, but he declined to give more details. In an interview, Mr. Beindorff said that First USA's initiative involves Visa, and that the product will be introduced shortly.