Credit card industry experts are saying that the Internet is starting to prove its worth as a customer acquisition tool.

The number of new accounts generated on-line remains a small fraction of the total, but it is getting big enough to be noticeable and measurable, according to executives and industry watchers attending the annual Faulkner & Gray Credit Card Forum this week.

Consumers are increasingly expecting on-line account access and instant decisions on their electronic applications. That has made the Internet the "fastest and least expensive" way to acquire customers, said Alex W. "Pete" Hart, an independent consultant and former chief executive officer of Advanta Corp. and MasterCard International.

"The digital sales channel is where the action is," Mr. Hart said at the conference. "Five years ago when I left MasterCard, we had scarcely heard of the Internet."

A study released Monday by Brittain Associates Inc. of Atlanta said 7.8 million card accounts-representing six million households-have resulted from Internet marketing since those efforts began.

Of those accounts, 5.2 million were applied for and approved on-line and 2.6 million were sold on-line but applied for off-line.

"The Internet is beginning to have and will continue to have a real impact on new-account acquisitions," said Bruce J. Brittain, president of the research firm.

The downside of this trend, he said, is that for on-line applications approval rates are lower. "The applicant finds you, the issuer, not vice- versa," he said. "It makes targeting the customers you want very difficult."

The Brittain study, done in March, included 700 interviews with adults who routinely use the Internet, half of whom held a credit card they obtained on-line. Among the latter group, 87% said on-line benefits made an enormous difference to them in deciding which card to use, and 50% said they routinely used the same card for electronic shopping.

In the Brittain survey, the cards consumers said they applied for on- line were not necessarily the same ones they said they relied on for on- line shopping. The companies Mr. Brittain said had the most on-line card applications-in descending order-were the First USA division of Bank One Corp., Citigroup, Capital One Financial Corp., NextCard Inc., MBNA Corp., and Discover Financial Services.

The list looked different when consumers were asked which they preferred for on-line shopping: First USA was followed by American Express Co., Citigroup, Discover, MBNA, and Chase Manhattan Corp.

Mr. Brittain said rewards made the difference. "Amex doesn't even make our radar screen when it comes to acquisitions on the Web, but people think they have a reason to use it on-line."

Speaking Monday, American Express chairman and CEO Harvey Golub said Internet strategy is his top priority. The Internet is "not a passing fad or a niche play," he said. It gives customers "immediate access to information" and "the ability to immediately compare competitors."

Mr. Golub said he uses the Internet regularly to gather information and try his competitors' products and services. The network, he said, has cut his memo writing "by 90%."

American Express offers on-line account access and other features, but Mr. Golub said more ambitious goals are in the offing. He did not offer specifics.

He alluded, however, to American Express' ability to give customers links to accounts at other companies. "If our customers want their 401(k) account information from Dean Witter, we have to be able to get it to them," he said.

"The Internet is not just a new distribution channel for old products," he said. "New businesses can be created and grown. We can't just transfer the physical world into the interactive environment."

Malcolm Williamson, president and CEO of Visa International, called the Internet "one of the most crucial forces driving adoption" in the credit card industry. Visa forecasts that on-line spending by consumers will top $100 billion by 2002, and on-line commercial spending will exceed $1 trillion by 2003.

Conference speakers said brands are going to be at least as important on the Internet as in the physical world, or perhaps more important. Consumers will "look for brands and companies that they recognize," Mr. Golub said.

In his renewed pitch to bankers for marketing cooperation, which MasterCard and Visa have resisted, Mr. Golub said his company "might be a good partner for some of you. Our brand can bring credibility to other brands."

Michele Turkel, principal of Turkel International Consulting Inc. of Scarsdale, N.Y., said Internet-related cobranded cards "are viewed as a major growth area."

Customer acquisition costs are far lower than direct mail ($20 versus $100 per account) or telemarketing ($10 compared to $80), she said. Once a Web site, which costs $25,000 to $40,000 to establish, is up and running, "there are virtually no marketing costs to acquire on-line applicants," Ms. Turkel said.

She said card issuers approve 8% to 60% of applications that come through the Internet. These customers "expect billing statements, payments, and customer service on-line. They want the whole enchilada."

Beth Bailey, senior manager of electronic financial services at Bank of Montreal, the largest MasterCard issuer in Canada, said it offers 500 products on its Web site, including cards that let people earn air miles or points toward mortgages.

"You can change your promotions instantaneously" on the Web, Ms. Bailey said. On the down side, several attempts to drive traffic to the site through banner ads have failed.

Ms. Bailey said Monday is the day consumers favor to use her Web site, and 11 a.m. to 2 p.m. are the most popular hours. People between the ages of 21 to 25 are the largest group applying on-line for Bank of Montreal credit cards, she said.

So far, Internet-derived accounts show no characteristics that distinguish them from traditional ones. Each month the bank gets 650,000 requests for on-line account information, and 60% of those customers are repeat users.

Bank of Montreal is still trying to determine whether on-line customer service has shifted the burden from call centers, or whether "it's just channel-stacking," Ms. Bailey said.

"My competition is one click away, so I need to keep my site the best and most convenient," she added.

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