Where the rubber meets the road, in the virtual world, is the outcome of a mouse click. Preferably an instant outcome.

NextCard Inc., the 3-year-old Internet credit card issuer, continues to attract sufficient capital to pursue its fast-growing (but as yet unprofitable) business because clicking at www.nextcard.com makes things happen-and quickly.

The recent departure of the company's founder, Jeremy Lent, from a day-to-day management role appears not to affect users of the service. And Lent's replacement as chief executive officer, John Hashman, says NextCard watchers aren't likely to see any major changes from the transition at the top.

NextCard's customers are more concerned, no doubt, with what happens when they visit the company's Web site than what happens in the corner office. First, a potential customer fills out a remarkably short application, then finds out whether he or she is approved in less than a minute. What's more, the applicant usually is presented with up to three different card options, and the best terms are reserved for customers who agree to transfer existing revolving-credit balances to NextCard. About 80% of them do, a company spokesman says.

Nor do customers have to wait until their plastic cards arrive in the mail to begin using them online.

The company is now rolling out its latest offering, consumer finance for big-ticket items. NextCard calls the new service the "Instant Finance Network," or IFN. It provides online financing for purchases of appliances, computer equipment and other more expensive merchandise consumers may prefer not to charge to their credit cards.

From the moment a prospective credit card customer clicks to submit an application, NextCard's proprietary software begins churning. Not only does it produce almost instant answers to credit applications; the technology also begins crunching marketing data. In the blink of an eye, the company knows which of its hundreds of Web banner ads brought the potential customer to its site. This information is cross-referenced- continuously-with data on customer profitability to target NextCard's huge Internet marketing efforts.

And make no mistake: The number crunching never stops. Long after the customer obtains a NextCard Visa, the company's software generates ongoing statistics on where the best customers are to be found. NextCard is among the top five Internet advertisers.

NextCard's execution online wins laurels from industry observers; but, more important by far, it appears to be winning a steady stream of new customers.

Its financial performance (see accompanying story) has been solid, with consistently impressive revenue and customer growth in the past year.

Even before NextCard reported its third-quarter results on Oct. 25, the company announced it had exceeded $1 billion in loans under management and that total customer accounts had surpassed 500,000. At the time of that Sept. 11 announcement, both numbers represented a 100% increase in the past six months.

Today, Lent says-and Hashman concurs-that the company is expected to make a profit late next year, or about a year earlier than the break- even date anticipated when NextCard went public in May 1999.

Still, NextCard's stock, like those of many of its peers in both the technology and financial services sectors, has been bruised mightily in the past year. It was trading around $10 in mid-October, off a 52-week high of $53.13. It's down more than 60% in the past year, hit no doubt by the market's general disaffection for Internet plays as well as the impact of rising interest rates.

The other major announcement over the summer-the decision by Lent to step down from day-to-day management of the company-was somewhat quieter. Hashman, who replaced Lent as CEO in late July, is a longtime colleague who had been president of NextCard since March of this year and chief financial officer since joining the company in August 1997.

Lent, a native of the United Kingdom, remains as chairman and assumed the new title of chief strategy officer. A NextCard spokeswoman said Lent was unavailable for comment when this article was prepared. He attended the company's earnings announcement on Oct. 25, however, and spoke briefly before turning the conference over to the new CEO.

In its July 24 filing with the Securities and Exchange Commission about the turnover at the top, the company notes that Lent's decision to step down was "driven by his wife's ongoing medical condition, which will require a greater time commitment than in the past." Molly Lent co- founded NextCard Inc. with her husband on June 5, 1996. The first NextCard Visa was issued just before Christmas the following year.

Hashman, 41, says Lent remains "very closely involved" in shaping the company's strategy. "He talks with me-and most of our other senior executives-several times a week.

"I have worked with Jeremy for the better part of 10 years now," Hashman adds. "We have a very similar understanding of how to build the business, so the transition has been smooth. We haven't missed a beat."

The two men worked together at Providian Bancorp, the huge direct marketer of credit cards and other consumer banking products. Providian, which is also based in San Francisco, is among upstart NextCard's most formidable competitors. Lent was CFO at Providian for several years; Hashman was a vice president there, in charge of direct telemarketing.

Their experience at the monoline card issuer, coupled with their unshakable belief in the potential power of the Internet as a direct marketing channel, gave rise to NextCard's unique business model, Hashman recalls.

"You know, if you look at the history of the credit card business in the United States, particularly over the past 20 years or so, it's clear that most of the largest banks missed, or passed on, a tremendous opportunity," says Hashman.

At one time, obtaining a credit card required a visit to a bank and a sobering conversation with a loan officer. But companies such as Providian; Capital One Corp., Church Falls, VA; First USA Inc., Chicago; MBNA Corp. of Wilmington, DE and a few others recognized that such decisions were based on national credit bureau data. Consequently, they began courting prospects throughout the country by mail and by telephone.

"They saw that you could build service centers with a national reach, accessing credit bureau information and then mailing customer packages offering credit directly to the best prospects," Hashman says. "That fundamentally changed the banking landscape.

"The big banks sat there and said, 'No, we're not comfortable living outside our traditional area.'''

The result of their decision has been made clear over the past 10 to 15 years, Hashman says. "As first movers back then, the Capital One's and MBNA's built a major advantage in telemarketing and direct marketing through the mail. They had a product that was well suited to being offered in a direct-response business. So, while the big banks stood on the sidelines, the movers continued to grow."

Meanwhile, Hashman says, Lent recognized that the Internet "had the potential to blow away the phone and the mail in direct marketing such as this." The idea, he said, was to gain a similar advantage over other direct-marketers of credit cards as a first mover on the Web.

"We understood," says Hashman, "that if we focused on this (Internet) channel and learned what worked and what didn't, and continued to refine our business, we could build an advantage similar to what Capital One and Providian had built over the big banks initially."

He stresses that steady developments in Internet technology have allowed the company to "refine" its business model continuously. "For the first time-the very first time-you had a technology-based channel, and we wanted to build a technology-oriented capability that would differentiate our product and attract customers," Hashman says.

Today, NextCard is recognized as the No. 1 financial services site on the Web. Media Metrix reports that NextCard's site attracted more unique visitors in May and June of this year than any comparable Web site, including sites for personal lending, brokerage, banking and insurance, and personal finance. And this past summer, Gomez Advisers, an ecommerce consultancy based in Lincoln, MA, rated NextCard as the No. 1 online credit card in its periodic "Internet Credit Card Scorecard."

As though humming his mantra, Hashman repeats: "You have to be focused on the particular channel to be successful. We went into this from the beginning not only as a direct-response marketing company but as a technology company.

"The focus on the channel is what drives innovation and it is what is going to drive the strategic advantage," the CEO declares. "That's really what NextCard has been about."

Analysts agree that the company has been adept in tapping the extraordinary advantages of Web-enabled marketing, particularly with respect to its emphasis on data mining. On NextCard's Web site, the company boasts that is has built "a detailed knowledge base of our customers ... ." At the same time, however, NextCard management has been quick to assure customers that the "personally identifiable" data collected on them will never be sold or shared without their permission.

Early on, NextCard was essentially a marketing company that issued credit cards from Heritage Bank of Commerce, San Jose, CA. In September 1999, however, NextBank N.A. obtained a national bank charter and opened its virtual doors.

Interestingly, Hashman sounds less enthusiastic than Lent traditionally has, whether in the founder's speeches or published reports, in discussing NextBank as an avenue for moving into banking businesses other than credit cards.

The new CEO is delighted by the income NextBank has generated through the issuance of CDs (minimum $100,000), but adds, "you won't see us moving into online checking, mortgages and the like. We believe the Internet solution for those products is still largely unproven."

Where the company is heading, the president says, is further toward ecommerce enhancements such as NextCard's "GoShopping!" service, an online shopping portal that searches more than 2,000 sites to find the lowest prices and merchants with the highest consumer-satisfaction ratings. "NextCard Concierge," meanwhile, is an online shopping tool that fills in order forms and remembers passwords.

NextCard also has exclusive co-branded card relationships with Amazon.com Inc., based in Seattle, Priceline.com Inc. of Norwalk, CT, and New York-based MyPoints.com, in addition to business partners for other products and services.

Hashman is enthusiastic in discussing the ongoing rollout of NextCard's new financing business for big-ticket purchases.

"We're also looking at person-to-person ecommerce and bill payment," Hashman says. "We believe those are areas where, over time, the Internet offers a very valuable service to customers. That's the direction you will see us take."

Further out, he adds, NextCard hopes to "develop a leadership capability in wireless"-so-called "m-commerce."

"We want people to think of NextCard when they think about buying online," says Hashman, "whether they're on a PC or a wireless device. Again, by focusing on the particular channel, we believe we can build the product."

For now at least, the CEO says NextCard watchers will see the company remain focused on consumer businesses, rather than B-to-B ecommerce. "We're seeing our credit card market on the Internet explode," he says, "so that is a huge opportunity on which we will continue to focus. Down the road, particularly where small business is concerned, we may see an opportunity to leverage that expertise."

For Hashman, NextCard is a textbook example of the Internet's strength as a marketing channel, especially in light of major advances in Web technology in only the past five to 10 years.

"We have built our technology internally," he says. "The cornerstone of those efforts, of course, is our Internet Database Marketing, or IDM, system. We literally test different banners (NextCard advertisements on Web sites) for each of those hundreds of sites, and we track the information on a very detailed level-click-throughs, who's approved and who isn't, long-term credit performance, balance transfers-and that is what forms the basis of our strategic advantage.

"It keeps us focused on what works."

The company's other proprietary technology, its Profile Based Pricing engine, taps the same statistical analyses as well as other data to customize credit card terms for every applicant. The information helps the company determine, instantly, whether a potential cardholder is likely to move from one teaser rate to another, in addition to other characteristics related to the cost of serving that individual.

"And of course, we do all of this in real time," Hashman says, "which allows us to give a customer an answer in about 8 seconds but also helps us make better lending decisions. I believe this Profile Based Pricing system will be recognized in coming years as the best ever developed for the credit card business."

Thus far, NextCard's lending decisions appear to have been relatively astute. Although the company's net charge-off rate for managed loans increased to 2.7% in the quarter ended Sept. 30, compared with 2.2% in the second quarter of this year, the CEO stresses that the rate is not out of line with comparable players in the industry. Naturally, he says, the charge-off rate goes up as the loan portfolio grows.

Hashman says NextCard clearly is different from its peers in the Internet space that have yet to show a profit. So far at least, venture capital firms apparently believe that NextCard Inc.-unlike many of those other Net players-will in fact achieve profitabity someday.

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