Providian Financial Corp. said its seven-month-old electronic commerce division has been flourishing beyond expectations.

Though Providian does not say its Internet division has begun making profits few companies in the card industry or anywhere else are making that claim it does say that traffic on its three Web sites is heavy.

Consumer interest is running high enough for the company to "reinforce its commitment" to invest $75 million to $100 million in on-line efforts this year.

"For us, the Internet is very strategic for the future, and we have to move fast," said Shailesh J. Mehta, chairman and chief executive officer of the San Francisco-based company. "We were very pleased with the progress we have made in this time frame the results have been promising, and going forward we're going to even further increase our investment commitment."

Providian's announcement of its Internet results on the heels of a glowing second-quarter earnings report seemed especially timely given the spate of consumer and shareholder lawsuits facing the company since May.

The lawsuits which the company says are without merit followed a revelation that the San Francisco District Attorney's Office was investigating Providian's handling of late fees and sales of fee-based products such as credit card insurance. Federal bank regulators also are conducting a review.

Despite the legal wrangling, Providian's card business added 1.1 million accounts in the second quarter. Its electronic commerce division said consumers were visiting its Web sites at an annualized rate of 25 million a year, "an increase of over 300% from the pace reached in the first quarter."

In the Internet realm, "we have improved on every profit driver that you can measure: the number of visitations, the number of completed applications, the number of referrals" from other Web sites, Mr. Mehta said in a recent telephone interview. "We're investing now in building the brand, and whenever we have done our brand advertising, we see during that time as much as a 50% increase in traffic on the site."

Providian says it is the only credit card company offering three on-line brands. Its main site, www.providian.com, sells credit cards in addition to certificates of deposit and money market accounts. It has generated more than $225 million in deposits to date, the company said, a 300% improvement over yearend 1998.

A separate credit card site that Providian brought on-line in May, www.aria.com, had drawn 1.5 million visitors by the beginning of August and is expected to get 15 million visits by yearend, "a rate much higher than initial projections," the company said. Providian did not say how many people applied for or received Aria-branded cards.

The third site, www.getsmart.com, is a marketplace: It takes consumer applications for credit card, home, and auto loans and lets a network of lending companies bid for the business.

Providian bought GetSmart Inc. from a San Francisco entrepreneur this year.

It said the site is attracting 14 million visits a year, "nearly double the 1998 yearend visitor total." Providian has made many back-end changes to GetSmart. It has streamlined loan applications, and concluded that the site is "poised for even more significant growth in 1999 and beyond."

Mr. Mehta predicts that one-third of Providian's customers will be transacting with the company on the Web by yearend 2002. "The real challenge, as I view it, is to learn a new way to do business on this channel," he said.

Providian's "culture of data analytics and developing models," the CEO said, puts it in a good position to create an "Internet-centric risk model" that provides a "full competency advantage."

Mr. Mehta compared the advent of the Internet to the rise of direct mail for credit card issuers: Both were new solicitation formats that raised card executives' expectations, and sometimes dashed them.

In the late 1970s and early 1980s, "very quickly people realized the losses were much higher for mail than they were coming through the traditional branch-based organizations, and a lot of people had to go back and rewrite the book so they could estimate the losses right," Mr. Mehta said.

Similarly, the Internet is a "whole new risk business" because the population is "non-prescreened," he said.

"You are dealing with a customer who is a little computer-savvy, he wants the answer in real time, and he won't wait too long," Mr. Mehta said. "He is likely to be an efficient buyer, and he can look at many presentations in a very short time frame.

With direct mail, a customer doesn't preserve all the solicitations that come to his or her mailbox and say, 'Let me look at them all and pick the one that appeals to me.' "

Unlike in direct mail, where lenders sometimes target prospects based on the affluence implied by their ZIP codes, the Internet makes card issuers cater to smaller "microsegments," Mr. Mehta said. "The old model of the two neighbors next to each other with identical preferences on products is changing," he said. "I may have a next-door neighbor with a totally different aspiration in terms of my product."

Providian recently began enhancing the WebCard Visa portfolio it bought in January from H&R Block Inc. WebCard was one of the first products to give customers on-line access to account information, and Providian has been offering customers of its other products the chance to upgrade to a WebCard account, which offers more on-line service. Until this summer the WebCard portfolio had been on the back burner.

"This rapid development of both the Aria and WebCard business allows us to profitably serve new customers and existing customers with leading-edge products and services a significant growth opportunity within today's fragmented Internet credit card market," said James Rowe, senior vice president of e-commerce at Providian.

Mr. Rowe said "separate rewards programs" are being developed for the card products geared to Internet use.

He said Aria cards are meant for customers new to the company, and Providian WebCard is aimed at existing customers who want a card with on-line benefits.

Mr. Rowe said the Aria advertising banner has been performing well in ratings of on-line advertisements. "We've taken the lead in developing brand," he said. "We also want to focus on the right profit drivers, and we want the customers to have a good experience."

Providian's revenue trend 84% higher in the second quarter than in the same quarter of 1998 has helped convince Wall Street that the company's legal woes were a fleeting concern.

Donaldson, Lufkin & Jenrette recently reiterated its "buy" rating, and stated in a report that "second-quarter results decisively dispel any doubts about Providian's earnings power due to recent allegations about its aggressive marketing tactics."

DLJ pointed out that sales of fee-based products which were at the heart of the controversy increased 275% in the second quarter, indicating that "the recent allegations of improper business practices have not changed the company's willingness to sell these products or consumer acceptance of them."

The DLJ report also downplayed the $20 million charge Providian took in the second quarter to cover refunds to consumers incorrectly charged late fees over the previous 20 months. The DLJ analysts called the problem a "relatively minor billing issue" and said the allegations about the company's business practices "had no impact."

Providian itself has gone out of its way to blunt the criticism. It introduced an "enhanced customer satisfaction" policy offering rebates to those who said they were incorrectly billed; it vehemently rebutted the half-dozen class-action suits filed against it, one by one; and it hired Konrad S. Alt, a former executive at World Savings Bank and at the Office of the Comptroller of the Currency, to the new post of senior vice president and chief public policy officer.

"We continue to work on striving for 100% customer satisfaction," said Laurie Cole, a Providian spokeswoman. "We continue to work with and cooperate with the D.A.'s office." The district attorney has not filed charges against Providian.

Mr. Mehta said the new customer-satisfaction standards require call center representatives to close each conversation by asking, "Are you satisfied?"

"If the customer says 'no,' automatically somebody else has to talk to the customer to understand why not," Mr. Mehta said. "That's a mandatory feature.

It has created so much pride in our customer service reps, because 95% of the time they hear 'Yes, yes, yes.' "

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