When Providian Financial Corp. unveiled its Internet strategy two months ago, there was no mention of banner advertisements or partnerships with dot-com companies.
In contrast to other card companies that have tipped their Web-strategy hands, Providian aims to build the transaction capabilities of its main corporate Web site while running a parallel business made up of other on- line enterprises it has bought.
"There is no question in our minds that we will be one of the most dominant players in financial services on the Internet," said James Rowe, the Providian senior vice president who has been in charge of the e- commerce division since it was created in February.
On-line strategy development remains a mystery for many companies because there are no tried-and-true models for squeezing profits from the Internet. Flexibility and trial-and-error are said to be important in the search for a strategy.
The few card issuers that preceded San Francisco-based Providian with noteworthy activity on the Web have focused mainly on marketing tactics. The First USA division of Bank One Corp. is widely regarded as the frontrunner because of its myriad relationships with prominent Web site operators and its ubiquitous click-on ads, which link viewers to product descriptions and applications.
NextCard Inc., a San Francisco company that calls its product "the only true Internet Visa," has also blanketed the Internet with banner ads. NextCard's founder, Jeremy Lent, is a former Providian chief financial officer.
Fleet Financial Group has gone the partnership route, cutting deals for cobranding and affinity relationships and for "preferred card status" on several sites. At the association level, Visa U.S.A. and MasterCard International are playing this game as well.
Providian says it is not stinting on promotional dollars, but the thrust of its efforts lies elsewhere.
"We're out to build long-term customer relationships," Mr. Rowe said. "That is how we generate long-term profitability."
Providian says its Web site has attracted more than $100 million in retail deposits since collections began there earlier this year. Fee and interest income have also streamed in steadily, added Mr. Rowe, who declined to cite numbers.
"We really find that the Internet is a source of additional profitable growth-it's not hype," he said. "It has never been fashionable at Providian to lose money on an initiative, and we're not ready to start now."
Providian, one of the top 10 bank card issuers, has $15.9 billion of assets under management and nine million customers. It added a million customers in the first quarter alone, when net income doubled from a year earlier, to $113.5 million.
Last month, Providian chairman, president, and chief executive officer Shailesh J. Mehta, said the company plans to invest a minimum of $75 million to $100 million this year in its Internet banking initiative.
Though the e-commerce division is newly established, planning for it began in early 1998 and was kept under wraps, said Mr. Rowe, who was previously in charge of fee-based products. The division was born with a staff of 150.
The strategic play came to light in January, when Providian purchased WebCard Visa from H & R Block. The small portfolio-120,000 accounts and $180 million in receivables-began as an affinity program for the Compuserve on-line service, which H & R Block sold last year.
In February, at the same time it announced its e-commerce division, Providian said it was buying GetSmart, an on-line marketplace for people seeking various types of loans. The price tag was $33 million.
GetSmart, founded in 1997 by former Wells Fargo & Co. executive William Fisher, asks consumers to submit loan specifications, then matches them with lenders in various categories: credit cards, auto, home equity, small business.
Although the service refers customers to Providian's competitors, the company considers it important to run GetSmart as an "independent stand- alone business" that preserves "the sanctity of existing lender relationships," said Mr. Rowe, who also serves as chief executive officer of GetSmart.com.
There have been no obvious changes to GetSmart but Providian has "improved execution of the existing business model," Mr. Rowe said.
Providian has distinguished itself as a leader in card industry profitability through its data base capabilities and by tailoring products to specific customers. Wall Street analysts praise the company's risk management talent, citing the volume of loans it successfully offers to people with spotty credit histories. Under a new program, First Select, Providian purchases freshly charged-off assets at a discount and manages the collections.
Mr. Rowe said Providian has carried over its "world-class execution" and knack for "selecting proper markets" from its traditional business to the Internet.
"Providian's competitive advantage has always come from things you can't see," he said. "There are very few secrets on the front end-direct-mail pieces or your Internet Web site are out there for the world. The way we make money at a rate greater than most others is through the back-end execution."
The Providian Web site offers instant loan decisions, on-line money transfers for customer retail deposits, and other features that put the site in the electronic commerce vanguard. The company views the medium in equal parts as a customer acquisition tool and a convenient way to serve existing customers, Mr. Rowe said.
"We take the products we know well-credit cards, deposits, home equity loans-have a front end that attracts the right customers to Providian, then a back end that meets those customers' needs and generates profitability," he said.
Cross-selling is also a goal. Customer relationships "can start in any one of a number of areas, from cards, to deposits, to home loans, to being a GetSmart customer."
Providian pays among the highest interest rates in the country for deposits, Mr. Rowe said, making it a natural draw for rate-surfers on the Web. People seeking certificates of deposit and money market accounts tend to be over 50, Mr. Rowe said, but the Internet may change that.
Providian's use of marketing dollars was described in a BT Alex. Brown analysts' report as "efficient but generous," and Mr. Rowe said those principles hold true in his division.
"We will use all of the media that are available to us, from banner placements to off-line branding," Mr. Rowe said. "You have to analyze the data and understand what banners and sites are effective to you, then you have to have the ability to make your marketing dollars more effective."
Providian makes the same calculations when evaluating direct-mail pieces, he said.
Providian will consider further acquisitions of on-line companies, just as it evaluates conventional portfolio purchases, Mr. Rowe said. The type of on-line partnerships that Visa and First USA are forming right and left are "something we would consider," but only selectively.
Michele Turkel, a consultant who researches the on-line credit card marketplace, called Providian a "player to watch" in that realm.
"If nothing else, they're gathering intelligence about whether this stuff works or not," said Ms. Turkel, who is president of Spectrum International Consulting Corp. in Scarsdale, N.Y. "To spread out and try things that are not in the marketplace is a smart move."
Providian has "never put enormous money into marketing," so the on-line channel might be a good way for the company to expand its reach, she said.
Some of Providian's closest competitors have yet to divulge much in terms of on-line plans. Capital One Financial Corp., which is often compared to Providian in its use of data mining and customer segmentation, has said it will reveal an electronic commerce strategy soon.
MBNA Corp., another major credit card specialist, maintains a very simple Web site and continues to announce affinity partnerships with real- world groups, as opposed to on-line companies.
"We don't have a crystal ball as to where the Internet will take us over the next three years," Mr. Rowe said. "That's why we come back to a business model that is flexible and adaptable, and that at its core is profitable."