Internet marketing is the least expensive way for credit card issuers to pick up new customers, but it may not be the best, said investment banker Robert K. Hammer.

Mr. Hammer, who specializes in arranging credit card portfolio sales, examined the channels card issuers use to gain accounts. His research was based on responses from 1,200 lenders. He concluded that more traditional account-acquisition methods, such as buying portfolios, currently yield more stable and profitable cardholders.

It costs a card issuer $38 to $180 to acquire an account, depending on the source, said Mr. Hammer, who heads R.K. Hammer Investment Bankers in Thousand Oaks, Calif.

It costs $80 to $180-an average of $116-to acquire a customer through portfolio purchases, the most expensive alternative. That cost averaged $43, with a spread of $38 to $55, per account via the Internet, the least expensive channel, the survey found.

"The most expensive method seems justifiably so, since these are purchases of existing balances and mature accounts, unlike solicitations," Mr. Hammer concluded.

The cost of acquiring an account through mail and telephone solicitations averaged $69, and through agent bank programs it was $82, according to his survey.

Internet marketing is likely to drive down costs, but "the question is how will these accounts perform compared with other accounts," Mr. Hammer said.

Some companies that encourage people to apply over the Internet say the channel has produced high fraud rates, partly as a result of people experimenting to see whether they can trick the system into extending credit.

Datamonitor Inc., a New York market analysis company, issued a report in May predicting that the Internet would become a more popular channel for all categories of retail loans over five years.

The firm projected that direct mail's share of new credit card account openings would decline from 66% to 55% by 2003, with the Internet picking up the slack.

Consumers have grown weary of mail solicitations, Datamonitor said. Moreover, card applications submitted by mail take weeks to process, while some Internet applications can be approved or rejected instantly.

"As Internet security issues continue to wane, we can expect consumers to utilize the Web more frequently to procure credit cards," said James Gaffney, a banking analyst at Datamonitor.

Because the Internet is so new, it is too early to judge retention rates among customers who were reeled in that way, Mr. Hammer said. If these accounts perform as well as others, "we will see a plethora of new (card issuers) marketing on the Internet," he said.

Mr. Hammer said it is logical for Internet accounts to show poorer performance than those acquired through bank branches, where applicants established their accounts and are more likely to stay.

"The evidence suggests that the further you get away from the bank, the greater the attrition rate," he said.

Mr. Hammer's research shows the average gross attrition rate of a card portfolio-among accounts that are at least three and a half years old-is 12% a year.

Among customers who have additional relationships with their credit card banks, the attrition rate is 8% to 10%, Mr. Hammer said.

Accounts booked through an agent bank have attrition rates between 9% and 11%, and those booked through telemarketing or mail solicitation are between 12% and 14%. Mr. Hammer said attrition of Internet accounts is likely to be closer to telemarketing and mail.

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