The last year saw no end to the rhapsodies, superlatives, and arrows-up financial projections about the Internet, and nowhere more so than in the credit card industry.

Par for the course, profits are still elusive. First USA of Wilmington, Del., the Bank One Corp. unit that has done more and apparently spent more on the Internet than any other card company, does not go so far as to say it is making money in this new channel. But it says it reduces customer- acquisition costs and promises to return much more on the investment.

"A lot of people think of the Internet as an experiment in technology, but we think of it as an experiment in marketing and strategy," said Richard W. Vague, First USA chairman and chief executive officer.

There is near unanimity on the point that the Internet is important, but there is disagreement about the nature and extent of its value. First USA is in the vanguard of those that see the World Wide Web primarily as a way to reach consumers and put products in their hands - a complement or successor to direct mail.

Others, such as American Express Co., have placed heavy emphasis on customer service. Citibank and some others are expecting more revenue from electronic commerce transactions than from new account openings.

The schools of thought are not mutually exclusive. Some companies buy on-line advertising in search of new applicants, invest in technology to deliver customer statements and other services on the Web, and offer reward points to people who use their cards.

First USA has seemingly cornered the market on promotional deals with Internet portals. Its $500 million, five-year pact with America Online was an industry icebreaker. The company says it is shifting more of its $1 billion of annual marketing spending toward the Internet. First USA says it has added 1.3 million customers through the Internet since 1995.

"Hats off to them," said Warren Wilcox, executive vice president of planning and development at Fleet Financial Group, which has on-line aspirations of its own. "If you're willing to take the lead and pioneer, you tend to accumulate knowledge faster than the people who follow you."

Mr. Wilcox said Fleet's Internet priorities were "customer acquisition first, followed closely by the ability to deliver a richer relationship." The Boston-based company's $13 billion credit card portfolio - the majority of it purchased from Advanta Corp. in 1997 - is dwarfed by First USA's $69 billion, but Mr. Wilcox said the Internet was a landscape of "shifting sand" that could be good for opportunistic smaller entrants.

"People are staking claims, and you don't know which ones are going to be productive," Mr. Wilcox said. "You can't come to the conclusion that this thing is now solidified and cast in concrete."

Fleet has three cobranding relationships on the Internet - with the Lycos Inc. search engine and two smaller portals, Go2Net Inc. and 24/7 Media Inc. In August, Fleet launched a cobranded card with Lycos.

Mr. Wilcox said Fleet and its partners combined are getting 200 million Web advertising impressions a month, about as many as First USA and the upstart card marketer NextCard Inc. each get on their own.

"We're going to be right up there with the top two advertisers in our category, slugging it out from this point forward," Mr. Wilcox said.

Early next year, Fleet is planning a stand-alone Web-site business with its own brand, similar to what NextCard and Providian Financial Corp. (with its Aria brand) have done. Mr. Wilcox said the Internet had proved its ability to turn new brands - like Amazon - into household names. "Fleet clearly has some brand equity in New England and maybe in right field at Yankee Stadium, but we clearly don't have it in Oklahoma," he said. "We want to hitch our wagon to the right brand at the right place at the right time."

Bank One's WingspanBank.com, the Internet-based bank that opened in June, is offering, among other products, its own card, Wingspan Platinum Visa, offering 5% cash back from certain on-line merchants. American Express followed in July with a full-service Internet venture of its own, Membership Banking.

The enthusiasm for the Internet does not mean direct mail is dead. Executives view the Web as one of several channels - alongside telephones, the mail, and, in the case of retail banks, branches - that comprise a well-rounded delivery system. According to BAIGlobal Inc. of Tarrytown, N.Y., a research firm that tracks card mailings, mail solicitations set records in 1998 and 1997, at 3.45 billion and three billion pieces, respectively.

Shailesh J. Mehta, president and chief executive officer of Providian, said the Internet was changing business-as-usual much the way direct mail did. In 1979 and 1980, card executives "very quickly realized the losses were much higher for mail than on the traditional branch-based originations," he said. "There were many early disasters" among issuers that miscalculated the risks.

Providian has taken a slightly offbeat path. In February, it purchased an independent on-line loan marketplace, GetSmart Inc., and created a separate electronic commerce division. That division oversees three Web sites: GetSmart, which continues to refer customers to loans offered by other companies; Providian's own home page, which includes a deposit-taking business in addition to serving card customers; and the Aria site, which was set up in May as a distinct brand for the Internet.

This is typical of Providian's contrarian leanings. Just as Providian would be foolish to vie with MBNA Corp. for affinity relationships, Mr. Mehta said, so too would his San Francisco company stumble if it tilted against First USA for on-line marketing deals.

Mr. Mehta said the three Web sites were attracting visitors at a rate of 25 million a year. At the start of the Web initiative, Mr. Mehta said he had predicted that a third of Providian customers would be doing business with the company on-line within five years. He has revised that to three to five years.

"Getting traffic is half the story," he said. "Once you get people there, you have to fulfill the promise."

Mr. Mehta said Internet credit card applicants were a quirky lot - a "non-prescreened population" - who tend to be savvy shoppers but not necessarily good credit risks. Providian is developing new risk models for Internet customers because those constructed for direct mail do not compute.

A survey released in August by J.D. Power and Associates of Agoura Hills, Calif., indicated that consumers who applied through the Internet carried 77%-higher balances than other cardholders and were twice as likely to to miss scheduled payments three or more times a year.

Andrew March, director of financial services at J.D. Power, said Internet applicants also had a "dramatically higher" delinquency rate.

Mr. Vague did not agree.

"We see very few differences in terms of credit quality" between the two groups, First USA's CEO said. Internet customers are more affluent and "a little bit younger," but "the differences are really not significant."

MBNA has made relatively little noise about its Internet activities, which include a marketing alliance with Infoseek Corp., this year. It has said it found Web applicants to be dubious credit bets. But it wants to "leverage the Internet as a pure affinity channel," picking up new accounts through the Web sites of groups it serves, said Michelle Shepherd, MBNA's division president of advertising, marketing, and the Internet.

In July, Household International Inc. made one of its first Web-related announcements, saying its British subsidiary, HFC Bank, would introduce the United Kingdom's first Internet-based credit card. Chase Manhattan Corp. has plans to unveil a major Internet initiative in September.

Capital One Financial Corp. has made a few forays, but shown no clear direction on the Internet yet. A recent deal with DoubleClick, an on-line advertising agency, will help put its name in front of consumers browsing a variety of Web sites.

"Banner ads are becoming fairly expensive, and the click-through rate has been dropping," said Richard Fairbank, chairman and chief executive officer of Capital One in Falls Church, Va. "I think all card issuers face the challenge of how to generate eyeballs directly to their own sites, as opposed to using secondary marketing to get them there."

Mr. Fairbank said Capital One wanted to generate new accounts and improve service to existing customers. A "phased rollout" of services like on-line statement viewing and bill paying is under way, he said.

"More and more, the servicing will happen over the Internet," Mr. Fairbank said. The network "is going to revolutionize the way financial services are transacted."

At Citibank, "our interest lies in the interchange income," said A. Sami Siddiqui, president of the Citigroup subsidiary's card business in North America. Citi is "more intrigued by the potential of e-commerce through the Internet than by the Internet being a great tool for new accounts."

To capture more volume, Citibank is "trying to figure out consumers' concerns about using the Internet as a place to shop" and devising ways to make shopping more convenient, Mr. Siddiqui said.

Mr. Wilcox of Fleet is among those who do not place great stock in incremental sales volume from Net shopping. He said Internet transactions have "probably moved from the brick and mortar space to the Net, so (they represent) more of a shift than a net gain."

Apparently more on Mr. Siddiqui's side in this debate, American Express and Discover Financial Services, a division of Morgan Stanley Dean Witter & Co., are offering elaborate rewards programs for on-line purchases.

"The Holy Grail of this whole business is, 'Can I make my card the favorite card when it comes to on-line shopping and e-commerce?' " said Bruce Brittain, president of Brittain Associates Inc., a consulting company in Atlanta. Card companies are "trying to throw things at consumers to say, 'If you use our card, we'll do this for you or give you this discount."'

Mr. Brittain said that customer acquisition was "perhaps the least important part" of Internet activity. The Web is "just another medium through which you can market cards," he said. "The question is, is it any more efficient? I don't know the answer."

Mr. Brittain's company interviewed 700 adults in March who use the Internet regularly. Eighty-seven percent said they preferred cards that gave on-line usage benefits, and 50% said they used a favorite card for on- line shopping.

NextCard, a three-year-old San Francisco-based company, wants to be that favorite card. It introduced its "first true Internet Visa" though an agent bank in 1997, went public in May 1999, and soon will start issuing its own cards through a bank it acquired.

"Our competitive advantage is based on the fact that we have a 100% Internet focus," said Jeremy Lent, a former Providian executive and founder and CEO of NextCard. "We are offering guaranteed safe purchases over the Internet to people who buy with NextCard Visa. We're telling people to quit worrying about security on the Internet and just go do it."

Outsiders praise NextCard for pioneering instant credit decisions on the Web and other innovations, but they are less enthusiastic about the company's kamikaze-style deal-making and spotlight-grabbing stunts. In June and July, for example, NextCard issued at least 15 press releases, highlighting everything from a marketing deal with the golfing Web site, chipshot.com, to a lawsuit filed against Providian for allegedly copying art on banner ads. NextCard portrayed it as a potentially landmark intellectual property claim; Providian dismissed it as frivolous and unwarranted.

NextCard is not the only company affected by and trying to benefit by such hype. If tiresome or overblown claims of "firsts" and "onlys" are a downside of the Internet craze, some see a more appealing upside.

"I think I can say without qualification that the neatest thinking and highest rate of innovation is coming from the groups in our organization that are working on Internet-related things," said Mr. Wilcox of Fleet. "It's a real phenomenon in terms of idea generation, and the entire business can benefit from that." n

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