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COMPANY CLOSEUP By Heather Green August 3, 1999


How NextCard Hooks 'Em in the Clickstreams of Cyberspace
Analyzing masses of data from the Net, the Web-only credit-card company finds the most lucrative customers and pulls them in with customized pricing

Sure, NextCard co-founder Jeremy Lent is jazzed about the way his innovative, Internet-only credit-card company is rapidly attracting customers. Since the San Francisco-based company opened shop in December, 1997, as the first credit-card venture to instantly approve applications online, NextCard has signed up more than 100,000 customers and is drawing nearly 10,000 new applicants a day. But if you really want to see Lent get excited, just ask him about how the Net is revolutionizing direct marketing. "As a direct-marketing channel, the Internet will ultimately blow away the traditional direct-marketing and telemarketing world," Lent says.

Make no mistake. Cambridge-educated Lent has long understood that the Internet can reach customers like no other medium. But what really blows him away is how the Net can reap lucrative advantages for companies that master the mining of its volumes of consumer data.

Lent ought to know. He was the chief financial officer at Providian Financial Corp., a $13.9 billion brick-and-mortar credit-card issuer that specialized in targeting customers. But once the Web came along, Lent says, he got all sorts of new ideas, and in 1996, he and his wife Molly founded NextCard -- now one of the most aggressive credit-card marketers on the Net, second only to Bank One Corp.'s First USA in the volume of its online advertising.

 TWENTY PhDs ON STAFF. NextCard is, in fact, fanatical about data. It pushes the envelope in making sense of and responding to so-called clickstream data -- who's clicking on various Web links and why. Unlike many companies, NextCard has about 20 PhDs analyzing this data to see not only which Web ads customers click on but also how large their credit balances are and how willing they are to transfer them in exchange for lower interest rates.

The idea: to replace inefficient hailstorms of direct snail mail with a more consumer-friendly approach in which ad campaign dollars are spent on Web sites that yield the most lucrative customers. NextCard's strategy isn't to pull in the most customers. Instead, it's aiming for the most profitable ones -- those most likely to keep high balances on their cards, rather than people who pay off their balances immediately.

 

"Everything is targeted to attracting revolving customers" -- those who readily transfer big balances, says co-founder Jeremy Lent
 

Here's how it works: NextCard each day posts about 70 million ad banners across thousands of Web sites, ranging from loan services to weather pages, which are viewed by millions of people every day. Customers who click on an ad land on NextCard.com, where they are invited to type in their name, address, income, and Social Security number. Within seconds of pushing the "submit" button, customers can get a thumb's up -- or down -- on their creditworthiness. Through split-second calculations, NextCard can size up risk levels, current credit-card balances, and income. If consumers qualify for a NextCard account, they see a page with three choices -- cherry-picked by NextCard from 30,000 different options -- for interest rates and other pricing terms customized based on their credit profiles. Terms grow more favorable depending on a person's willingness to transfer balances, or "revolve their credit." It's a choice that can be made in a few mouse-clicks.

NextCard's instant access to balance information allows its computers to do customized pricing -- enabling it to offer lower interest rates than what customers are currently paying or to offer them other incentives, such as double reward points with airlines or other merchants. "Everything is targeted to attracting revolving customers," Lent says. "We push consumers to give us their balances."

By tracking their target customers from the time they click on an ad to the time they actually apply for credit, the company can figure out quickly which sites and promotions deliver the right customers. The sites that hit NextCard's sweet spot not only receive more targeted advertising but also might get a long-term deal in which NextCard becomes the site's exclusive credit-card advertiser. NextCard is able to figure all this out by doing continuous testing of how ads are performing. Because of the Web's ability to track results, NextCard can basically tell within two hours how ads on specific sites are performing. Overall, this marketing approach has led to a 70% decrease in the cost of acquiring customers since the beginning of 1998.

 

NextCard takes about 25% of all online applications. But formidable rivals are rushing in
 

End result? NextCard boasts a credit approval rate of nearly 20%. That's in line with the industry average, although its customers have an average balance of about $2,500 -- nearly twice the industry average. Competition is stiff. While NextCard has had first crack at the Net credit business and still takes about 25% of all online applications, formidable rivals are rushing in. According to Forrester Research, based in Cambridge, Mass., Net-sourced credit lines are expected to hit $22 billion by 2003, or 16% of all new credit-card dollars issued, from about $5.2 billion, or 4% of the total this year. And 80% of 50 credit lenders surveyed by Forrester in January said they expect online acquisition to cost less than regular marketing.

Among the traditional credit-card companies, First USA currently leads the Net card pack, recently signing four major deals with Internet portals. But others, including MBNA, with an Infoseek marketing agreement, and Bank One -- with its First Card and Wingspan online bank -- have been quick to follow in the past six months.

To keep ahead of the crowd and get customers to buy more, NextCard is piling on services. Its antifraud guarantee is designed to allay fears that still abound about buying online. The company also offers a shopping service and cyberwallet that help consumers look up and buy products online. Another key service is NextCard's PictureCard, which lets customers select one of 1,000 images -- or their own photograph -- to appear on the card. Consumers with personalized cards are more than twice as likely to use them, says Lent. Not a bad way to turn plastic into gold.

Green covers the Internet for Business Week.
Have a question or a comment? Let her know at heather_green@.businessweek.com


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WEB POINTERS
To try the sites mentioned in this story, click here:
NextCard
First USA
Forrester Research
MBNA
Bank One
WingspanBank.com
First Card





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