By BOB TEDESCHI
Internet Is Credit Card Industry's New Best Friend
n many an Internet start-up company's dreams, there's a fragment of hope that its Web site, device or software will somehow stand at the tollbooth of the electronic commerce universe and collect a share of every transaction made in cyberspace.
Christine M. Thompson / CyberTimes
That device has already arrived. It's called the credit card.
In recent weeks, credit-card companies have appeared to awaken to the reality that second only to plastic, the Internet is the best thing that ever happened to the industry. Thus this season has seen the television advertising campaign for Visa and the Internet toy merchant eToys, Seagram's Universal Studios online promotion with the Morgan Stanley Dean Witter Discover card, and last week's deal between the Internet service provider EarthLink Network and the credit-card monolith MBNA Corporation, which issues Visa and Mastercard cards.
If the purveyors of revolving debt suddenly look like the Internet's latest, best pal, there's good reason. Most of the deals were conceived months ago, when it became clear that electronic commerce meant a no-cash, no-check bazaar where consumers would use their cards more than ever.
"I've been running around the office rallying the troops, saying 'We've been waiting 40 years for an opportunity like this,' " said Joseph Vause, vice president of electronic commerce for Visa USA.
Indeed, as the E-commerce pie expands, so too grows the wealth of the credit-card industry. At month's end, a typical E-commerce site can send up to 2.5 percent of its revenue to the credit-card companies to cover transaction fees. Given estimated business and consumer Internet sales of roughly $40 billion this year, credit-card companies expect to reap hundreds of millions in transaction fees.
The real winners in electronic commerce are turning out to be the credit-card companies.
And, of course, that number is expected to skyrocket as an ever-greater percentage of consumers turn to online shopping. Visa, for one, estimates that it will process a total of $13 billion in Internet charges this year, or about 1 percent of its total charge activity. But by 2003, those numbers are expected to reach $100 billion and 11 percent, respectively.
Given the math, "credit-card companies are going to find that the investments they've made are very wise ones indeed," said Ken Cassar, an E-commerce analyst at the New York Internet research firm of Jupiter Communications. Noting that consumers now make 80 percent of their purchases with cash, Cassar said, "If credit-card companies can move that number 5 percent" through online purchases, "that's huge."
So far, analysts say, the credit-card company doing the most to promote Internet spending is Visa, which holds the biggest market share online and off. While Visa USA, the umbrella organization for the 21,000 financial institutions that issue the card, was already one of the leading online advertisers in 1997, it has taken the message to the mainstream in 1998 with the eToys holiday promotion on television.
The $8 million to $10 million ad campaign, for which eToys paid nothing, has been so successful that eToys canceled its own advertising campaigns lest it be overwhelmed by demand, Visa's Vause said. He added, "It's the first time we could feature a merchant everybody could go to."
But even the organization's $25 million 1998 advertising budget pales in comparison with what is being spent by some of the Visa-affiliated financial institutions. In late October, for instance, First USA, a Visa and Mastercard issuer, announced a five-year, $90 million deal to advertise its credit cards on Microsoft's MSN.com site -- and that was just one of several marketing deals it has made with major Web sites.
Mastercard was actually the first to bring the topic of Internet spending into prime time, with an ad that was on the "Seinfeld" finale in May promoting Excite's shopping channel. Mastercard has also spent heavily on its so-called Shop Smart program in which it endorses Internet retailers, and it is about to start another Internet-oriented television ad.
The Discover card, meanwhile, is capitalizing on shoppers who only make an online purchase when they find a bargain. At Discover's Shop Center, consumers get rebates and discounts from selected merchants when they buy with the card.
Curiously, analysts say that American Express has been relatively less active online, which Cassar of Jupiter Communications characterized as "a huge, colossal mistake."
"It's just a ton of potential opportunity that Amex will basically be giving up to other credit-card associations," Cassar said.
Emily Porter, director for public affairs at American Express, said the company "is doing special offers online," such as promoting last-minute travel bargains on its site. However, mass media Web commerce promotion has been limited to a recent one-day radio media tour that she conducted, "where online shopping was talked about in practically every interview, so we are seeking to spread the word."
Perhaps not enough. According to a recent Jupiter survey of consumers who used credit cards to make a Web purchase this year, 55 percent used Visa, 26 percent used Mastercard, and 11 percent used American Express. Off line, meanwhile, American Express has 16.7 percent of the market, according to Credit Card Management magazine, while Mastercard has 27.4 percent and Visa 48 percent.
Not all sites are convinced of the value of such partnerships.
For Web merchants, having the credit-card companies' support is a boon. While off-line ads promote the medium, their online advertising dollars help rich sites get richer, proven sites get rich, and start-ups get by.
Preview Travel, which earns 25 percent of its revenue from banners that advertisers buy on its Web site, struck its biggest ad deal this summer with Mastercard, which paid an undisclosed amount for the right to be the "preferred" card at the site. For that, Mastercard gets its logo placed throughout the site -- but in no location more important than at the point where the customer selects a credit card to book a reservation. Moreover, while the order form's selection box includes other credit cards, only Mastercard is highlighted.
"That's the trick of the game," said Paul Johnson, an online commerce analyst with the International Data Corporation, an Internet research firm in Framingham, Mass. "I'm anxious to see how successful that is."
Mastercard says its Internet partnerships are quite successful. "We've seen market share shifts of 30 percent with some sites," said Debra Coughlin, senior vice president of global advertising for Mastercard International.
Ad dollars notwithstanding, not all sites are convinced of the value of such partnerships.
"We get a lot of offers, but nobody's come up with a compelling enough reason for us to offer this to our customers," said Robert Olson, chief operating officer of Virtual Vineyards, a wine retailer.
Meanwhile, Fingerhut, a catalogue company and Web retailer with more than $1.5 billion in annual sales and its own proprietary credit card, is trying to circumvent the credit-card companies altogether. Andy Johnson, Fingerhut's senior vice president for market development, said that starting next year the company would begin issuing proprietary credit cards for its E-commerce sites, like Andy's Garage, just as Macy's does with its in-house credit cards.
"We're looking for ways to take costs out of the process," Johnson said. "Right now, customers are paying for the fees the credit-card companies charge us."
Ultimately, it may not matter which credit-card company gets the customer's money. What matters is that the emerging symbiotic relationship between silicon chips and plastic cards is nurturing electronic commerce and bringing consumers a step closer the day when cash is no longer king. |
