December 15, 1998
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.
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.
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.
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. |
