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HolidayBuyer's Guide
Internet

Net companies going into credit card business

Taking a cue from the airlines, leading firms like Amazon.com and AltaVista are offering their customers so-called affinity cards to entice them to spend online.

Taking a cue from the airlines, more Internet companies are offering their customers "affinity cards" to entice them to spend online.

Amazon.com and AltaVista this week said they have entered into separate agreements with credit card companies to create cobranded credit cards. Offering a choice of Visa or Mastercard, both will reward customers for every purchase they make using the cards. The airline industry made the practice famous when it began rewarding travelers for every mile they flew.

To analysts, the move into credit cards signals a rite of passage for the rapidly growing e-commerce companies. Creating a credit card is a common marketing strategy for traditional retailers, but is comparatively new to the Internet.

Few Web companies have obtained enough customers to make offering credit cards profitable. It appears Amazon and AltaVista, with 13 and 8 million customers, respectively, have reached sufficient size.

"Merchants looking to establish loyalty create credit cards," said Forrester Research analyst Jaime Punishill. "Companies like Nordstrom, Land's End, [and] Macy's have their own cards. But in order to make it work financially, you have to have a certain amount of customers."

Promotions such as offering credit cards will be repeated as the industry continues to grow.

Besides cobranding a credit card with NextCard, Amazon also obtained a warrant to acquire up to 4.4 million shares of NextCard stock, nearly a 10 percent stake in the company. During the next five years, the card could bring in $150 million in fees, Amazon spokesman Bill Curry said.

AltaVista executives said its deal with Philadelphia-based Fleet Credit Card Services is worth $50 million during a three-year period.

Customers of Amazon can use the card anywhere and will receive credit for every purchase, which they can use to buy products at any of Amazon's stores. AltaVista shoppers will be able to buy from AltaVista Shopping.com.

Amazon and AltaVista are not the first Internet companies to offer credit cards. In 1996, America Online teamed up with First USA to create the Internet's first co-branded credit card, AOL spokeswoman Wendy Goldberg said. Last February, First USA agreed to pay AOL $500 million to renew the relationship.