Internet-only credit card issuer NextCard quietly has won conditional approval from federal regulators to open an Internet-only bank, CNET's News.com has learned. The move is the latest example of how the Web is slowly changing the face of the financial industry by enabling nonbanks to jump into the fray and empowering bricks-and-mortar banks to expand into new geographic regions.
"It's a big deal--there are lots of easier ways to do card issuance [over the Net]," said Catherine Allen, chief executive of Banking Industry Technology Secretariat, a division of the Bankers' Roundtable. "Once they have a bank charter for card issuance, they can move into other areas."
And NextCard plans to do just that.
"Our intention is to pursue a full-service banking charter," said Rich Goebel, NextCard's director of marketing. With a charter, NextCard will no longer need to go through Heritage Bank of Commerce in San Jose, California, for its credit card orders.
Despite a host of recent moves by Internet-only banking companies, Jupiter Communications analyst Robert Sterling argues that large brick-and-mortar banks likely are to benefit most from Internet banking.
"The role of the Internet in banking is much less revolutionary to banking than the Net has been to brokerages," Sterling said. Getting cash from bank accounts remains the consumer's most frequent banking transaction, he argues, which gives existing banks with established ATM networks a clear advantage.
Big banks such as Bank of America, Citibank, and First Union, Sterling argues, are using the Net to transform themselves into true national banks. Until recently, bank laws had essentially barred banks from operating nationwide.
Jupiter believes consumers will buy into online banking. At the end of last year, the company estimated that 7.1 million U.S. households, about 8 percent of banking households, did some form of online banking. By the end of 2003, Jupiter expects 28 million households will do online banking, a whopping 30 percent.
Convenience and novelty are attracting consumers to bank online, Sterling said, predicting that viewing and paying bills online, an emerging area in online financial services, will prove wildly popular.
The Holy Grail of online banking is to become a money portal, Allen said.
"Anyone who is establishing an Internet bank charter would look at providing other financial services and becoming a financial services portal," she said.
That is NextCard's plan, Goebel confirms, but it won't go it alone. "We are looking to partner with other best-of-breed providers in home mortgages, insurance, and brokerages," he said.
NextCard, which has signed up more than 100,000 credit card customers online, views card-based services as its expertise, Goebel said, and it's eagerly awaiting digital cash that can be stored on smart cards or other devices with an embedded computer chip. He figures that's four to seven years away, however.
E*Trade's acquisition sparked speculation that two other online banks, NetB@nk and CompuBank, might be acquisition plays, too. The first Internet-only bank, Security First Network Bank was purchased last year by Royal Bank of Canada, Canada's largest bank, to jump-start its online efforts--and its back-door entry to the U.S. retail market.
Now Canadian Imperial Bank of Commerce is making a similar entry, this week winning preliminary approval for a bank charter for an e-bank to be called Marketplace Bank. Later this year, CIBC will install banking kiosks and ATMs in 40 Winn-Dixie supermarkets stores in Florida as a test, expanding later to other locations.
The most unusual big bank strategy to date has been Bank One's. The fifth largest U.S. bank, which already has its own Internet banking site, last month launched an Internet-only bank called WingspanBank.com. It has followed that launch with a pricey marketing campaign that includes national TV and radio ads, plus major sponsorship deals with Lycos and Excite.