Web surfers catching a wave of online credit cards
First in a five-part series: Online finance
By Lucy Lazarony • Bankrate.com

Editor's note: In February 2002, NextCard's parent company, NextBank, was closed by Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) was named receiver. The company no longer issues credit cards.

When it comes to credit cards on the Internet, the choices are out there.

Hundreds of offers can be found online: cards with ultra-low interest rates, cards for online shoppers and cards linked with cars, causes and every association imaginable.

Instead of waiting for that perfect credit card offer to find its way into the mailbox, people can hop online and start surfing.

More than just plastic
And when they do, they'll soon discover that several cards come with some pretty nifty Web sites. Card members can view transactions, e-mail a customer service rep and pay bills -- which means no more getting stuck on hold trying to call a company's 800 number or praying that snail mail will deliver that card payment on time -- despite some bad weather or a holiday weekend.

"Ultimately, it makes life easier and more convenient," says Andrew Watson, vice president of electronic distribution for Citibank Universal Card Services Inc.

A recent Bankrate.com survey found 297 different online card offers from 59 issuers. And it's beginning to take off. More than 6 million people have found their credit cards online, according to one study.

While many people may find the card of their choice online, and even apply there, only a handful of cards promise instant approval such as the e.card Visa from First USA issued by Heritage Bank of Commerce of San Jose. Many issuers still process online applications the old-fashioned way.

They are printed out and processed the same way a mailed application would be. Applicants may hear in a couple of days or a couple of weeks.

Experts advise caution
And though it is certainly quick and easy to apply online for a card, experts encourage people to take their time and shop carefully. People who fly right by the rate and fee information may be in for a surprise when that first bill arrives.

"You just click and you don't think 'Oh, I just signed up for a card with a $40 annual fee,' " says Michael Weiksner, manager of finance strategies with CyberDialogue. "You just think, 'Oh, I have another credit card.' "

How interactive are credit card sites on the Internet today? It varies widely. Some sites serve as little more than bulletin boards for their credit cards. An 800 number must be called to apply for any of those cards.

Others sites allow cardholders to check everything from transactions that have yet to be billed to rewards points.

There are card sites that are chock full of personal finance information. And sites such as Bank of America, Discover, American Express, the NextCard and the AT&T Universal Card allow cardholders to download credit card spending information into personal finance management software like Microsoft Money or Quicken.

In addition, many sites, including the AT&T Universal Card, provide detailed answers to frequently asked questions from cardholders. The questions range from where to send a payment to who to contact in case of a billing dispute.

"We've tried to make it as painless as possible. It saves them the trouble of calling us," Watson says.

Paperless paying
AT&T is currently running a pilot program for 1,000 customers in which customers are e-mailed when a bill has been produced. The customers, in turn, come to the Web site to pay their bills for a paperless, totally electronic interaction.

Before rushing out to sign up for an online card, shop carefully. The Internet has its share of bogus card offers. One telltale sign is a credit card that asks for a fee up front or one that asks you to provide private financial information via e-mail.

Be sure to check out a company's security measures. Most sites use a technology called Secure Socket Layer (SSL) or a similar encryption scheme that scrambles and encodes information sent over the Internet. Most sites are very up front about their security. Look for the information.

Additional tips are available from the National Fraud Information Center.

People uncomfortable with sending private information such as address, salary or a Social Security number over the Internet can grab a telephone. Most issuers still take applications over the phone and most Web sites prominently display 800 numbers.

Virtual shopping malls
For people who do apply online, there are often special offers or discounts for online shopping. Consumers have made it clear that they like shopping online with a credit card.

Credit cards are the obvious choice for those shopping on the Internet and it is likely to stay that way, says Theodore Iacobuzio, senior analyst with the Tower Group, a consulting firm in Needham, Mass. "Everyone's got them and everyone takes them."

And so card issuers are jostling with each other to be the card of choice for online shopping.

The e.card Visa boasts a 5 percent cash-back rebate on purchases made at online merchants such as Amazon.com, audiobookclub.com and FlowersUSA.com.

The Discover Card's site features an online shopping promotion called ShopCenter, in which cardholders earn discounts and Cashback Bonus awards from more than a dozen online retailers, including Hickory Farms, Reel.com and The Rand McNally Travel Store.

The Discover Platinum Card, launched in late December, comes with a separate Web site. Platinum Card members can score online discounts through the ShopCenter, and they can double Cash Back bonus awards by redeeming them at a select number of offline and online merchants including 1-800-FLOWERS, Omaha Steaks, Samsonite and Amerenhance Travel.

The NextCard Web site includes an online shopping guide and a bargain finder, which helps people track down the best prices of items sold online. People may also sign up for e-centives, personalized digital coupons from online merchants.

The rewards of charging
The NextCard also features a rewards program that allows cardholders to earn bonus points toward travel on any airline, or merchandise from more than 50 offline and online merchants. Unlike many rebate programs, rewards may be redeemed after spending just a few hundred dollars with the credit card.

For example, cardholders who carry a balance and spend $500 with the card earn 5,000 rewards points that may be redeemed for a $10 gift certificate at retailers such as The Gap, Barnes & Noble, Target and Tower Records.

"Let's face it, some people don't spend $12,000 a year on credit cards but they can still get books and CDs" without having to charge thousands to get them, says Michelle DesMarais, communications manager for the NextCard.

Cardholders who do not carry a balance are charged a fee of $39 to participate in the rewards program. There is no fee for customers who open a NextCard account by transferring a balance from another card. Customers who carry a balance earn double rewards points.

Customer protection
In addition to discounts, rewards and shopping guides, several online credit cards, including the NextCard, AT&T Universal Card and First USA's Yahoo!Visa and e.card come with an online shopping guarantee, covering all losses if fraud should occur.

"We're confident and comfortable in what's going on with the Internet and we're trying to instill that confidence in our customers," says Jeff Unkle, a spokesman for First USA. "Electronic commerce is developing and we want to be able to take advantage of that."

Many credit card companies, including First USA, Discover and American Express, are hoping customers are comfortable enough with the Internet to view credit statements and pay bills online.

"It gives our card members better overall control of their accounts," says Cathy Edwards, a spokeswoman for Discover. "I think it's the way of the future."

-- Posted: March 1, 1999