In the early commercial Web era (1995 to 1998), five financial startups inspired me in terms of their innovative products and services: 

• E-Loan for mortgage
• E*Trade for stock brokerage
• Netbank for deposit-taking
• NextCard for credit cards
• LendingTree for lead generation

These were my go to companies for ideas and inspiration when covering the space in the mid-to-late 1990s. In those days, traditional financial institutions were just getting started and were not as far along in features and functionality. 

Sadly, two of the five have failed, NextCard in 2002 (here) and NetBank in 2007 (here). And the other three are struggling through the credit crisis.

The latest downer: This week, E-Loan, owned by Banco Popular, announced its exit from the online mortgage origination business. Reading the headlines, I first thought they'd thrown in the towel altogether. But it turns out they are discontinuing only direct mortgage originations. The company will continue to use its popular website (see traffic below) to attract potential borrowers who are handed off to other lenders, something it already does today for student, auto, personal and business loans, along with credit cards. This is a potentially lucrative fee-based business with zero credit risk.

It's a cautionary tale of how critical, and difficult, the execution piece is. These were industry darlings, always in the news and at the top of the search results. Yet, in financial services especially, you have to temper innovation with prudent underwriting and business practices. All three were brought down by credit-related problems. 

E-Loan traffic has stabilized at around 250,000 uniques per month:

<Updated 12/1/06 with more details>

Two new entrants in the so-called high-yield savings market launched this week:

• E*Trade Bank <etradebank.com>: Its new 5.05% Complete Savings Account was advertised in the Wall Street Journal today and took next-to-top honors in Google search results for "best savings accounts" (see end note 1, screenshot below).
• iGoBanking <igobanking.com>: The new online brand from Flushing Financial launched Monday with a 5.3% rate on an online savings account (see end note 2, screenshot below).

iGoBanking (click to enlarge)

As previously reported, Flushing Financial launched its entry into the online savings market. The 5.3% APY no-minimum account ranks as the fourth highest in the nation according to the Bank Deals blog (see list here). The rate leader continues to be E-Loan's at 5.5% (see our coverage here).

However, iGo can claim the highest no-minimum rate in the nation since E-Loan and the others require at least $5,000 to qualify for the higher rate.   

The bank will focus on deposits, CDs, and savings in 2007 and may expand to home equity and mortgage lending in the future.

Analysis
The website is attractive and relatively well designed. The online application is hosted by CashEdge (see related post here). Unfortunately, the outsourced application fails to maintain the look and feel of the main website and may cause a few applicants to second guess their decision to sign up (click here for a more thorough analysis of its application design). 

E*Trade Bank (click to enlarge)

E*Trade's Complete Savings account builds on the direct bank's lineup of award-winning products (see previous coverage here). The bank flat-out understands the market and the medium.

The landing page for the new savings offering is brilliantly laid out with Google-like simplicity using just 25 words of copy (other than the table and the below-the-fold fine print). Notice how they show specific competitive prices, including high-yield market leader ING Direct. But what most consumers will remember from the chart is the "6X national average" rate.

Finally, the "Open an Account in Minutes" and "Free, one-click transfers to and from any institution" address user concerns on both those issues. And the small padlock with E*Trade's protection guarantee helps users understand security issues.

End notes:

1. Search conducted at noon PST, Nov. 29 from Seattle IP address (see screenshot below).
2. Source: American Banker, 29 Nov. 2006 (article here)

Google search results for "best savings account"

Six months after announcing its intention to enter the direct-banking deposit market (NB 29 March), Popular Inc. launched a 5.5% deposit account through its E-Loan subsidiary. The fee-free account requires a $5,000 minimum opening deposit. The rate drops a quarter-percent if the balance falls below $5,000. The news was covered this morning in American Banker and The Wall Street Journal.

Popular execs clarified the timetable of its $3 billion deposit goal, saying it hoped to bring in that amount within a year. With few U.S. deposits to cannibalize and no branch network, the company expects to be aggressive with its pricing. To prove the point, it launched today at 5.5%, a full half-percent higher than Citi's E-Savings (NB Jun 26), Wamu (NB Sep 21) and HSBC, and a quarter-percent above Countrywide (NB Sep 20).

The Delivery
The E-Loan homepage has been remodeled to include a Savings tab across the top and a deposit box in the middle of the page (click on inset for a closeup; click on continuation link below for a screenshot of the entire homepage). There is also a high-yield savings category in the drop-down menu in the upper right.

The main savings page is laid out in a modern style with clear rate and APY in the upper right and the beginning of the online application on the lower-left side (see screenshot below).

Analysis
Since this had been expected for six months, there's nothing earth-shattering here. The decision to market deposits under the E-Loan brand makes sense given its awareness level online as demonstrated by the four million loan applications since its 1997 launch. It will take some advertising and promotional efforts to make consumers aware that the pure-play lender is now in the deposit business. But it will be less expensive than if Popular had tried to create an entirely new brand.

E-Loan has not yet begun marketing on savings terms at Google, but they'll likely have to join Citi, Wamu, HSBC, Emigrant, ING Direct and others if they are serious about making the $3 billion goal.

New E-Loan homepage with "Savings & CD" tab

Chris Larsen, who helped invent financial e-commerce by creating E-Loan <eloan.com> in 1997, is back on the scene mere months after selling the company to Popular Inc. last summer for $300 million. His new company, Prosper.com, is built around the idea of creating “communities” of people with similar interests who lend to and borrow from each other. The idea, he says, isn’t too far away from Jimmy Stewart’s savings and loan in Frank Capra’s film, It’s a Wonderful Life, where ordinary people lent to each other and made them all more prosperous.

Continue reading "Prosper.com Re-launches Chris Larsen of e-Loan Fame" »

In a logical extension of the auto industry's "employee pricing" gimmick, online lender, E-Loan launched a similar program for loans. This email arrived in our in-box yesterday morning. We are not customers, but have signed up for marketing messages (click on inset for closeup).

According to the email message, the discount on an auto loan amounts to 0.25%. On a mortgage, the savings are 0.5% of the loan amount. The sale runs through Labor Day weekend only, ending Sept. 6, 9am Pacific Time (click on inset on right, for an archived copy of its landing page).

In addition to the email blast, the special is splashed across its website (click on inset for archived copy of E-Loan's homepage, Sept. 2, 2005).

Note also, the prominent Red Cross link in the middle of the page for making donations to aid Hurricane Katrina victims.

--JB

Since its launch in mid- 1997, E*Loan has consistently had one of the best online lending sites. Right now, it suffers from www.Amazon.com bloat with 6 major areas, 6 tabs across the top, rate tables down the right side, and half a dozen other sales messages tossed in the mix. But if you can get past the home page, each major tabbed area is a work of art.

The Company

Even though the company has been a first-mover and innovator for nearly four years, its anemic stock performance has cast a cloud over most of its accomplishments, another victim of the irrational exuberance of 1998 and 1999. Its stock has traded around the magic delisting value of $1 per share for the last six months, as the company posted losses of $73 million in 1999 and $92 million in 2000.

But E-Loan may have turned the corner financially. Although it reported a net loss of $16.4 million for in Q1 2001, on a pro-forma cash-flow basis, its loss was only $3.2 million, and the company is predicting a break-even (cash flow) quarter in Q4 2001. Thanks to the refi boon, E-Loan continues to grow its revenue, booking $36 million in 2000 vs. $22 million in 1999. On April 26, after announcing $16.4 million in Q1 2001 revenues, the company predicted revenues would nearly double in 2001 to a total of $67 million. During Q1 2001, the company closed 18,500 loans with a total volume of $890 million.

table 1

Spring 2001

Source: Gomez Advisors, www.gomez.com , 5/15/01

table 2

E-Loan’s Best of the Web 2001 Features

table 3

E-Loan Originations by Type

Q1 2001 vs. Q4 2000

Source: E-Loan, 5/01                 *Excludes non-cash items         **HEQ revenue is included in the mortgage category

After registering, we now have a “personalized Web page,” the core of which is the rates section. After entering details of our current home value and mortgage-rate target, it shows current rates and whether our target is met. You can see that our 30-year mortgage target price has been met.

E-Loan does a great job keeping its toll-free help line visible throughout the process.

A pop-up window upon entering the Refinance area provides timely reinforcement for those considering a refi: an April 21 quote from the Washington Post plus copy that says, “Rates are near 30-month loans,” and “Is refinancing right for you?”

Refi shoppers can start in one of three ways depending on how confident they are in the process:

Results from refinance analysis. All the terms are clearly compiled and the savings highlighted in a different color. Users select links to learn why the loan is superior, what the closing costs are, and loan details. The top portion of the screen allows users to sign up for a rate alert with a choice of receiving it as frequently as daily or as infrequently of every 2 weeks.

Why this loan is better” shows 3  sets of tables/graphs:

• Forecast rate comparisons
• Periodic payments, points, and closing costs
• Present value payments, points, and closing costs

Results from rate search (top half of page). Note the box with the following rotating text:

No lender fees. Nothing hidden. Just a great rate!

Results from rate search (bottom half of page). Note the money back guarantee.

Credit Score (page 1): It took just 3.5 minutes to set up a new account, be authenticated, and see my credit score.

Note to your Webmaster

This is how to handle one of the most sensitive items submitted over the Web, social security number. Mask the number with asterisks in the same way you do for passwords. And do something E-Loan neglected, have users enter it twice for accuracy. This is a simple usability improvement that will pay for itself a thousand times over with a higher application-completion rate.

Credit Score (page 2): Account authentication requires the user to input two account numbers which must match those found in their credit bureau file.

Credit Score Results (page 1): A numerical credit score is provided, along with a graphical representation and percentile rank against the U.S. population. The score is NOT from one of the three major bureaus, but rather a similar one derived by CreditXpert using a proprietary algorithm.

Credit Score Results (page 2a):
E-Loan also provides a detailed explanation of why your score was less than perfect, and useful advice on how to improve it. In our case, we received the very actionable suggestion to pay down or transfer balances from one of our credit cards that was more than 49% utilized.

Credit Score Results (page 2b):
E-Loan details factors that caused your score to be higher or lower.

 

E-Loan uses third parties to handle credit card and commercial financing. LiveCapital handles business credit needs and Providian has the credit card relationship.

E-Loan offers two incentives on purchase mortgages (not applicable to refinances):

• United Airlines miles, 1,250 miles per $10,000 borrowed; that amounts to a free ticket for each $200,000 borrowed.
• Appraisal fee rebate (up to $500 value, credited at closing). This discount is designed to motivate prospects to stop rate shopping and move forward. Applicants only earn the rebate if they order an appraisal within 3 days of applying (also must pay by credit card).

Like E*Trade Mortgage, E-Loan offers home value reports, although the service wasn’t working when we tried (5/29/01).

E-Loan provides an Express Loan option for those with exceptional credit. But it’s not particularly well integrated into the loan process. We missed it the first few times through the Web site. The option was introduced in Q2 2001, and accounted for 20% of applications during that first quarter.

E-Loan’s Email Rate Update

Date: Sun, 8 Jul 2001 11:28:46 -0700 (PDT)
From: E-LOAN  mortgagemonitor@eloan.com
To: jim@netbanker.com
Subject: E-LOAN Alert: We can save you $26421 on your mortgage.

On May 23 2001, you asked E-LOAN to monitor the mortgage market to find a loan that would save you at least $1000 over the next 10 years. A loan that meets this criteria is now available. Here’s what our database of hundreds of products showed as of Jul 8 2001 for your loan amount of $350,000.

Loan Type           Rate           Points/(Rebate)          APR

-------------------------------------------------------------------------------------

5 Year Fixed     6.250%         1.811                    6.390%   

5 Year Fixed     6.625%         0.708                    6.625%   

5 Year Fixed     7.000%         -0.159                   7.000%   

5 Year Fixed     5.625%         3.978                    6.319%   

3 Year ARM      5.500%         2.085                    6.169%   

3 Year ARM      5.625%         1.841                    6.178%   

7 Year Fixed     6.750%         1.543                    6.750%   

7 Year Fixed     6.250%         3.699                    6.567%   

7 Year Fixed     7.000%         0.737                    7.000%   

To take advantage of this great loan, go to www.eloan.com , search for todays up to the minute rates and complete the streamlined online application. Your personal loan consultant will call you with a credit decision and give you the opportunity to lock the interest rate at that time. Your loan consultant will then be your single point of contact throughout the loan process.  And of course you can monitor your loan’ progress at your convenience through your password-protected E-Track account, available online any time.

To change your Mortgage Monitor settings or to unsubscribe from this

email, please visit www.eloan.com/cgi-bin/monitorinput.  From there you

can re-submit your loan comparison information or use the delete function to be unsubscribed from this email.

E-LOAN: A better way to get a home loan.

--------------------------------------------------------------------------------------------

Please note that interest rates may change daily and that today’s rates are subject to change at any time in response to market fluctuations.

This is not an offer to enter into an interest lock-in agreement.

E-LOAN is an Equal Housing Lender

Source: E-Loan, 7/8/01            

Sizing the Web-based lending market is difficult:

•  The public pure Web-based lenders provide useful sales data, especially E-Loan, Mortgage.com, Finet (Table 4 to 6) and Lending Tree (Table 7 - 9); but they have relatively low share compared to traditional lenders who originate the majority of online loans but don’t usually report Internet volume separately.
•  Many loan applications are multi-channel; applicants may have surfed the Web for rates, then applied in person or by phone.
   

At year-end 1998, the total outstanding debt by U.S. households amounted to approximately $5.4 trillion (source: U.S. Federal Reserve). There were more than 21,000 financial institutions providing the credit (source: U.S. Census Bureau). Forrester Research projected that $1.9 trillion in new loans were originated during 1999, with $25.7 billion (1.3%) originated online. It expects the online share to grow to $168 billion (9.5% of total) by 2003 (Table 2), for a compounded annual growth rate of 60%.

Table 1

number in thousands, dollars in billions

OL %= percent of the dollar volume originated online            

¹Total originated on- and off-line

Table 2

billion $

Source: companies

Table 3

billions of dollars

Source: Piper Jaffray, 4/00

Table 4

billion $

Source: company reports and Piper Jaffray, 4/00

¹B2C share of total company volume

Table 5

Online Average Loan Size¹, 1999

Source: Piper Jaffray

¹Includes all types of consumer loans originated by the companies

²Average loan size fell due to acquisition of BofA’s Internet auto loan unit

Table 6

Online Acquisition Cost for Mortgages, Q1-Q3 1999

Source: Piper Jaffray

¹Includes home equity and sub-prime loans referred to other lenders

Lending Tree

Lending Tree first revealed its operating metrics in registration statements prior to going public Feb. 15. The company has continued to provide enough operating details to make it a good source for online lending trends.

In 1999 the company transmitted 186,000 loan applications (aka “qualification forms”) to its network of 104 lenders (Table 47). The total dollar volume transmitted was $16.2 billion. The average loan amount applied for was $88,000. More than 27,000 loans were closed amounting to $941 million in loans and lines. These results sound a little better than they really are because a substantial number of the loans (60% in Q1 2000) were credit cards cross-sold to applicants for other products (see Table 45 for a breakout in Q1 2000). Applicants earned rebates as high as $500 for taking the credit But even backing out credit cards, in Q1 2000, Lending Tree closed 7,500 loans for an annualized rate of 30,000 loans worth nearly $2 billion, a healthy amount of activity in a market sector barely two years old.

Lending Tree’s current tag line, “When banks compete you win,” strikes a chord with consumers.

Table 7

dollars in millions

Source: company, 5/00

¹Does not include 14,569 cards, $73 million in credit lines, and $232,000 in revenue cross-sold to other loan applicants

Table 8

Top Lending Tree Lenders* by Closed Loan $

Source: company, total lenders as of 3/31/00; top lenders for the month of Oct. 1999, based on loans closed

Table 9

¹Includes a large number of credit cards cross-sold to other loan applicants which earns the applicant a substantial rebate at closing; in Q1 2000 there were cross sales of 14,569 cards, $73 million in credit lines, and $232,000 in revenue (see Table 7); ²Excludes revenues from licensing its platform technology; ³ Does not include the cost of the sales staff

Table 10

unique monthly visitors (thousands)

Source:  PC Data Online www.pcdataonline.com ; Gomez Advisors Summer 2000 Mortgage Scorecard, rank of 26 total www.gomez.com ; 5/00          

 n.r.=not rated

Net banking companies and service providers have finally jumped into the IPO market. We were beginning to think the sector might be passed by Net mania. If all goes according to plan, within the next four to six weeks, five Internet banking companies will go public. NextCard was the first out of the gate selling 6 million shares at $20 per share on May 14 to raise $120 million. The stock briefly hit $40 before settling into a trading range in the low 30’s for a market capitalization of about $1.3 billion, or $20,000 per credit card account.

NextCard and E-Loan are leading Net-only providers of credit cards and home loans respectively. Online Resources and nFront are Net banking platform providers. Princeton eCom (formerly Princeton Telecom) is an ebilling provider and payment processor.

The companies’ S-1 registration documents paint a mixed picture. While the companies are all well positioned strategically, their end-user account totals prove that online banking is not yet a bona fide consumer hit. For example, NextCard with 66,0000 accounts, the most of any Net-only player , only approved 2.9% of 900,000 credit card applications it attracted in Q1 1999.

NextCard Approval Rates

Source: company reports, 4/99

E-Loan, the exclusive mortgage provider on Yahoo!, turns out to be primarily a California phenomenon, booking 84% of its 1998 volume and 69% of Q1 ’99 volume in the home state.

E-Loan’s California Connection

Source: company reports, 4/99

Online Resources and nFront, despite success in attracting bank clients, only have an average of 350 end-users for each live bank installation. In comparison, Wells Fargo is adding 10,000 new users every week (OBR 3/99).

nFront & Online Resources Client Bases

Source: company reports, 4/99

¹Average calculated across launched banks only.

²Percent of bank customers at launched banks using online banking.

What does all this mean? Something you already know; it’s extremely difficult to attract new deposit and checking accounts on or off-line. The first Net bank, SFNB, still has only about 15,000 accounts after 3.5 years. NetBank, after 2.5 years of offering premium rates, has only 29,000 accounts. NextCard, who we think has one of the best Net financial services businesses in the country, has only 66,000 accounts, despite taking 1.7 million applications. And E-Loan with an exclusive and very prominent position on Yahoo!, only booked 703 loans outside of California during all of 1998, less than 60 per month.

This is great news for existing financial institutions. Your customers are “sticky” whether through loyalty or apathy. But don’t count on it to last. Your most profitably customers, the 30-to 45-year old, high income, high borrowing user is growing increasingly comfortable with ecommerce, and will head for the exits once the online players come up with more compelling product offerings.

IPO Scorecard

Source: company reports, all figures as of 3/31/99 unless stated otherwise

Notes: (1) Market cap based on common stock outstanding after offering times maximum offering price in prospectus, except NextCard which is actual on 5/17/99; (2) Includes loan referrals; (3) Company also incurred $2.32 million in activation costs for another $58.00 per account, so acquisition costs might be better stated as $58.00 plus $108.25, or $166.25; (4) Company also incurred $1.52 million in activation costs for another $58.46 per account, so acquisition costs might be better stated as $58.46 plus $98.27 or $156.73; (5) Assuming company had 100 clients as of 12/31/98; (6) Assumes constant client base of 250.

According to Red Herring, E-Loan (Palo Alto, CA) expects to raise an additional $25 million in capital this fall to build out its transaction fulfillment and customer service center. The 115-person company is profitable on revenues estimated at $9 million in 1998 (which would equal 4,000 loans if they booked $2,250 in fees per loan), up nine-fold from $1 million in 1997. E-Loan is planning an IPO in Q2 1999.

The company saturated the Seattle market earlier this fall with advertising; we’ve watched TV spots during the 11 p.m. news; heard radio ads during drive time; read small ads in the Seattle Times Sunday Real Estate section; and were shocked to see a full page ad in The Wall Street Journal. Seattle must be a test market, given the company’s entire promotion budget is $2.5 million, according to Red Herring.

Contact: Christian Larson is CEO, (650) 617-0400. Previous articles: OBR 5/98; 10/97.

Telebank

www.telebank.com

Telebank has partnered with E-Loan to build a co-branded mortgage loan site.

E-Loan & Yahoo!

loan.yahoo.com

The main page of the Yahoo! Loan Center.
E-Loan is the exclusive provider of mortgage
information and products.

Yahoo’s new loan center uses classic “Yahoo style” with numerous links and a smattering of graphics, one of which leads you directly to its primary partner,
E-Loan (Palo Alto, CA) www.eloan.com Here’s what you’ll find in the Loan Center:

We think the Yahoo! Loan Center is a sign of things to come on the Web. Financial service providers will develop partnerships with Web-based companies to integrate financial services information and products into popular Web sites. We were surprised to see a tiny mortgage brokerage such as E-Loan become the sole provider on Yahoo. However, as Jeremy Lent, CEO of NextCard said when explaining his business model, “The Web favors the small and the quick.” No doubt, Yahoo wanted its users to have access to the broad range of mortgage products a broker can bring to the table. That, and the fact that E-Loan has one of the best lending sites on the Internet.

Rate comparisons, co-branded with Bank Rate Monitor, show national averages along with links to rates in major metro areas and all 50 states. Note: Banner ad on the top is for GetSmart .

Custom Mortgage Quotes from Yahoo/E-Loan.
All interactive features are co-branded with E-Loan.

Since we first discovered E-Loan last fall has received $5.5 million in venture capital and tremendous amount of press, almost 100% positive. For example, a single article in the Jan. 12, 1998, San Francisco Chronicle www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/1998/01/12/BU65526.DTL sparked 240 application in a single day (at that time nearly a month’s worth of business). The story told how a 36-year-old Oracle manager purchased two $600,000 homes in a single transaction at E-Loan, saving $10,000 in closing costs and shaving $600/mo off the mortgage payments (which still totaled $6,700 after the savings).

E-Loan is currently receiving 50 to 200 applications per day (Source: Mortgage Bankers Association 5/8/98) from 285,000 monthly visitors.

*Actually it’s only been 11 months, but we think the marketing and publicity folks deserve to take June off!

E-Loan’s added a few features to the lower half of its main page since our analysis last fall (see table below).

In the eight months since E-Loan earned OBR Product of the Month honors it has added a couple small, but important improvements to the main page (screenshot above):

•  physical address is back
•  GII and CommerceNet award logos
•  rate lock button (for current clients)
•  How to Contact Us button
•  Realtor Tools (see following table)

The most innovative Realtor tool is the Instant Flyer. Realtors can create free flyers by inputting their name, company, slogan, phone number, property price, location, and three financing options to show on the flyer. It literally takes less than a minute, and you can print out as many flyers as you like right from your desktop. Naturally, the E-Loan logo and Web address appear at the bottom of each flyer.

Contact: Co-founders are Christian Larsen, President and Janina Pawloski, CEO, (650) 617-0403, janina@eloan.com .

Mortgages may be the first traditional banking product to lose market share to Web-based competitors. Why? It’s a significant consumer purchase, estimated to consume more than 80% of a household’s disposable income in the year of purchase. Second, with thousands of unregulated and highly competitive mortgage brokers scrambling to grab another tenth of a point of market share, innovation is a certainty.

The pioneers are making their moves!

As we reported last month, the market for online real estate and mortgage information is rapidly gaining critical mass. We estimated that already 10% to 15% of mortgage applicants are at least influenced by information gathered online . But with less than one in ten of those following through with an online application, you could reasonably conclude that user demand is low.

We don’t think that’s so. Web users may not be knocking down your door trying to submit an online application. But why? Is it because they like you so much they crave a one-on-one experience with your loan officer? Perhaps. More likely, they are borrowing elsewhere, either from a competitor feeding off the flow of leads from GetSmart and others, or simply responding to whatever direct mail solicitation arrived the day they needed some cash.

There’s another reason why U.S. online mortgage loans funded is a paltry 20,000 to 30,000 per month (OBR estimate plus 100%, minus 50%). Lenders have done a poor job reassuring users that online applications will be handled in a safe, secure, and timely fashion . Many lenders are driving users to more expensive channels, or into the hands of the competition with lackadaisical Webs and uninspired marketing.

However, there are exceptions:

•  Although not a mortgage lender yet, Nextcard from Interactive Access Financial Corp. has the best sales-oriented financial Web site we’ve seen.
•  E-Loan, the centerpiece of Yahoo’s new Loan Center, has made mortgage shopping interactive, enjoyable, and understandable.
•  GetSmart, a wildly successful lead-generation site which recently announced a $50 million online marketing commitment.
•  Countrywide, a leader in direct Web-based mortgage lending, is building a full suite of online customer service tools including account access, refi reminders, and personalized email alerts .

E-Loan
www.eloan.com

To look at the future of mortgage lending, visit E-Loan (Palo Alto, CA), the privately funded brainchild of two California mortgage brokers, Chris Larsen and Janina Pawlowski. Although Larsen and Pawlowski have been running a mortgage brokerage in Palo Alto for six years, the Internet version just launched June 30, 1997 in California. Coverage in 46 more states has been added since. E-Loan received its 1,000th loan application in late October, less than four months after opening its virtual doors.

Main Areas in E-Loan’s Web

•  Search for Rates
•  Recommendations
•  Qualify for a Loan
•  Monitor a Loan
•  Set up a RateWatch
•  Online Resources
•  About E-Loan
•  Lock a Loan (for customers only)

E-Loan’s Web offers a number of devices to engage mortgage shoppers. For instance, in Monitor a Loan, users input a few bits of info about their current mortgage to see if the company can find a better deal from one of the lenders it brokers loans for. E-Loan’s methodology is similar to other refi calculators available online. But what distinguishes E-loan from the others, is that the lender doesn’t leave users hanging after performing the mathematical calculation. E-Loan offers an “apply now” icon whenever they find a money-saving loan program. If it can’t beat the loan today, the company offers a free
e-mail service to let users know when rates dip low enough for a refinance to make economical sense.

E-Loan.com banner on www.moneyclub.com .

We made our first visit to E-Loan after noticing its banner (above) running on Internet Finance Corp.’s MoneyClub Web www.moneyclub.com , a personal finance site unrelated to E-Loan. The online lender is also mentioned in the “other resources” section of Intuit’s new mortgage Web.

E-Loan’s user-friendly headline on its Web page and brand new E*Trade-like logo.

E-Loan does a good job maximizing its search engine appeal. From the title of its Web, “E-Loan - save 80% on fees!” (the title is what appears on search engine listings and as the default name when you save the address as a bookmark), to its extensive use of META tagged keywords (META tags are invisible to the reader, but are picked up by search engines), the Web builders at E-Loan know what they are doing.

We like how E-Loan incorporates its key benefits right into its logo on the top of its first page (see above). They’ve even chosen a type style nearly identical to that of E*Trade, the high-profile pioneer in the online brokerage industry.

E-Loan’s old front page design included a RealAudio recording of a broadcast from c|net radio.

Internet lending start-ups need to remember it’s not enough to have a catchy name, perfect Web address, and good placement on search engines. The companies are still unknown commodities, and consumers are going to be wary, rightly so. That’s why the c|net linkage (screenshot above) is so important. By clicking on the link, users hear a five-minute interview with President Chris Larsen. It’s like a five-minute radio commercial, but much more believable. All-in-all an extremely effective marketing device.

The start-up also included its physical address and state of California license info on the bottom of the first page. But in its latest Web redesign in late October, the c|net linkage has been relegated to the About E-Loan section and the license info has disappeared altogether. We think that is a mistake.

E-Loan’s RateWatch is the best rate update service we’ve seen (see p. 8). Why? It’s really a rate page in disguise. The first thing a user does is enter rate targets for up to three different mortgage types. In the example below, we indicated an interest in a 1-yr ARM under 5%, or a 15- or 30-yr fixed mortgage at 7% with no more than 1 point. The first thing E-Loan does is check its current product inventory to let you know if they have something that meets or beats your price parameters. If so, up pops “rate available” and a bright blue “apply now” icon.

Only after you’ve had this initial opportunity to buy, does the broker give you the option to set up a daily rate update on your three target loans. To do so, you simply verify your e-mail address at the bottom of the page and press “submit.”

E-Loan’s free RateWatch provides daily status of up to three loan programs by e-mail.

“Monitor a Loan” provides an analysis of the user’s current loan vs. other loan products available.

The beauty of E-Loan’s approach is they never stop selling, but they provide so much value that the user barely notices. In Monitor a Loan: Compare your current mortgage to the market (screenshot above), users provide the details of their current mortgage, then receive an analyses of a variety of money-saving refinance options. A summary table is presented and users can opt to drill down to see more detail on savings projection, Net Present Value, etc. Naturally, the company provides an opportunity to apply now, or set up an e-mail RateWatch.

Some lenders do a good job moving users through the buying process, then fumble when it comes time to take the application. Not so at E-Loan. They continue to provide useful bits of advice every step of the way. On the first page of the application they offer four choices:

• apply online with secure server
• apply online with standard server
• order hardcopy application forms
• print out a set of application forms

At the bottom of the page they provide timely reassurance regarding the privacy of the application:

• For your comfort, our on-line applications do not require account information.
• When selecting an online application, you are told:
• The form below has been customized for a purchase preapproval. Please note that you do not have to answer every question on the application. Missing information can be forwarded to E-Loan once your loan is in process.
• Finally, for those chickening out, a chance to select a different option:
• If you don’t want to apply over the Internet, please click here for other options.

Lest you think we’ve lost our critical eye, E-Loan could improve in several areas. The lack of an 800 number for questions seems a glaring omission, but it’s probably to keep costs down. I would be surprised if the company didn’t expand its telephone support soon. Other areas for improvement include:

• expand online help and FAQs
• provide real-time online sales support (via chat)
• provide more background on the company and principals to give prospective applicants a better sense of the company’s stability
• provide more simple tools, such as payment calculators, to complement the advanced analyses already available

• company was launched on June 30, 1997
• received 1,000th loan application Oct. 27, 1997
• has marketing agreements with NewRealty.com  www.NewRealty.com an Internet-based real-estate brokerage; buyer’s broker JV Pinto and Associates; and luxury home-builder SummerHill Homes
• E-Loan is listed on Intuit’s QuickenMortgage Web site in the Mortgage and Real Estate Directory  mortgage.quicken.com
• E-Loan brokers loans through the following lenders among others: American Savings Bank, Bank of America, Bank United/Commonwealth Bank, CMG Mortgage Corporation, Countrywide, Flagstar, Great Western/Sierra Western, Headlands Mortgage, NationsBank Mortgage, North American Mortgage Company, Norwest Mortgage, Western Financial, World Savings

At E-Loan Christian Larsen, President, and Janina Pawlowski, CEO, are co-founders, 650.617.0403, janina@eloan.com . Rick Hutcheson is President of Internet Finance Corporation 415.427.1030, rick@moneyclub.com . George Marcus is Chairman of SummerHill Homes. John Pinto is President of JV Pinto Associates: Patrick Boyle is President of www.NewRealty.com , 415.325.1213.

A year ago we took our first look at the marketing and delivery of credit products online. At the time we were somewhat surprised by the lack of activity and innovation online. A year later our opinion has changed little, but we are encouraged by all the work being done behind the scenes — projects that should come to market during the next 6-12 months.

You still have time to get your online lending initiatives off the ground before the competition gets brutal. Here’s why it will. Let’s say we’ve got a smidgen of seed capital and our eye on the 40 million households soon to be online in the U.S. We’ll let the existing players keep their marginally profitable checking accounts, their expensive ATM networks, and all that brick-and-mortar investment. We just want the loans. Especially the big ones secured by home equity. A good-sized home equity loan with a reasonable interest rate can have a net present value (NPV) in the $2,000 to $5,000 range (assuming $30-40,000 average balance,
2-3% net interest margin, and 4 to 5-year loan life). If the Web site were to generate 85 of these gems each month (1,000/yr), we’d have more than $30 million outstanding in a year, generating $600,000 to 900,000 in annual revenue. And that’s just from the loans booked in the first 12 months. Run that out for five years, and we’ve got a $3 to $4 million business running on a couple PCs.

If you’re skeptical that a start-up company could generate this type of volume, you’ll be interested in our overview of E-Loan E-Loan just received mortgage application number 1,000 less than four months after launch. After 40 years of credit card direct marketing, it’s pretty clear that U.S. consumers will take money from almost anyone offering a convenient loan package and a competitive rate. It won’t be any different online.

Is your top management, or board, wondering when you’ll make a payoff from all the dollars invested online? It’s a legitimate question. If you don’t have a good answer, then you’re not working the loan side hard enough. From a revenue-generation standpoint, checking account access and bill payment might better be thought of as simply a means of getting customers online in order to market loans to them in a highly personalized way.

Arkansas National’s banner ad on BankRate’s Web, www.bankrate.com .

Look at Arkansas National Bank’s innovative marketing approach. The $182-million bank is featuring its 7.92% APR credit card in banner ads at one of the key venues of online credit card information, Bank Rate Monitor, www.bankrate.com . Once the bank gets the consumers’ eyeballs on its Web www.arknatl.com , it loads the bargain-rate card up with a companion checking account, overdraft protection and online bill payment. But it’s presented in a way that doesn’t make it feel like “bait and switch.”

By this time next year, a typical user’s online session looking at their bank or credit union accounts, will also include targeted messaging for loans and lines of credit. The innovators will offer instant credit approval with just a few clicks of the mouse. E-mail rate update services will be as common as payment calculators are today.

Throughout 1998 we expect to see aggressive moves online by mortgage brokers, finance companies, non-banks, and the direct banking divisions of major commercial banks. We’ll see pitches for all types of credit products, from credit cards, to personal loans, to home financing. There will be banner ads galore, sweepstakes, low-low rates, free computer premiums, and instant credit approval. The most concerted efforts will be in the lucrative home equity market with the large line sizes, lower credit losses, and insatiable consumer appetite in areas where home prices have appreciated.

But the big players aren’t going after these loans yet. In fact, during our recent test of five search engines, we found only one where a financial services ad popped up when searching on the term “home equity loan,” and that was a financial planning message from John Hancock. However, First USA is showing a home equity loan banner on “personal loan” at InfoSeek and Bottomline Mortgage is advertising home improvement loans on “refinance” at AltaVista.

Even more surprising is how few total hits we got on the term “home equity loans” (the parenthesis are important at some search engines). Only four in Yahoo’s directory and only 1,800 in AltaVista’s simple search. Evidently, most financial institutions aren’t even using that term on their Web sites. That’s something you can correct during the next five minutes. Send the following e-mail to your Webmaster now.

Bottom line: you still have time (9 to 15 months we’d estimate) to protect your turf by building your own cyberloan offerings. All else being equal, your customers are going to borrow from you. But increasingly the “all else” is going to include online loan services along with rate, line size and a convenient application.