The Cold Start Problem: How to Start and Scale Network Effects

by Andrew Chen

On September 18, the bank mailed 60,000 Fresno residents a BankAmericard. There was no application process. The card simply arrived in the mailbox, ready to use. Credit card fees for merchants were set at 6 percent and consumers received between $300 and $500 in instant credit. There was a certain brilliance behind the 60,000-person drop: On day 1, cardholders simply existed. This permitted Bank of America to sign up all merchants who didn’t already have proprietary credit card programs. BofA focused on fast-moving, small merchants like Florsheim Shoes, not giants like Sears. More than 300 Fresno merchants signed up. Within three months, Bank of America had expanded its customer base to Modesto in the north and Bakersfield to the south. Within a year, it added San Francisco, Sacramento, and Los Angeles. Thirteen months after the initial Fresno drop, the bank had issued 2 million cards and onboarded 20,000 merchants.