consider the fact that these businesses are likely not covered by the
Americans with Disabilities Act because these are not "places " of
public accommodation.
kelly
>From the New York times
February 25, 1998
Fewer Bricks Mean Higher Returns
At New Internet Banks
By SANDEEP JUNNARKAR
I n recent years, a handful of large banks like Citibank and
NationsBank, with hundreds of branches across the country, have
begun to dominate banking at both a local and national level. And
realizing the power and reach of the Internet, they are making a
strategic effort to establish a strong presence on the Web.
[INLINE]
Credit: Illustration: Christine M. Thompson / CyberTimes
______________________________________________________________
But a different breed of bank is also emerging to take advantage of
the Internet. Instead of providing Web access as a convenience,
these banks offer all their services only on the Internet. Don't
make plans to drop by a branch office to deposit a check with a
teller they don't have any tellers nor any branches. You'll have to
have your check direct-deposited or mailed. Nonetheless, they are
open 24 hours a day for service at their Web sites.
While currently only two such Internet banks, Security First
Network Bank and Atlanta Internet Bank, are operational, a third,
CompuBank, has been chartered and its Web site can be accessed for
information, though not yet for service.
What do these Internet banks offer that brick-and-mortar banks
can't provide? Higher rates of return on deposits. Because they
don't have the overhead expenses of running branch offices,
Internet banks parlay their reduced costs into better interest
rates on money market accounts, certificates of deposit, and they
even offer interest on checking accounts.
The rates seem to be catching people's attention.
"When we first started in late 1996, we had about 20 customers
mostly people who were friends of the employees and the employees,"
said D.R. Grimes, chief executive officer of Atlanta Internet Bank.
"Now we have about 6,500 and we are growing more rapidly. We added
$8 million in deposits in December, $30 million in January, and we
project another $25 to $30 million by the end of the quarter."
Atlanta Internet Bank has deposits totaling about $95 million while
Security First Network Bank has about $45 million. All deposits are
insured by the Federal Deposit Insurance Corporation. These numbers
are minor when compared to regular banks whose deposits normally
range in the billions.
"It will take a real marketing effort to reach anywhere near the
kind of penetration and acceptance that online trading has," said
Bill Burnham, a senior analyst at Piper Jaffray Inc. in
Minneapolis, an investment bank specializing in technology and
healthcare. "If you look at the online trading area, Ameritrade
spent $25 million in the fourth quarter in advertising alone.
There's not a single Internet bank operation, whether part of a
larger bank or an entity in itself, that has launched an
advertisement campaign of that size."
This kind of expenditure is vital if Internet banks hope to gain a
foothold in an arena where institutions like Citicorp can draw
customers with their brand-name recognition alone.
"Brand is so critical on the Internet that if you try to launch a
new product, you have to be prepared to spend millions and millions
to get people to trust it," said Eric Hartz, president of Security
First Network Bank, based in Atlanta.
In that effort, Atlanta Internet Bank started a massive advertising
campaign in November.
"We are targeting people already on the Internet," Grimes said.
"We're on places like Microsoft Investor, MoneyClub, Motley Fool,
and we're on search engines like Excite and Yahoo."
According to Grimes, the average Atlanta Internet Bank customer,
mirroring the demographics of other online banking users, is a
35-to-50-year-old professional in management or in a technical
field, and has an average balance of $15,000 in deposits.
"We feel we are getting the cream of the crop from the Internet,"
said Grimes.
While Atlanta Internet Bank is making a push to gain a stronger
presence on the Internet, Security First Network Bank, the first to
launch as an Internet-only bank, is up for sale.
Security First Technologies, the parent company of Security First
Network Bank, decided to shed its banking operation not because of
a lack of confidence in Internet banking but rather to focus on its
profitable S1 Web banking software.
"Security First Network Bank is really more a demonstration vehicle
for S1, their technology division," Burnham said. "Because they are
selling their technology to other banks, they never went out of
their way to aggressively build their bank because then they would
be competing with their customers."
Banks now using S1 software have assets totaling $800 billion,
Hartz said. The U.S. Office of the Comptroller of the Currency
estimates that there are more than 840 banks that now have Web
sites. That figure almost doubled from last year.
So how will Internet banks manage to survive as more and more
brand-name financial institutions go online, either on the Web or
through dial-in networks?
One possibility is special interest banking. Just as there is a
niche in the credit card market with services aimed at special
interest groups such as alumni organizations and frequent flyer
programs, the wide reach of the Internet might also make this a
profitable niche in banking.
"What you'll start to see is the concept of an affinity bank, where
a bank is tailored toward a particular ethnic or special interest
group," Burnham said. "These groups may not have critical mass
within any given region, but when you have an Internet bank and you
can draw from around the U.S. or the world."
Although Atlanta Internet Bank regionalizes itself in its name, 80
percent of its customers are outside Georgia and from 21 countries,
including Thailand, the Philippines, Indonesia and South Korea. The
customers outside the U.S. are drawn to the bank as American
expatriates.
While many analysts think that the Internet will finally allow the
mega-banks to dominate banking, others say the lower overhead costs
associated with Internet banks will allow new, smaller banks to
emerge that can offer better rates and efficiently target groups
who till now were considered unprofitable markets.
Copyright 1998 The New York Times Company
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