Unfazed, Tepper bets on Net
As seen in this week's Philadelphia Business Journal
bizjournals.com
Andy Gotlieb
At first blush, the numbers don't look good. In fact, they don't look much better on close inspection.
USABancShares.com Inc. just posted third-quarter losses of $208,000. For the year so far, net operating losses have reached $4.1 million, compared to a $361,000 profit the year before.
Its stock, meantime, hit a 52-week low last month, falling to $1.53 per share, well off its high of $19.50 on Dec. 29. It still sits below $2.
Internet-based operations around the world are closing up shop, drowning in red ink. Online banking consultants question whether Internet-based banks can survive.
None of this appears to trouble USABancShares.com CEO Kenneth Tepper.
"For us, the Internet model works," Tepper said. "We fully expect to be profitable next quarter and ongoing. ... All we have to do is stop advertising."
Huh, you say?
Tepper explained that much of the losses stem from a massive promotional campaign USABancShares conducted to get its name known. That included both print and television advertisement in major markets. Losses were exacerbated by adding employees to ramp up for added business.
That said, Tepper acknowledged the online bank, which was adding 500 to 600 accounts per day, now takes in 150 to 250 accounts daily since advertising ended four months ago.
Still, the bank counts 50,000 online customers signed up in less than 18 months, including online deposits of about $100 million. Overall, the company claims about $340 million in assets, but that includes assets of its four BankPhiladelphia branches.
"We couldn't grow this fast with bricks and mortar," Tepper said.
Tepper said that when he bought what was then century-old Peoples Thrift Savings Bank five years ago, the institution had a mere $18 million in assets.
Enamored with what was then called electronic banking, Tepper began developing an Internet strategy three years ago. Aside from getting the name out to the public, Tepper looked for ways to pique the interest of the Generation X types more likely to bank online.
That included Bowiebanc.com, which actually is a part of the company's online bank. Fans of rock star David Bowie get his face on their ATM cards and a year's subscription to the Thin White Duke's Web site.
An ongoing gig is the CD auction the bank offers at CDenergy.com, based on the eBay model, where would-be certificate of deposit buyers bid on the investments.
Another promotion included a deal with eMachines, which shipped computer keyboards with a key that takes users directly to the USABancShares.com site.
Yet another arrangement involved DoughNet, a San Francisco-based company that helps teens establish good fiscal behavior. Through USABancShares.com, DoughNet Web site users may establish joint bank accounts with their parents.
DoughNet CEO Ginger Thompson said her company checked out a lot of online banks, but chose USABancShares.com because most of its counterparts were into more traditional banking.
"They approached the market in new way. There were a lot more innovative and creative," she said, adding that she wasn't looking for an offshoot of traditional banking for her young charges. "USABancShares.com kind of understood and recognized that."
USABancShares.com recently continued efforts to stay ahead of the curve, becoming what it says is the first online bank to use technology that offers smoother video that the herky-jerky motion typically associated with Internet broadcasts.
Not everyone is convinced that's such a good idea, citing the limited number of people with access to that technology.
"It's not much more than a gimmick most can't use," said Octavio Marenzi, managing director of Cambridge, Mass.-based Celent Communications. "They're only going to reach a very small portion of the customer base."
Still, Marenzi looks favorably on USABancShares.com, saying the company shrewdly widened its geographic base early on by targeting military personnel.
"I think they're an outstanding bank," he said. "They've certainly been leaders in being a virtual organization."
Former USABancShares.com board member Daniel Stechow agrees. He stepped down from the board recently because the company of which he is a president, Braincraft Technologies, is a vendor doing with USABancShares.com. Stechow said the bank's perceived troubled are being tackled.
"My company is doing the same thing. The days of wines and roses are over," he said, referring to the many struggling dot.com companies. "I wouldn't write them (USABancShares) off. They've got the smarts to pull it off."
They certainly will need those smarts to survive, said Christopher Musto, director of financial services with Gomez Advisors Inc., a research firm in Lincoln, Mass.
"Any other bank needs to have some kind of physical presence," he said. "By and large, customers tend to go online with their bank, not a new bank."
Bricks and mortar offices are important for a few reasons, Musto said. Aside from the physical presence, branding and placement is important. He cited Charles Schwab, which typically locates offices in prestigious addresses. That suggests they are to be taken seriously, are convenient and an important part of the community.
Meantime, physical locations tend to generate business by means of foot traffic. Musto noted that many online ventures are frustrated by would-be customers who fail to fill out applications or don't fund accounts. That's less likely to occur in person.
Finally, Musto said some transactions are still easier to conduct in person instead of online.
Musto's unclear how well USABancShares.com's push for name recognition -- particularly its posturing as being hip and cool -- will do.
"Does it address the needs of the customers?" he asked, pointing out that of 40 or so online banks nationally, only one is scraping up a small profit. "With most Internet-only banks, you look and say, `What's your point? How do you make it more convenient?'"
"They've got their work cut out for them," Musto concluded.
Tepper said many people miss the point.
"When looking at us, you've got to remember the scale," he said. "People forget how small we are."
The idea isn't to compete with the major banks of the world, Tepper said. He said the bank served about 1,000 customers for its first 112 years in business. After about a year online, it claims 50,000 customers. Given the low costs to service those accounts, USABancShares, unlike the big boys, gladly accepts small accounts -- it takes a mere buck to open an account.
"We're a small bank that has a chance to take market share that a bank our size wouldn't normally have a chance to get," Tepper said. "We've learned a lot statistically about how people bank, what they like, what they don't like. We continue to evolve. We don't need every Internet customers to do phenomenally well."
As for the low stock price, Tepper attributed that to the markets, pointing out that many banks (and plenty of tech companies in general) are taking a beating.
"We're in a stock market where AT&T is a $20 stock," he pointed out. |
