BULLISH news on INTERNET BANKS
Monday February 22, 8:44 pm Eastern Time
Internet banks see deposits rise amid rate breaks
By Mary Kelleher
NEW YORK, Feb 22 (Reuters) - Cyberspace is home to a growing number of U.S. savings
accounts, as Internet banks skim some business from traditional banks by offering higher
deposit rates and cheaper loans, analysts said.
Online banks like Net.B@nk Inc. (Nasdaq:NTBK - news), which have no network of physical branches or tellers, do not
threaten and will never replace massive U.S. financial institutions like Citigroup (NYSE:C - news) or Bank One Corp.
(NYSE:ONE - news).
But their prices are among the best around because of low overhead costs, making some wonder why traditional banks do not
give the Internet customers that rarely use branches a better deal on rates.
''When everything is done through the Internet, it suppresses a tremendous amount of overhead,'' Nick Ozoux, an analyst at
Lloyd Wade Securities said. ''The online banks pass the savings down to the customer and offer some of the best deposit rates
you can find in the country.''
Consumers still want to talk to a human being in person or pick up the telephone, analysts said, limiting the growth of banks that
only did business over the Internet.
Ultimately, the big, traditional banks also have powerful brand names, pockets of money and a vast array of products that
should outlast online banks, they added.
''Internet-only banks can appeal to a small group of hardy, self-service types, but the vast majority of financial service
consumers are mixed chanel users, people who want to know face to face what is available, '' Bill Doyle, an analyst at Forrester
Research, said. ''These guys will not be successful as long as they lack physical branches and 24-hour, 7-days-a-week
customer service.''
Still, while deposit growth has slowed at many U.S. banks as customers put savings into mutual funds instead of bank accounts,
Net.B@ank's deposits were up 424 percent in the year ended September 30, 1998, Sean Ryan, a banking analyst at Bear
Stearns wrote in a recent research report.
The Atlanta-based Internet bank has about $300 million in assets and over 15,000 customers.
''Net.B@nk's lack of a branch network gives it a sizable cost advantage over traditional bank competitors,'' Ryan wrote.
''Traditional banks generally don't price their Internet offerings to reflect the lower cost of distribution ... In contrast, Net.B@nk
passes part of the differential on the customers in the form of higher deposit and lower loan rates.''
TeleBanc Financial Corp. (Nasdaq:TBFC - news), which has had a so-called branchless banking concept for more than 10
years, had its roots in telephone banking and is now tapping the Internet as a distribution channel.
''You are seeing some displacement of core deposits among the legacy institutions, with new start-up institutions like Telebanc
Financial, which are proving that retail marketing and banking are synonymous,'' Gary Craft, an analyst at BancBoston
Robertson Stephens said.
With just one physical location in Arlington, Va., Telebanc saw its deposits more than double as of the end of last year. It ended
the year with $2.3 billion in assets and more than 50,000 customers, a Telebanc spokesman said.
First Internet Bank of Indiana, another Internet-only bank, also opened for business on Monday. Its chairman, David Becker,
said the bank hoped to finish the year with 10,000 to 15,000 customers, calling it a ''pretty huge market.''
Christopher Kelley, an analyst at Morgan Keegan & Co. said: ''You need to consider these companies as banks that are
starting from ground zero. That's what makes the Internet so interesting. Starting from scratch at ground zero you have exposure
to a lot of people.'' |
