The Internet has given birth to a range of personalized Web sites, ranging from news to sports to weather. Are cyber-banks now about to take their turn in the spotlight?
The idea seems to be catching on. Analysts estimate that nearly 20 million homes will do banking online by 2002.
Already, banking powerhouses like Bank of America and Wells Fargo have built strong online presences. And Citibank recently struck a deal to be featured on Netcenter, the Internet portal operated by Netscape Communications.
Enter the virtual banks
But in what could prove to be a harbinger, a Houston company called CompuBank earlier this week went online, earning a certain notoriety as the nation's first federally chartered virtual bank. The startup picked up an early vote of support from Mecklermedia, which agreed to put CompuBank on its Web site for the Internet World trade show.
CompuBank isn't the first virtual bank. Security First was one of the pioneers in online banking, but was gobbled up by Royal Canadian bank. Atlanta-based Net.bank is another player.
Johnathan Lack, executive vice president of marketing at CompuBank, says the key to creating a separate identity from the big guns in the financial services industry will be the ability to offer lower rates and better customer service. "Large banks have a reputation for high fees and poor customer service," Lack said. "The Internet is an equal playing field for small businesses with a vision."
CompuBank intends to target consumers and small businesses, allowing them to open no-fee checking accounts with $200, check real time balances, and take a look at cleared checks -- all with a few mouse clicks. The bank is insured by the FDIC and uses the software of Pro Logic, a Canadian maker of banking systems. The company also has a deal with Travelers Bond to insure customers up to $US4,000 in unauthorized transactions..
The company doesn't have any plans for building bricks and mortar banks or offering loans or other financial services besides checking, savings and money market accounts. Instead, it's looking to partner with companies that already provide such services. "You've got to stick to what you do well," Lack said.
Hurdles in way of cyber banks
Banks that do business solely online have several hurdles to clear in order to gain widespread acceptance.
Because CompuBank and others don't have dedicated ATMs, their customers must use machines owned by other banks, which often charge fees to people outside their networks.
CompuBank itself doesn't charge a fee for using another bank's ATM. The company plans to distribute a list of fee-free ATMs to customers in the future.
Because of their novelty, cyber banks also have a challenging job convincing people to switch their money over to accounts in a new -- and relatively untested -- sort of financial institution.
But Lack says the cyber banks will still be able to carve out a niche. Noting that Citibank plans to sign up one billion customers by 2010, he suggested that customers who feel they're getting lost in the crush will take a second look at the CompuBanks of the world.
"How'd you like to call in and hear 'I'm sorry, but there are 900 million people ahead of you?' " Lack said.
