From...

February 22, 1999
Web posted at: 7:01 p.m. EST (0001 GMT)

by Megan Barnett

(IDG) -- There's a new bank around the virtual corner. Expected to open its doors this week, First Internet Bank of Indiana hopes to lure online banking customers from coast to coast.

The bank will launch with a full range of services, including interest-bearing checking and savings accounts; personal, auto and boat loans; credit and debit cards; electronic bill payment; and CDs. The bank plans to add home equity loans in the near term, followed by mortgages, life insurance and online stock brokerage services.

First Internet Bank is an Internet-only, state-chartered bank. Its financing comes from a $15 million private placement raised last November, just after the bank received FDIC insurance approval. With just a dozen employees, the Indianapolis-based bank hopes to attract as many as 15,000 customers, or about $150 million in assets, in its first year of operation. If it achieves that goal, says founder and chairman David Becker, the bank will be profitable.

The numbers are ambitious. By comparison, Atlanta-based NetBank, which was formed more than two years ago in October 1996, had just over 20,000 accounts as of Dec. 31, 1998. NetBank was profitable for each of the last three quarters of 1998.

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The market for online banking is only becoming more competitive as increasing consumers turn to the Web for their banking needs. First Internet Bank's launch comes on the heels of Kentucky-based USAccess Bank, which opened its virtual doors earlier this month. These new players join the likes of NetBank, Security First Network Bank, CompuBank and Telebank.

The number of traditional banks expanding their services to the Internet is also growing exponentially. The General Accounting Office estimates that nearly half of the 10,520 banks in the U.S. had plans to launch Internet services by the end of 1998.

Will customers with online accounts at traditional banks like Wells Fargo or Bank of America want to transfer their accounts to a Web-only bank? Becker thinks so.

"I think there's some pent-up demand at Wells Fargo," he says. "Their Internet-based product is very basic, and the bill-pay services are cumbersome." Becker thinks his bank's ease of use, real-time transaction processing, and range of products and services offered will be enough to win over Net-friendly customers from large institutions. And First Internet Bank's pricing structure is competitive due to its low overhead costs.

Much of the overhead saved by online banks gets funneled into marketing expenditures. Becker says he plans to spend the first six months of First Internet Bank's operation focusing on developing business relationships to round out its product suite. After that, by 2000, he plans to roll out a national ad campaign. He also has been evaluating deals with major portals.

Primary attractions to online banking include better interest rates and round-the-clock access to a virtual teller. But banking with Web-only banks does have its drawbacks. For instance, customers must physically mail paper checks to the bank for deposit, a process that can take days. And although Net banks don't generally charge their own ATM transaction fees, most brick-and-mortar banks will charge a fee to use their machines. (First Internet Bank plans to offer its customers monthly rebates for ATM fees.)