The Third Net-Only Bank Goes Live (NetBanker)

www.compubank.com
www.ecommcenter.com

The nation’s first OCC- chartered Net-only bank bank opened Oct. 7.

As you can see from the understated home page (left), Compubank’s Web won’t win any design awards, but at least they estabish credibility right away with a list of regulatory endorsements (top of page).

The first page also provides buttons to the four important areas:

Apply Online
Contact Us
Demo
Log-On

The Company: CompuBank is a Web-based start-up headquartered in Houston, TX. Founder Frank Goldberg, a 23-year banking veteren, founded Security National Bank in 1985, serving as CEO until its 1994 merger with Compass Bancshares. CompuBank is the first all-Internet operation to be chartered as a national bank by the OCC. The previous two Net-only banks, Security First Network Bank (SFNB) and Net.B@nk (formerly Atlanta Internet Bank), used thrift charters. The company also operates eCommCenter, which links to a dozen other content providers.

Funding: The company was capitalized with $6 million from private investors and currently has 12 employees. Unlike SFNB and Net.B@nk, the company does not intend to go public in the near term.

Strategic Vendors: CompuBank uses technology from ProLogic www.prologic.com for core banking systems; Edify www.edify.com for the online banking platform (same as Net.B@nk); Online Resources for bill payment; and Deluxe for check printing.

Pricing: Basic non-interest checking is free of monthly fees, minimum balances, and ATM fees. The only fees are $5.50/mo for optional, unlimited bill payment and relatively high penalty fees such as $25 per NSF. Refer to the following table for a complete list. Interest-bearing checking carries a 2% rate and a $10 monthly fee if the balance falls below $1,500.

Source: Company, 10/21/98

*fee waived with $1,500 balance **fee waived with $2,000 balance

As we were going to press, CompuBank launched eCommCenter www.ecommcenter.com a meta-site with links to co-branding partners in various categories such as mortgages, weather, news, and so on.

Marketing: The bank is basking in the honeymoon period of free publicity right now. A search of the Dow Jones archives turned up 79 articles written on CompuBank, many in the past four weeks. The bank has been the focus of stories in The Texas Wall Street Journal and BusinessWeek Online. Jonathon Lack, EVP Marketing & Planning, said the bank has also been on TV in 25 markets as well. He declined to provide any specifics on visitors or account openings.

Besides PR, the bank is using banner advertising, site sponsorships, and the eCommCenter (screenshot above) to drive traffic. CompuBank is the exclusive Internet bank for MecklerMedia’s internet.com; a major sponsor of GoCollege.com (screenshot right); and a sponser of a Beanie Baby/collectibles site in Houston beanie.collectica.com/guest/memberhome.cfm, where, according to the Collectica Web, you will soon be able to earn membership credits for opening an account at CompuBank. The bank provides exposure for these companies on its eCommCenter, likely reducing or eliminating the expense of parking its logo on sponsor sites.

One marketing challenge for the bank is that prospective customers searching for CompuBank on the Web will find three other banks using Compubank as a trade name: in Israel www.compubank.co.il South Africa www.absa.co.za/COMPUBANK and New Zealand www.united.co.za/electronic/compu.asp

Contact:

Jonathan H. Lack is EVP Marketing & Planning at CompuBank, (713) 479-1074, jlack@compubank.com Analysis

Home Page: We have mixed reactions to the first page, which is basically a site map plus four buttons. Site maps are great for finding information on large Webs, but don’t do much for the sales process. You don’t want to ignore the information gathering needs of Web surfers, but you also need to funnel newcomers towards the info that puts them into a buying mood before they get bored and move on.

CompuBank is a major sponsor of GoCollege.com including a pop-up window selling SAT practice tests.

Good Web sites do both by providing drop-down lists, search functions, and site maps for information seekers; and interactivity, free features, teasers, and special offers to turn browsers into buyers. CompuBank has none of the latter. In any event, the bank needs to modernize its first impression. This looks like a Web site built in March 1995, not what one would expect from “the first nationally chartered virtual bank.” As an Internet company, CompuBank is competing for users accustomed to the sophisticated interfaces of Schwab and Amazon.com.

Grade: B- informative but dull

Products & Features: The bank offers standard deposit account fare: interest and non-interest checking, savings, money market accounts, and certificates of deposit (CDs). Business versions of checking, savings, and money-market accounts are also offered. There are no credit products yet, but the bank does offer overdraft protection from other deposit accounts for $1 per transfer.

While its banking products may be plain vanilla, its Web-oriented features are first rate, especially interbank transfers, “call-me” customer service, layered security, and online check images.

These are nice-to-have features, but with no loan products, especially overdraft lines of credit, the bank is only offering half the product line desired by the typical Net-savvy consumer.

The bank is also missing the opportunity to leverage email communications. It needs email rate updates, balance notifications, deposit confirmations, and so on.

Grade: B+ for checking/deposits; F for loans

Rating the Features & Benefits

Pioneering (industry firsts or seconds)

Fraud protection from Travelers (OBR 9/97)
Web-based form to initiate in-bound interbank ACH transfers
Web-based wire transfer form (although the $15 fee will limit usage)
multiple security codes for ACH/wire transfers
eCommCenter co-branded content site

Excellent (top 10% of banking programs)

online images (last 12 months)
privacy statement and explanation of security features
suggestion box on front page
call-me feature to request a call from a service rep
alerts shown at log-in (see screenshot upper right)
tax information link from balance inquiry screen

Average

core functions: balance inquiry, transaction detail, funds transfer and pay-anyone bill payment
online demo
pricing

Below Par (disappointing for typical users)

customer service hours
no service standards for email customer service
no email services (e.g., balance notification)
no bill payment guaranteees or customer assurances
graphical interface, “look and feel” of Web
no credit products

Pricing Strategy: Unlike Net.B@nk and SFNB, CompuBank does not expect to offer premium deposit rates to attract customers (see chart right). Like most banks, they prefer not to cater to the so-called “hot money” that only stays on deposit while premium rates are available. Instead, the bank intends to compete as a low-fee, high-service, feature-rich Internet bank. It’s a strategy that could work, but will require patience, a luxury the privately held firm can afford compared to its prematurely public competitors. Still, the bank will have to figure out a way to entice users to sign-up — free checking won’t be enough.

Alerts are shown on the top of the first Web banking screen, for example, “You Have Mail!!” and “GO TO Important Information about transactions concerning your account!,” which links to an explanation of a returned item fee. Note: “Tax Information” (lower left) links to last year’s interest paid.

“Statement Copy Request” is another valuable service. Users can look at the previous 12 statements online, or dig deeper into the archives by requesting a copy of any statement from the past seven years. Delvery options include email, fax, or snail mail.

Net-Only Bank Deposit Rates*
Product	Compu-Bank	SFNB	Net.B@nk	High in U.S.
Checking	2.0%	2.47%	3.93%***	n/a
Money Mkt.	3.0%	4.44%**	5.12%	5.30%
6-mo CD	4.50%	5.73%	5.16%	5.30%
12-mo CD	4.60%	5.83%	5.26%	5.46%

Source: Companies 10/21/98; Bank Rate Monitor, 10/20/98

*Interest rates for $10,000; **5.37% for >$25,000; ***Fee of $4.50/mo charged regardless of balance, no-fee option is available with rate of 3.0%

Security: CompuBank is the first bank we’ve seen layer additional password(s) on top of funds transfer screens, a security measure we’ve long advocated. CompuBank actually takes it one step too far by requiring three passwords to ACH or wire funds. First, the user must log-in to online banking. Then, mother’s maiden name is required to view the Wire Transfer and Direct Transfer screens (because account numbers are listed). Finally, in order to process a transfer, the user-selected “Fed Wire PIN” is required. Bill payment also requires a separate password.

Grade: A- three passwords might be overkill,
but it’s on the right track

Even when already logged in to online banking,
users must enter an additional password to access interbank transfers.

CompuBank makes it easy to change Overdraft algorithms. Choose the account to protect from the left column, and the account to protect it from the right.

Non-Financial Content: eCommCenter, CompuBank’s ecommerce Web site, was literally unveiled as we were going to press, so we can’t say much. But at first glance, it looks like a good way to drive traffic, deliver value-added services, and provide reciprocal links to content partners to reduce or eliminate the bank’s cost to advertise on partner sites. We’ll keep you posted.

Technical Information: The company does a great job posting comprehensive info about browser support (screenshot below), security, privacy, Y2K, and more. Although, it could be improved with a slightly more user-friendly style (see NextCard, OBR 5/98).

Grade: A- one of the best

Here is an extensive list of browsers supported — an excellent resource to head off that time-consuming and frustrating customer service chore.

Here’s an important feature missing from most Net banking programs, the ability to transfer money from other banks into CompuBank. Outbound wire transfers are just as easy, but cost $15 each.

Customer Service: Web-based customer service is full-featured, easy to use, and loaded with self-service functions to cut the bank’s costs. Users can access bank mail, change pass phrase, reorder checks, change overdraft protection algorithms, order deposit slips, check rates, and request copies of checks/statements for the past seven years with delivery by email, fax, or snail mail.

Another innovation is the “call me” function that allows users to request a call from a service rep (see Republic Bank, OBR 2/98). The user selects the call-me button from the navigation bar and enters their phone number. The next available call center rep then calls the customer. The rep already knows precisely which screen the customer was using when the request came in, so problem resolution can be accelerated.

Off-line service leaves something to be desired. The hours of operation, while suitable for the central time zone, are incovenient for users on the east and west coasts. Easterners won’t be able to get ahold of a live body until 9:00 a.m., and left coasters won’t be able to summon a human after 6 p.m. on weekdays, and 11 a.m. on Saturdays. The bank says they will expand hours as volume dictates.

Customer Service Hours
Monday – Friday	8 a.m. – 8 p.m. CST
Saturday	9 a.m. – 1 p.m. CST
Sunday	2 p.m. – 6 p.m. CST

CST = central standard time

Another nit-pick: Prospects are not given any assurances that the bank will respond quickly to email questions. In our own testing, we received a response within the hour about a malfunctioning demo. If the bank is prepared to answer questions within 60 minutes, by all means, say so. Prospective customers at a virtual bank should receive a clear understanding about the quality and timeliness of email communications.

Grade: B+ needs expanded hours and more

emphasis on email

Bill Payment: CompuBank users actually pay bills on servers hosted by Online Resources www.orcc.com CompuBank charges $5.50 per month for unlimited pay-anyone bill payment with no free trial period.

Bill payment service descriptions need to be beefed up. A few benefits are listed followed by two long paragraphs warning the customer that they must have sufficient funds and the bank won’t be held responsible for any mistakes. The overall impression is of a service not ready for prime time.

Grade: C needs clear-cut benefits to

induce trial/usage

Online Application: CompuBank’s did a good job putting its account application online and on its first page. Unfortunately, the implementation is mediocre at best. After completing eight screens of data, the user must print out 27+ pages of disclosures with limited guidance on what is going on. The bank
needs to provide step-by-step instructions so the user is confident they are doing it right (see NextCard,
OBR 5/98 for a good example).

In testing, we spent about 15 minutes fighting through the application, and as far as we knew, never did get to the end of the process. The server would not recognize the “next” command after the EFT Agreement and we kept getting a cursory “timed out” message suggesting we log back in. When we tried that we got a message saying our account was inactive, please call customer service. That kind of run-around is exactly what Net users are trying to avoid from banks.

Postscript: Three weeks later, we finally did get an email, then a follow-up call, which confirmed that we had in fact completed the application process. That’s too long to wait. The bank should communicate immediately with anyone who applies online to see if they have questions.

Grade: C needs more guidance and

feedback

Summary: We commend CompuBank for winding its way through the regulatory and technical hurdles and actually launching the first de novo Internet bank (the previous two were originally divisions of thrifts before being spun off). There are dozens, perhaps hundreds, of entrepreneurs working through the same issues, and CompuBank got out of the starting gate first — no small accomplishment.

The bank has an informative Web site, a solid deposit product line, and a number of innovative features such as interbank transfers and fraud protection from Travelers. But the text-heavy interface, lack of loan products, and a convoluted application process are going to hamper its initial efforts to grab a critical mass of customers.

The launch of eCommCenter, just 33 days after the bank opened, is a promising first step. But there are still three major problems to address:

1. No competitive advantage: Free checking from an unkown bank in Houston can only take you so far; maybe a few thousand accounts, just ask Net.B@nk and SFNB. The “stay out of line” tagline isn’t particularly meaningful to its prospective customer base, few of which have ever stood in line in a bank branch. This early adopter group has been using the ATM and phone to do their banking for more than a decade. The bank needs a unique selling proposition that captivates its target segments.

2. Outdated Web site: It’s difficult to understand CompuBank’s thinking on its Web design. Minimal graphics, outdated colors, no interactivity, no financial calculators, no search function, no reason to stay or return, and it’s slow. Perhaps the bank threw its development dollars into the new eCommCenter site. If so, they still need to invest in the critical pages on CompuBank.com where users make their buying decisions.

3. No easy way to buy: Soft sell is fine, but posting product features and an eight-page account application are not enough. Eventually you have to give users a reason and a means to buy. Net.B@nk and to a lesser extent, SFNB have been somewhat successful offering high-rate deposits. We don’t know CompuBank’s strategy, but if it hinges on people sitting through a 15-minute application process to earn 2% on their checking balances, the bank has a problem.

From our conversation with Marketing EVP, Jonathon Lack, it seems the bank recognizes its weaknesses and will fix the glitches as it moves forward. The bank had to get started after nearly three years in formation. Lack promised quick improvements. For example, the issue of not offering 24-hour customer service has been raised in the trade press. Lack says the 12-person company can easily expand hours as customer demand warrants. The company is confident it can innovate at a pace appropriate for a bank, even an Internet-based one. Case in point: the recent eCommCenter launch.

When pressed to identify ways CompuBank will attract customers with no loan products, no high-rate deposits, and a relatively small amount of capital, Lack only hinted at innovative things to come, perhaps using affinity marketing techniques . (Editor’s Note: this was prior to the launch of eCommCenter.)

Recommendations: Here’s our plan to fix these problems and add some sizzle to the steak:

1. Install a new Web front-end using state-of-the-art Web navigation, graphics, and interactivity. For example, Digital Insight www.diginsite.Com offers a proven template that can be implemented relatively quickly.

2. Sell or give away non-banking service(s) that anyone can buy, without a long application process. The new eCommCenter may be just the venue to do that. Some other ideas: online credit reports, home value reports, mortgage rate alerts, and so on (see OBR 8/98 for more).

3. Leverage the innovative Web-based payment services to attract traffic and an initial customer base that can be used to attract more capital. For example, allow non-customers to use Web-based payments to wire money or pay a bill by charging it to a credit card. Another possibility, partner with an Internet company such as EBay.com that needs a way to smooth the flow of money between buyers and sellers (see Online Escrow Services, OBR 11/97; and Online Money Orders, OBR 11/97). Internet-based payment services provide two marketing benefits:

· customers get to try CompuBank services with little initial investment in time or money

· it’s viral marketing, meaning that the marketing message/link is innocently bundled into the payment notification so the recipient knows where to go for the same service

4. Add credit products, even just simple co-branded products such as mortgages from E-Loan (see Telebank, OBR 8/98).