It's been six months since the last direct bank launch, Provident Direct (coverage here). The latest entry is OnBank from M&T Bank, a $66 billion bank based in Buffalo, NY. 

OnBank passes our strict 25-word homepage standard, joining ING Direct, EmigrantDirect on the short list of financial institutions with Google-like clarity on their home page. It takes just a few seconds to know that this is a place to get a high rate of interest on your money, but you should look elsewhere for a commercial loan.

The user has just two main choices of what to do next (screenshots below):

1. Apply...encased in a trendy lime green button
2. More details...which leads to an equally succinct page that answers the important questions (see last screenshot below):
   - fee free
   - minimum balance of $1
   - FDIC insured
   - quick online opening process

The only thing missing is a comparison to other banks. Given that it's one of the highest savings rates available right now, OnBank should be aggressively showing how it compares to key online rivals, including ING Direct's 3%.

Not only is the bank direct and to the point in its copywriting, it also uses simple, effective graphics, including a gimmick sure to gain attention. To reinforce its 24/7 "always on" branding, OnBank takes a page from the iPhone weather forecast interface, showing the current time in reverse lettering in front of a background image that changes to match the time of day. As you can see in the three screenshots below: daylight (4:42 PM), sun setting (8:58 PM), and nighttime (9:02 PM). Presumably they also have a sunrise background. The bank displays the time according to the user's machine, PDT in my case.

We didn't test the Metavante-powered online application all the way through, but it looked relatively straightforward, although graphically not as appealing as the other OnBank pages.

Thanks to Bank Deals for the find.

OnBank homepage during daytime (17 April 2008)

Evening (16 April 2008)

Night (16 April 2008)

"More details page" (17 April 2008)

ING Direct will spend $220 million in cash to buy Sharebuilder, a unique Bellevue, WA-based discount brokerage, with upwards of 2 million accounts across 660,000 customers (see previous coverage here). The deal was first reported in the Seattle PI last week (here) and confirmed yesterday (here).

At an acquisition cost of about $100 per account or $300 per customer, it seems workable at face value. However, both Sharebuilder and ING Direct's core businesses have historically been relatively low margin, so it will take good execution to make the acquisition pay off.

Many (most??) of Sharebuilder's accounts have come through co-branded programs with 40 banks and 140 credit unions including National City Bank and Boeing Employees Credit Union. It's biggest brand name partner is Wells Fargo (see co-branded holiday promotional email from 2002 below), which not coincidentally, is also an investor in the company. It will be interesting to see if the company's financial institution partners will continue to promote Sharebuilder accounts now that it's a division of ING Direct.  

ING Direct has offered a small assortment of mutual funds to its customers for years (product page here), but they have not been widely promoted. With the Sharebuilder product, ING Direct will have another tactic to fend off the fierce online competition for high-rate deposits.  

Update (8 Nov 2007): comScore released interesting traffic data on the two companies today. In Sep 2007, ING Direct had 2.0 million unique users and Sharebuilder had 1.1 million and there was only a small overlap of approximately 100,000 users. So the combined entity would have an estimated 3.0 million uniques. However, most of the overlap represents customers of both companies. comScore data shows that 8.4% of Sharebuilder logins in Sep. also logged in to ING Direct that month. That means 50,000 to 60,000 Sharebuilder customers are already ING Direct customers, meaning the net account pickup is closer to 600,000.  

Wells Fargo/Sharebuilder email from 2002 (received 16 Dec 2002)

Wells Fargo co-branded Sharebuilder new account application (7 Nov 2007):

According to story in Wednesday's American Banker, Provident Bankshares, a $6 billion Baltimore, MD-based bank, has opened a direct bank to help reduce customer defections to other online banks (see screenshot below). In testing now, the new unit is slated for official launch in 2008. And unlike many other regional programs, Provident intends to market the new bank within its home market. It even plans to advertise to select visitors on its main website, <web.provbank.com>.  

While the bank risks cannibalizing its own deposit base, it feels that the direct bank, combined with the reputation of the parent, will help stem deposit outflows. The new bank will operate at <provident-direct.com>.

Analysis
I'm not convinced slapping a "direct" on your name and boosting savings rates ten-fold is all that compelling of a strategy (note 1). Sure, FNBO was able to add $1.5 billion in deposits, but only by offering a way-above-market 6% rate until just a month ago (see previous post here).

Dueling websites create channel conflict. Depending on how they are compensated, branch staff will either move everyone into the online-deposit account, or keep it a secret and hope never to be confronted by an angry customer wanting to know why they are earning 75% less in the branch than if they moved their money online.   

However, if Provident can keep costs down, operating the unit as more of a "virtual direct bank," with little additional expense other than a small website and a few dedicated sales/support reps, and figure out how to manage channel conflict, it could pencil out. And the bank can also use the unit to test new products and pricing without impacting its larger customer base.   

Note:

1. Actually, the high-yield rate at Provident Direct is 15 times higher than its 0.3% standard savings rates. But for higher balances, at least $25,000, the parent bank already offers a 4.0% APY money market account, just a half-percent under the high-yield rate. 

First National Bank of Omaha has attracted $1.5 billion in deposits through its Internet subsidiary, FNBO Direct, launched in February (previous coverage here). 

The numbers were chronicled in a NY Times article earlier this month (here) about the so-called rate chasers, depositors that move money around online seeking the absolute highest rate, even if it means moving the money many times each year.

Total deposits: $1.5 billion

Total accounts: 36,000

Average per account: $42,000

Number of mega-depositors (with $400,000+): several thousand

Deposits of the mega-depositors: approx $1 billion

Deposit of everyone else: $500 million in 33,000 to 34,000 accounts

Average per "normal" account: $14,000 to $15,000 

Now that the 6% APY has dropped to 5.05% (effective Sep. 28), it will be interesting to see how many deposits the bank retains.

I'm not sure how new it is, but Bank Deals Blog had its first posting yesterday (here). NewBank from Elk Grove, CA-based Stockmans Bank coincidentally was purchased by PremierWest Bancorp while I was writing this blog post yesterday.

It looks like another deposit play, offering higher rates through the online brand to help it keep rates at the parent relatively low (see comparison below). The direct bank is also offering a $50 bonus for new checking accounts opened with at least $2,500 (see screenshot below).

Here are the rates for a $20,000 balance:  

                             Stockmans      NewBank    Advantage

Interest checking >>> 0.50%         3.50%            7x

Savings >>>>>>>>>>>> 1.35%          4.00%           3x

Money market >>>>>> 2.30%           n/a            1.5x (vs savings)

6-month CD >>>>>>>> 4.30%          5.25%           +22%

First National Bank of Omaha used this approach to bag $1.5 billion in deposits at its Internet subsidiary, FNBO Direct, since its February launch (see previous coverage here). 

Thanks to Bank Deals Blog for the tip (here).

I was flying to New York Saturday morning when I read the news in The Wall Street Journal that NetBank had gone under, the largest bank failure in 14 years (note 1). While the WSJ headline, NetBank Failure Shows Online Limits, implied that online delivery shared some of the blame, NetBank's downfall was primarily from poorly underwritten loans, both prime and sub-prime, and most of those originations came the old-fashioned way, through face-to-face mortgage broker sales.

Over the years I've been acquainted with a number of NetBank employees and have written extensively about their innovations since their launch in 1996, as the second Internet-only brand. Interestingly, the three major U.S. Internet-only brands launched in 1995, 1996 and 1997 are gone: the first Internet-only bank, Security First Network Bank was sold to Centura (owned by RBC) and Compubank was sold to NetBank. 

But no matter what the reason, a failure of one of the key names in U.S. online banking certainly gives the industry a black eye. My hope is that a forward-thinking bank buys the NetBank brand from the government and relaunches it with much fanfare next year. Sure, there's some negative brand equity this year, but the NetBank name is a classic and shouldn't go to waste (note 2).

ING Direct, which now lays claim to the retail deposits (note 1), has taken over the NetBank hompage for now (see screenshot below):

For more information:

• FDIC info on the closure here
• NetBank timeline from the Atlanta Journal Constitution here
• It takes a failure for a bank to make TechCrunch here
• American Banker's good summary of the failure, complete with quotes from federal regulators, here

Notes:

1. The company was taken over by federal regulators, who will sell off the assets and return all deposits up to the $100,000 insurance limit. About $1.5 billion in retail deposits, and 102,000 customer accounts, have been purchased by ING Direct. The estimated $110 million shortfall will be covered by the deposit-insurance reserves funded by premiums levied to all banks. The failure does not have direct cost to taxpayers.

2. We said the same thing about NextCard in 2001, but no one followed our suggestion. Now the most well-known website and brand of the most prolific advertiser in the late 1990s has been reduced to a link farm collecting rent from Google Adsense.

Some companies are so innovative, you take them for granted. Five that come to mind, in no particular order:

• Yodlee: account aggregation, credit card-based bill payment, mobile banking
• Vancity (Canada): microcredit, green banking, blogging, community involvement
• Wells Fargo: simple expense tracker, blogging, Second Life
• PayPal: email-based payments, confirmation via twin deposits, integration into eBay (before it was part of eBay)
• Prosper: Social lending, open API to most of its aggregated data, groups, auction style, Facebook app (game)

These companies are all relatively famous, but one that doesn't get nearly as much press, but has long pushed forward on a number of fronts is Everbank. From its website design (here), product marketing (here), to its foreign-currency certificates of deposit (here), the Jacksonville, FL-based bank continues to shine in an increasingly crowded online space (all previous coverage here). 

My inspiration for this post (see note) was the bank's marketing email today announcing its World Energy Index CD, a multi-currency certificate pegged to the currency of four western countries with better-than-average energy resources: Norway, Canada, UK, and Australia. I have no idea if this CD is a good investment, but I do know that Everbank has proven that even the narrowest niches can be profitable using the reach of the Internet.

Everbank Email

Header:
   Date/Time received: July 17, 4:07 PM (Pacific)
   From: Everbank News [service@everbank.com]
   To: James [jim@netbanker.com]
   Title: A new CD with a powerful combination - energy and currencies

Customer type: Current checking account customer

Personalization: First name in salutation

Landing page: none (homepage link only) 

Other offer: Third-party investment newsletter offer (link on right-hand side goes directly to newsletter publisher, Agora Financial Publications, landing page here)

Note: I have had an account for ten years at Everbank. Therefore, I see more of their marketing material and tend to write about them more frequently.

It's been a few months since a direct bank launched. The last one we've been tracking is FNBO Direct that launched in February (coverage here). FNBO has been in the news lately, with a video interview with Business Week (here).

The latest is Element Financial <element-direct.com>, a unit of Irwin Union Bank. The simple homepage layout includes an icons across the top that gives it a modern look (see below). 

Unlike most direct banks pitching high-yield savings, Element features certificates of deposit. The lead product is a 5.44% APY CD. Rates are displayed on a unique rate table with tabs across the top listing typical deposit sizes, $5,000, $25,000, $50,000, or $100,000 (see inset).  

For more on direct banking, see our previous coverage here or refer to our Online Banking Report, Lessons from the High-Rate Deposit Marketers (here).  

The FDIC database has been updated with Q4 numbers, allowing all the data miners to slap on their hard hats and get to work. Since reporting on the tepid third quarter of ING Direct (U.S.) (here), we've been looking forward to the year-end data.

The biggest surprise is that the bank not only reversed the Q3 account run-off, it managed to add 220,000 new accounts, its best fourth quarter ever. However, things weren't so rosy in terms of deposit balances, which increased just $800 million, the lowest Q4 increase since 2001 when the bank had less than $3 billion in total deposits.

For the full year, ING added $7.2 billion in deposit for an 18% increase, the first time the bank had less than 40% year-over-year growth. And almost the entire increase came in first quarter. The bank essentially had no deposit growth in the final nine months of the year (see table below).  

It will be interesting to see what impact its new high-rate Electric Orange checking account will have on deposit and account growth. The account was growing rapidly during the final stretch of the invitation-only launch period, growing from $1 billion on deposit Dec. 31, to $2.2 billion by mid-February (see coverage here).

The battle for online savings deposits has another entrant, First National Bank of Omaha. The new effort, branded FNBO Direct, launched in January according to Wikipedia and other sources. It's the second new direct bank of the year, following Direct Huntington earlier this month (see post here).

Both banks offer virtually identical products. DH pays 5 basis points more, but that's only $5 more per year per $10,000. FNBO has a $1 minimum, while DH wants $1,000 to open. Both use the CashEdge instant account-opening suite, on which we've commented before (see here).

Although, FNBO Direct clearly discloses its parent bank, the new savings account is completely separate from other First National Bank of Omaha accounts. It cannot be opened in FNBO branches, nor can it be linked to FNBO online banking.

FNBO Direct is not currently advertising at Google, Yahoo or BankRate.

*Yet another direct bank

According to an American Banker story last week (here), as of Feb. 1, ING Direct had cross-sold 42,000 (see note 1) checking accounts to its 4.3 million savings customers, a penetration of 1%. Keep in mind, the new checking account has been slowly rolling out over the past 60 days to current customers only (see note 2), and is not yet mentioned on the bank's website. It is expected to be launched to the general public within the next 30 days. 

You can view these initial results in two ways: 

Glass is half full -- Even with just 42,000 accounts, ING Direct may have the largest "Internet only" checking account base, at least when measured by the number of active accounts

Glass half empty -- Because ING Direct's checking account pays 50 to 80 basis points (0.50% to 0.80%) more than savings on $50,000+ balances, many (most??) of the new checking account customers simply moved large balances into the checking option, providing few incremental deposits.

Notes:

1. Make that 42,001 accounts. I just opened one this morning. It took all of about 30 seconds to do it. Existing customers simply choose an account nickname, enter the dollar amount they want transferred into the account (from the pre-existing link from an outside account), and agree to the disclosures. See below for the confirmation screen.
2. I received my invitation to open an Electronic Orange account last week (screenshot here). I've had an account there since 2001.

First reported by Bank Deals today (see note 1), Huntington Bank has recently launched a new direct bank, called DirectHuntington <directhuntington.com>. It goes against the naming convention of having "direct" follow the main brand name, but it shouldn't make too much difference. Still, the bank should secure domain-name rights to HuntingtonDirect.com, currently used by New.net Inc to post a few generic banking links and throw a pop-up or two at unsuspecting users. 

Huntington chose a color palette that makes it stand out from other financial institutions, a good move. However, the yellow 5.30% APR doesn't stand out as well as it should given its importance in the purchase decision (see sceenshot below).

But once again the CashEdge-powered online application leaves a lot to be desired (see previous coverage here and second screenshot below). But before you can even see the application, you must agree to the "Consent for Electronic Disclosure," a terrible first impression for someone who's thinking of sending you ten-grand or more (see screenshot below).

The upper-right Online Guarantee is a nice touch, but it links back to the main Huntington site which might be confusing for users (see screenshot below).

There is no mention of DirectHuntington at Huntington's main website <huntington.com>. However, there's a secret code (anywheresavings) you can enter into the Special Offers box that takes you to the direct banking site. 

*Yet another direct bank

Note:

1. The Bank Deals writer had a relatively uninspiring call with DirectHuntington's customer service when he researched the account. 

For the first time in its short six-year history, ING Direct's U.S. division showed declines in both total deposits and customer accounts during third quarter, the latest data available (see the table below, originally published in our year-end industry forecast, Online Banking Report #137). Although the runoff was relatively small – $600 million in deposits, or about 1% from the peak, and 150,000 accounts, or about 4% from the peak – it's a clear indicator that the entry of Emigrant Direct, HSBC Direct, and especially Citi Direct have taken a toll on the direct banking giant.

Looking at quarterly results below, you can see that average account balances began declining in Q1 2005, as some of the hottest money, large balances held by extremely rate-conscious consumers, moved to better paying accounts; still, total deposits and customers continued to grow rapidly through 2005 and into 2006. However, in the second and third quarters, deposits began to flatten as the number of accounts grew only 230,000 compared to 560,000 in the same period a year earlier.

ING Direct appears to have deliberately slowed growth by maintaining deposit rates 50 to 100 basis points lower than the new entrants. With its marketing muscle, the bank could choose to grow deposits if it closes the rate gap. The bank's new checking account, gradually rolling out to current customers, may help stem the tide, with higher rates for larger balances (see coverage here).

Table: ING Direct Deposit and Customer Totals: 2000 to 2006 (click to enlarge)

PDF version of this table here.

Everbank launched its "What are you waiting for?" campaign today by giving away 2,500 free subway tickets at 6:01 AM in lower Manhattan. The time was chosen to coincide with the 6.01% APR promotional start-rate on its FreeNet checking account (see Note 1). 

The campaign targets ING Direct's soon-to-be-released Electric Orange checking account, which currently pays beta users 3% on balances under $50,000 and 5.3% on balances greater than $50,000 (see Note 2).

Everbank launched a microsite called <whyruwaiting.com> with direct comparisons to ING Direct (see screenshot below).

Clicking the large Compare Banks button in the lower right leads to a comparison to ING Direct and several other major competitors (see screenshot below):

The campaign has not been extended to the Everbank website, which shows a banner for the 6.01% offer, but no mention of "Why are you waiting?" (see screenshot below). 

Clicking through the banner leads to the following page:

Notes:

1. The 6.01% is a promotional "teaser" rate is good for three months, then resets to the "regular" rate which are currently as follows: 
      Under $10,000 = 3.25%
      $10,000 to $25,000 = 3.30%
      $25,000 to $50,000 = 3.60%
      $50,000 to $100,000 = 4.00%
      More than $100,000 = 4.41%
   
   The minimum deposit is $1,500 and the maximum that earns 6.01% is $100,000.
2. ING Direct customers can also easily transfer funds into the companion savings account which pays 4.5%. ING's Electric Orange account began rolling out in waves to its 4 million savings account customers in December (see coverage here). Coincidently, I received my invitation yesterday (see screenshot below). 
   
   

In a Jan. 1 case history published in Direct Magazine (article here), HSBC Direct says it has attracted 350,000 customers since the launch of its high-yield savings account just over a year ago (Nov. 2005).

Assuming typical high-yield balance levels of $8000 to $10,000 per account (our estimate), the bank has attracted more than $3 billion in deposits. The bank has marketed its 5%+ APR account heavily, so it's not likely that the new business is making much of a profit contribution yet. 

Based on the bank's reported online ad spending, its acquisition costs were $75 per account from the online spending only, not including what it spent in other media to support the direct business unit (see note 1).

The bank said it is working on new products to offer through the direct bank. This is a crucial step in the evolution. There just aren't enough customers with $10,000 savings balances to feed all the financial institutions looking for new deposits. HSBC's ability to sell other services to its 350,000 new customers will determine the long-term success of the direct banking initiative. 

Thanks to former Forrester senior analyst, Ron Shevlin, now VP at Epsilon, for the link in his Marketing ROI blog. 

Notes:

1. According to data from TNS published in American Banker here, HSBC spent $20 million online during the first three quarters of 2006. To calculate the acquisition cost we annualized the online spending and divided by 350,000. This calculation excludes the portion of non-Internet advertising that went to support the direct unit. The bank's total ad spend was $42 million during the first 3 quarters of 2006.

Kiplinger published an article on the state of online banking (see article here). It's an interesting read, but it's the WT Direct ad in the upper-right corner that I found most interesting (see screenshot below). WT Direct is the new direct banking arm of Wilmington Trust (see coverage here).  

It's a Flash animation that's part parody of the whack-a-mole banner ad and part a direct shot at ING Direct.

Viewers are directed to:

"Hit the ball and get a really great rate."

That's when the humor begins. Attempting to move the cursor over the ball causes the ball to move away. So there is no way to actually click on the ball. After a few seconds a new screen appears with two words, "Give up?" It's a not-so-subtle dig at  ING Direct rates which are revealed on its homepage usually after an orange ball bounces across the screen. ING Direct is currently paying 0.75% less than WT Direct on a $10,000 balance (see note 1).   

Then finally, it's revealed who is sponsoring the ad, WT Direct: 

The landing page reinforces the banner ad with a direct comparison to ING Direct's payout with the animated graph in the lower-left corner (see screenshot below).

Nicely done.

Notes:

1. After the first 60 days, balances of less than $10,000 earn just 0.6% at WT Direct. ING Direct pays 4.5% on all balance levels.

It may be premature to give the direct banking trend a cynical acronym such as YADB, meaning "yet another direct bank" (see Note 1). However, it's getting more difficult to distinguish one 5% high-yield offer from the 27 others (see Note 2).

The latest top bidder on Google (see End Notes) is WT Direct <wtdirect.com>, a new direct banking brand from Wilmington Trust. Its sole product is a 5.26% APY savings account. To encourage trial, the bank pays the advertised rate on any balance for the first 60 days. On day 61, the rate drops 466 basis points to 0.60% unless you've stored $10,000 or more in the account. The bank clearly discloses both rates.

The homepage is direct and to-the-point (see Note 3). While not as flashy as ING Direct or iGObanking, it communicates the benefits in an efficient manner. The landing page from its top-ranked Google ad (see Note 4) is better, with a chart showing how it beats ING Direct.

The application is well conceived (see below), with few of the problems identified in our earlier critique of iGObanking's online app (see previous post here). The one improvement we'd recommend: Divide the personal info section into two steps, first getting the "public" info (name, address, email address), then asking for the private stuff (SSN, driver's license, etc.).

End Notes

1. Modeled after YASN, a term used in tech circles for "yet another social networking site."

2. In BankDeals' weekly high-rate summary, 27 banks were identified as offering 5% or more APY on online savings accounts (see post here).

3. WT Direct homepage screenshot (click to enlarge)

4. WT Direct search ad on Google (4 Dec. 2006 search on "savings account gifts" from Seattle P.I. at 3 PM PST)

<Updated 12/1/06 with more details>

Two new entrants in the so-called high-yield savings market launched this week:

• E*Trade Bank <etradebank.com>: Its new 5.05% Complete Savings Account was advertised in the Wall Street Journal today and took next-to-top honors in Google search results for "best savings accounts" (see end note 1, screenshot below).
• iGoBanking <igobanking.com>: The new online brand from Flushing Financial launched Monday with a 5.3% rate on an online savings account (see end note 2, screenshot below).

iGoBanking (click to enlarge)

As previously reported, Flushing Financial launched its entry into the online savings market. The 5.3% APY no-minimum account ranks as the fourth highest in the nation according to the Bank Deals blog (see list here). The rate leader continues to be E-Loan's at 5.5% (see our coverage here).

However, iGo can claim the highest no-minimum rate in the nation since E-Loan and the others require at least $5,000 to qualify for the higher rate.   

The bank will focus on deposits, CDs, and savings in 2007 and may expand to home equity and mortgage lending in the future.

Analysis
The website is attractive and relatively well designed. The online application is hosted by CashEdge (see related post here). Unfortunately, the outsourced application fails to maintain the look and feel of the main website and may cause a few applicants to second guess their decision to sign up (click here for a more thorough analysis of its application design). 

E*Trade Bank (click to enlarge)

E*Trade's Complete Savings account builds on the direct bank's lineup of award-winning products (see previous coverage here). The bank flat-out understands the market and the medium.

The landing page for the new savings offering is brilliantly laid out with Google-like simplicity using just 25 words of copy (other than the table and the below-the-fold fine print). Notice how they show specific competitive prices, including high-yield market leader ING Direct. But what most consumers will remember from the chart is the "6X national average" rate.

Finally, the "Open an Account in Minutes" and "Free, one-click transfers to and from any institution" address user concerns on both those issues. And the small padlock with E*Trade's protection guarantee helps users understand security issues.

End notes:

1. Search conducted at noon PST, Nov. 29 from Seattle IP address (see screenshot below).
2. Source: American Banker, 29 Nov. 2006 (article here)

Google search results for "best savings account"