TeleBank

www.telebankonline.com

TeleBank introduced a new folksy look.

TeleBank (Arlington, VA; $2.2 billion; 55,000 accounts) unveiled a new Web design and marketing pitch on March 2. The $25 sign-up bonus we like, the Web site takes some getting used to. The folksy look is simple and eye-catching, but we think people looking for a place to send $50,000 will be taken aback by the Microsoft Bob clone giving them advice across the screen. Separately, TeleBank must speed its efforts to win the telebank.com domain name back from Hi-Care Ltd. in Hungary +36 (1) 269 7222. The bank is killing its word of mouth marketing efforts with the telebankonline.com domain name.

Contact: Mitch Caplan is CEO, (703) 247-3700.

TeleBank

www.telebankonline.com

TeleBank’s banner ad on Yahoo!

Brick-and-morterless TeleBank (Washington D.C.: $2.3 billion; 51,000 accounts) is basking in the in the glow of a dynamite 1998 earnings report which saw total accounts and deposits more than double during 1998 to 51,000 accounts (from 22,000) and $1.1 billion in deposits (from $522 million). As nice as those results were, we were far more interested in hearing more about their Yahoo! relationship. In a Feb. 3 conference call with analysts, CEO Mitchell Caplan, reported that phase two of the Yahoo! business agreement would be announced the next day (phase one was a banner advertising buy which began in fourth quarter, see above).

The next day we awoke to a somewhat anitclimatic announcement of the so-called ATM Refunder. Yahoo! users that sign up for a checking account will receive a refund of up to $1.50 per surcharged ATM transaction with a maximum of four refunds per statement period.

The gimmick makes for a good banner ad and is a low-cost way to remove one of the barriers to checking at a virtual bank. It reinforces TeleBank’s positioning as a smart place for savvy Web users to do their checking, but it won’t move sigificant market share on its own.

We have to wait for phase three of the Yahoo! relationship for the bigger story. All the bank will say is that it involves a “strategic integration” on Yahoo! Finance that will be announced at the end of frist quarter. Speculation revolves around a bill pay center with Checkfree (see footnote). Separately, the bank sent postcards to prospects offering a $25 bonus to start a savings account.

USAccess Bank,
a virtual bank from Porter Bancorp, launched on January 27 with a full service offering and grand plans.

The newest entrant in the Net-only bank field was publicly launched the week of Jan. 27. USAccess Bank is a newly formed unit of Porter Bancorp (Louisville, KY; $500 million), a privately held bank holding company. We also hear that First Internet Bank of Indiana (Indianapolis, IN) may open its virtual doors with a month.

Unlike the three Net-only banks that preceded it, SFNB in Oct. ‘95; Net.B@nk in Oct. ‘96, and CompuBank in Oct. ‘98, USAccess Bank launched with a complete product line that includes loans, checking, insured money market, CDs, and bill payment. The other three started with checking accounts and deposit products only. We like USAccess Bank’s implementation and will analyze it in detail next month (OBR 2/99).

When Carolina First spun off Atlanta Internet Bank (since renamed Net.B@nk) in July 1997 and hit an immediate jackpot (see table right), we expected many banks to take the same approach. The downside was small ($2 million investment in Carolina First’s case) and the upside so high ($60 million for Carolina First’s so far), we thought it would be a popular strategy in 1998 (OBR 8/97),  We were wrong.

It’s been 19 months since the Net.B@nk IPO and no bank has repeated this feat. In fact, the very first virtual bank, Security First Network Bank, was practically donated to Royal Bank last year (the deal closed in Sept. 1998) in a complicated deal that involved an equity investment in SFNB’s parent S1. But that was before the recent spike in virtual bank and broker stock prices (see table ).

Carolina First’s $60 Million Jackpot

Source: Company reports and stock prices, 2/3/99

Riding the Internet Bubble

Source: Yahoo Finance, 1/99

Buying tickets in the Internet lottery

The run-up in Internet financial services companies in the past few months has not gone unnoticed in the banking community. As a result, we expect 25 to 35 or more Net-only retail banks to open their doors this year, many with plans to go public as soon as possible assuming the IPO window remains open.

Many will begin life, like USAccess Bank, as autonomous units of traditional financial institutions. It’s kind of like buying a million lottery tickets, but with the odds in your favor. Even if the IPO bubble bursts, you could run the division as a sideline or sell it off to the many companies hungry for ecommerce opportunities.

Haven’t started yet? Take heart. Porter Bancorp went from inception to launch of USAccess Bank in about six months. So even if you have yet to start the project, you still have an outside chance to launch in 1999. But the concept won’t be nearly so novel, or lucrative, by year-end. If your bank has been dragging its feet, despite your impassioned pleas, you can at least route the Carolina First results for a satisfying “I told you so.”

If you still have a chance for funding, buy yourself BizPlanPro, hole up in a hotel for a week, and develop the plan that could propel you to Internet stardom in 2000 and beyond. We’ll repeat the basic formula (see table right) which has changed little from when we first reported it 18 months ago (OBR 8/97).

Creating YourOwnNetBank.com

1. Create an autonomous Net banking unit.

2. Stock it with talent from inside and outside the bank. You’ll need both perspectives for quick movement and credibility at the parent company.

3. Find a catchy “e-name.” You’ll probably have to buy it from one of the many domain-name brokers. Most names are fairly inexpensive.

4. Target a segment not currently served by the parent, e.g. eBay users, or as Carolina First did, consumers in a nearby metro area.

5. Jack up your rates to bring in accounts and deposits to begin a buzz about your company. Consider the extra half-percent a marketing expense.

6. Develop an innovative e-billing and payments program to show the Internet investment community you’ve got your handle on a new “business model.” Maybe even apply for a patent, that will look good in the offering prospectus.

7. Purchase high-quality loans from the parent on favorable terms to lock in a profit.

8. Go public with only a couple million shares of float to create upward momentum in the stock price.

9. Pray the bubble doesn’t burst before you are vested.

Source: Online Banking Report, 1/99

IPO Watch: Net-Only Financial Companies

Source: Online Banking Report, 1/99

E-Billing and Payment Index

*Previous articles are available in the OBR Digital Archives, www.onlinebankingreport.com

Telebank

www.telebank.com

Telebank has partnered with E-Loan to build a co-branded mortgage loan site.

TeleBank

www.telebankonline

TeleBank’s interactive savings worksheet.

TeleBank (Arlington, VA; $998 million), which discovered “direct banking” years before it became a hip concept, has put together an excellent deposit-gathering site with the lowest Net-checking prices in cyberspace. The platform is from S1 www.s1.com .

TeleBank has succeeded in adding an interactive twist to plain vanilla CDs and money-market deposit accounts. The company’s Java-based savings worksheet (input screenshot on previous page; output screenshot below) automatically calculates the additional interest your deposit will gain with TeleBank’s rates compared to the average in your state. You can also compare to national averages. Bank Rate Monitor www.bankrate.com provides comparison rates. Comparative rates were slightly stale (two weeks old) when we visited (6/16/98). The worksheet would be more effective with current information.

For any financial institution with above-market rates, comparing yours to national averages is an easy way to demonstrate the competitiveness of your offerings, especially on products like interest-bearing checking where national averages are quite low. The savings, compounded over long time horizons, can be impressive (see screenshot below). Worksheets can be licensed relatively inexpensively from Web developers such as SmartCalc www.smartcalc.com

We think TeleBank’s worksheet would be better if it also allowed users to override the average and input their own rates for comparison. That way it wouldn’t appear as if the bank was “forcing” users to compare only to the rates provided by the bank.

Graphical output from the savings comparison worksheet. The bottom half of the screen graphs the extra interest over 1-year, 5-year, 10-year and 20-year time horizons. It does not take into consideration taxes or time value of money. The bank should consider adding an advanced worksheet that allows for a more sophisticated analysis.

TeleBank’s free CD Maturity Alert Service sends users an email when their CD matures.

TeleBank is one of the few banks to offer a CD Maturity Alert service (see also Canada Trust, OBR 6/97). And they are the first we know of to place it so prominently within its Web site. Users simply enter the amount and maturity date and TeleBank kicks out free email alert (below).
(Note: TeleBank should add “http://” in front of the Web address so that it appears as a live link in newer email programs.)

TeleBank offers free everything to entice potential depositors into its fold.

TeleBank has priced its transaction services as low as you can go: fee-free and APYs tiered from 3.15% to 4.65% (see tables below). You’ll be hard-pressed to compete price-wise with this offering:

TeleBank’s Free Checking*

•  no monthly fee for the checking account
•  no fee for Internet access
•  no fee for UNLIMITED bill pay
•  no fee for printed checks
•  no fee for ATM card
•  first 10 ATM withdrawals free (then $1 each)
•  one of the highest APYs in the nation on checking balances

* The account requires a $2,500 balance to open. Users can sign up online, although the initial deposit must be mailed or wired.

TeleBank is the brainchild of two ex-Wall Street veterans, Mitchell Caplan and David Smilow who purchased Metropolitan Bank in 1989. The bank went branchless and changed its name to TeleBank in 1995 (OBR 10/96). It looks as though the strategy is working. Deposits have grown nearly 50% in the past year, from $413 million on Mar. 31, 1997, to $614 million a year later.

Contact: Mitchell Caplan is President; David Smilow is CEO, (703) 525-7874.