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
| Investment from June ’96 to June ‘97) |
$2.1 million |
| Reimbursement after IPO in July ‘97 |
$2.1 million |
| Net investment |
$0 |
| Shares sold in IPO (150,000 @ $12 each) |
$1.8 million |
| Net profit in first 12 months (realized) |
$1.8 million |
| Shares retained (1,175,000) |
$58 million |
| Total gain (realized and unrealized) |
$60 million |
| Shares to be sold in secondary offering (370,000)
|
$18.5 million |
| Estimated realized profit after secondary offering
|
$20.3 million |
| Remaining unrealized profit after secondary offering
(805,000 shares) |
$40 million |
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
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