BANK on it

Entrepreneur, April, 2000 by Juan Hovey

YOU HAVEN'T SEEN A BANK TELLER SINCE YOU GOT YOUR FIRST ATM CARD? Now VIRTUAL BANKS ARE ELIMINATING REASON AFTER REASON FOR US TO GO TO PHYSICAL BANKS AT ALL.

DO YOU DO BANKING BUSINESS WITH A BRICK-AND-MORTAR BANK? IF SO, ASK YOURSELF THESE QUESTIONS:

* HOW MUCH TIME DO YOU SPEND WAITING IN LINE TO MAKE A DEPOSIT WITH A TELLER WHO TREATS YOU LIKE SOME SUSPICIOUS CHARACTER?

* HOW OFTEN DO YOU FIND YOURSELF EDUCATING YOUR NEWEST LOAN OFFICER ON THE SAME BUSINESS INFORMATION WHEN YOU GO IN TO REVIEW YOUR LINE OF CREDIT OR ACCOUNTS-RECEIVABLE FINANCING?

* HOW MANY OF YOUR PRECIOUS DOLLARS DO YOU SPEND EVERY MONTH ON BANK FEES FOR YOUR BUSINESS CHECKING ACCOUNT?

If you shake your head wryly and answer "A lot" to one or more of these questions, the latest progeny of the computer age wants you. For years, traditional brick-and-mortar banks have touted their online business checking accounts as the best thing since sliced bread--faster, cheaper and easier to use. They were all of those things, and business owners everywhere logged on, bringing new efficiency to their financial operations.

Now the virtual bank--that is, the bank that exists exclusively, or nearly so, on the Web-promises to do all that and more for the business customer. And if you aren't among those lining up to take advantage of it, you probably will be soon.

To hear Michael Reardon tell it, virtual banking is the only way to go if you run a small business. Reardon, 33, and his partner, Scott Patten, 31, own the North East Brewing Co., a popular Boston microbrewery restaurant and pub, and they do most of their banking business through a Boston start-up called OneCore.com, one of a rapidly growing number of virtual banks targeting consumers and small businesses. (For a list of virtual banks, visit www.entrepreneur.com, click on the "Magazines" tab, then click on "Entrepreneur Magazine" for a list of feature stories.)

Like its fledgling competitors, OneCore.com puts as much distance between itself and old-fashioned brick-and-mortar banking as it can; indeed, OneCore.com calls itself an "unbank" and doesn't hold a bank charter at all. Instead, as a unit of OneCore Securities Inc. of Bedford, Massachusetts, a registered broker, dealer and member of the SIPC and NASD, OneCore. com offers most traditional banking services, including money-market operating accounts, online bill payment services, payroll processing, credit-card services, and even 401(k) plan administration. All of which made signing up for OneCore.com's payroll services a no-brainer for Reardon.

"We had been using one of the big payroll services," Reardon says, "and I'm going to be conservative and say it was maybe 80 percent cheaper with OneCore.com. And this is the tip of the iceberg, because we expect them to have credit-line capability, and we've signed up for the bill-pay services, too. It used to take two people half a day to pay all our bills. Now, I can do it online in one hour."

Virtual banking is also paperless, or nearly so, and easy to use. Reardon has instant, 24-hour, secure Internet access to his business account, allowing him to manage cash flow with a degree of sophistication possible in the past only to big businesses running proprietary computer links to their banking institutions.

"I'll be able to log on to my account information from a boat off of Cape Cod when I go on vacation in the summertime," Reardon says. "Any time, day or night, I can make sure cash flow is OK."

Last but not least, virtual banking is cheap. Virtual banks commonly charge very low fees, or none at all, for certain basic services, including automated bill paying and wire transfers. They also offer business customers ATM cards, credit cards and direct-deposit services. At present, they don't lend money over the Web as a rule, but that, too, will come with time. (See "What Have You Done For Me Lately?")

NOT NEW, BUT IMPROVED

Online banking itself is nothing new; indeed, traditional brick-and-mortar banks began offering many online services in the early 1990s. What's different about the virtual bank is that, because it exists almost exclusively on the Internet, it enjoys a significant cost advantage that can be passed on to the customer.

How? Traditional banks build branch offices complete with elaborate vaults and security systems, and they employ tellers, managers and loan officers. Sure, banks don't typically pay tellers and managers big salaries, but customers still foot the bill for these costs as a variety of fees that quickly add up.

The virtual bank, in contrast, needs no brick-and-mortar branches, no secure vaults, no tellers and no managers, so it brings significant costs savings to the game. Indeed, according to Richard Parlontieri, chairman and CEO of Atlanta-based Ebank.com Inc. (www.ebank.com), industry figures show that a typical transaction involving a teller costs a brick-and-mortar bank about $1 and a typical ATM transaction 25 to 30 cents. The cost of a typical Internet transaction? One cent, Parlontieri says.