Money in the eBank

Entrepreneur, July, 2001 by Mie-Yun Lee

BUYER ZONE: ONLINE BANKS STILL BATTLE CONSUMER DISTRUST.

IT'S BEEN A STRENUOUS BATTLE FOR Internet-only banks since they emerged in 1995. The concept of a bank surviving solely on the Web seems promising--unlike other online businesses, banks don't have to deal with inventory warehouses or product returns. But customers aren't signing on, and profits are slim to none.

Still, Internet-only banks would seem to be the way to go for entrepreneurial businesses, whose finances are more complex than the average consumer's but usually small enough to be handled in-house. Why not choose banking at the comfort of your own desk over trekking down to the local bank branch to stand in line?

Also, because Internet-only banks save money by handling operations online--for example, there's no need to rent office space and then outfit it--they pass those savings on to you in the form of high interest rates on checking and savings accounts, beating traditional banks' typical 1 percent or less interest rate with a more robust 5 percent.

Many online banks are also trying to add value by offering additional services, such as online bill payment, loans and insurance plans. The banks thought online bill payment, in particular, would be a big draw for companies, but many independent bill payment services have beaten them to the punch. As far as loans and insurance plans go, analysts say businesspeople prefer face-to-face dealing.

One underlying challenge plaguing online banks is consumers' security concerns. Although no online bank has experienced major security problems, handing over money to a bank that exists only in cyberspace is too big of a leap of faith for some entrepreneurs. Note, however, that just Like their brick-and-mortar counterparts, online banks are protected by the Federal Deposit Insurance Corp. (FDIC).

"It's about trust," says Jim Bruene, founder and editor of The Online Banking Report, an independent newsletter that analyzes the online banking industry. "People are concerned with the soundness of their money; you want to put it in a place you trust. Internet-only banks are new, and they're on the Internet--that's two strikes against them right there."

Also making it tough is the exceedingly blurry line between online-only and traditional banks with online services. Traditional banks now offer almost everything Internet-only institutions do, stealing the convenience advantage and adding the trust factor of an established institution.

Despite the obstacles they face, however, Internet banks may not be down for the count just yet. Gomez Inc. gave them a good notice in its winter 2000 "Top Internet Banks," which listed a handful of Internet-only banks, including First Internet Bank of Indiana, NetBank, Security First Network Bank and WingspanBank.com. Despite the good press, online banks continue to fight an uphill battle. As Bruene says, "The [negative] perception surrounding the Web right now is having a big impact on Internet-only banking."

D.R. Grimes, CEO of NetBank, agrees with Bruene about the current impact of poor perception, but it doesn't have him worried. "The Internet doesn't make you successful or unsuccessful," Grimes says. "If you've got a strong business model and strong management, you're going to make it. We certainly have."

MIE-YUN LEE is the editorial director of Buyer Zone.com. Diane O'Brien contributed to this article.

Source IT

DECIDE FOR YOURSELF WHETHER INTERNET-ONLY
BANKS MEASURE UP

NOTE THAT EACH BANK'S services and products vary,
with a resulting wide range accounts and offerings
(such as savings accounts, money market accounts
and CDs) that earn high interest rates.


BANK/                  MONTHLY CHECKING
WEB SITE               ACCOUNT FEES

CompuBank              Business checking: $0 with
www.compubank.com      minimum balance


E [*] TRADE Bank       True.net Checking: $0
www.etradebank.com     with minimum balance



Everbank               Business checking: $0
www.everbank.com       with minimum balance


First Internet Bank    Business checking: $10
of Indiana
www.firstlb.com

NetBank                NetValue checking: $0
www.netbank.com        SuperValue checking: $4-50
                       with minimum balance


Security First         Basic checking: $0
Network Bank           Interest checking: $0
www.sfrib.com

USABancShares.com      EnergyOne checking: $0
www.usabancshares.com  with minimum balance

USAccess Bank          small business
www.usaccessbank.com   Checking: $0 with
                       minimum balance
                       (must be opened by
                       a sole proprietor)

WingspanBank.com       $0 with minimum balance
www.wingspanbank.com




BANK/                  MINIMUM BALANCE
WEB SITE               REQUIRED

CompuBank              $250
www.compubank.com


E [*] TRADE Bank       $1,000 or monthly fee
www.etradebank.com     of $5 applies



Everbank               $2,500 or monthly
www.everbank.com       fee of $14.95 applies


First Internet Bank    $0
of Indiana
www.firstlb.com

NetBank                NetValue checking: $0
www.netbank.com        SuperValue checking: $100
                       or monthly fee
                       increases to $9

Security First         Basic checking: $0
Network Bank           Interest checking: $0
www.sfrib.com

USABancShares.com      $300 or monthly fee
www.usabancshares.com  of $5 applies

USAccess Bank          $1,000 or monthly fee
www.usaccessbank.com   of $6 applies




WingspanBank.com       $1,500 or monthly fee
www.wingspanbank.com   of $10 applies




BANK/                  CHECKING ACCOUNT
WEB SITE               INTEREST RATES [*]

CompuBank              Business checking
www.compubank.com      account doesn't
                       earn interest

E [*] TRADE Bank       $0-$999: 0%
www.etradebank.com     $1,000-$9,999: 3-15%
                       $10,000-$24,999: 3-2%
                       $25,000 : 3.5%

Everbank               Business checking
www.everbank.com       account doesn't
                       earn interest

First Internet Bank    Business checking
of Indiana             account doesn't
www.firstlb.com        earn interest

NetBank                NetValue checking: 2.02%
www.netbank.com        SuperValue checking: 3.05%



Security First         Interest checking:
Network Bank           $0-$1,000: 0.5%
www.sfrib.com          over $1,000: 4%

USABancShares.com      4%
www.usabancshares.com

USAccess Bank          5.5%
www.usaccessbank.com




WingspanBank.com       $0-$9,999: 2%
www.wingspanbank.com   $10,000 or more: 4%



(*)Annual percentage yield. Any fees charged to
your account can affect the Interest rate.