Deposit Gathering in the Online World

A decade ago, banks were only starting to feel competition from banks from other states. Now, there are competitors for deposits who, for all intents, don't come from any state--the internet banks. One thing these banks have in common is no branch network to maintain. In fact, NetBank, www.netbank.com, a $4.1 billion-assets internet bank based in Alpharetta, Ga., brags about this on its website: Welcome to NetBank, where no branches means better value. This is nothing if not a heartfelt belief for Jerry McCoy, head of product segment management for the internet bank. My daughter's seven years old, says McCoy, and she'll never know about bank branches because she'll never need to use one. Fueled by MMDA power NetBank's lending activity consists mostly of mortgages, reflecting its origins as a savings institution, although it also pushes for auto loan refinances, boat RV loans, credit cards. A big portion of its deposit base--65%--consists of money market deposit accounts. In early August, NetBank was posting a 1.7% APY on MMDAs versus a national average rate of 0.46%, as computed by Bankrate.com. Laura Bruce, a representative of Bankrate.com, notes that internet banks had long been taking advantage of their low capital costs, by virtue of not having branches, to offer higher rates on MMDAs than traditional banks were paying. McCoy notes that the bank's Net Value Checking represents the next-biggest portion of its deposit base, while CDs account for only a small portion of it. He explains that the institution prefers to concentrate on accounts with transaction capabilities. VirtualBank, www.virtualbank.com, also pursues the online MMDA, with its eMoney Market Account paying an APY of 2.15%. This e-account is the bank's flagship, according to Larry Fein, director of marketing. Like other internet banks, VirtualBank depends, to a degree, on the banking industry's payments system. In fact, this account can only be accessed directly by computer, Fein says. To conduct transactions, the customers need to use checks debit cards from other banking accounts they maintain. Fein says eMoney Market, launched a year ago, represents 70% of the nearly five-year-old bank's deposit base. (VirtualBank is a division of Lydian Private Bank, Palm Beach, Fla.) A checking account challenger A somewhat different business model can be seen in EverBank, www.everbank.com, a $2.4 billion internet bank based in Jacksonville, Fla. Frank Trotter, president CEO of EverBank's national banking group, says its Free Net Checking account, a NOW, represents 85% of its domestic funding base. Free Net Checking is a tiered offering, with a 2.5% introductory APY. In early August the bank was offering a range of ongoing rates, from 1. …