One down and two to go.

That’s the sentiment of officials at Brookline Bancorp’s Lighthouse Bank, which just received permission from the state to become the first Internet-only financial institution in New England.

“This is a big milestone. We were slapping high-fives in the office,” said bank President and CEO Tom Venables.

But the bank still must pass muster with the FDIC and the Federal Reserve before it can officially open for business.

Brookline Bancorp, the parent company of Brookline Savings Bank, is investing $25 million to create Lighthouse Bank as a nationwide sister to the community institution. While Lighthouse will be operated by a separate holding company and will be a wholly owned subsidiary of Brookline Bancorp, the two may share some technology and online marketing. Brookline Savings already offers its customers Internet banking capabilities.

“There may be some inadvertent competition at times, but we’re operating with such different business models that that probably won’t happen,” Venables said.

Venables projected an early April “friends and family” opening for the virtual institution, with a formal launch to follow.

“We’re rushing. We’re building the technology, going through the regulatory process, building a marketing program … We’re going to have the technology for advanced offerings, which will be a platform to offer newer electronic banking processes later on,” Venables said.

“New stuff comes out all the time. Our greatest challenge, quite frankly, is drawing the line and saying ‘O.K., we have to get to the launch.'”

The first hurdle of winning approval from the state Division of Banks did not come easily. The new institution had to meet all the usual regulatory requirements of a new bricks-and-mortar bank, as well as address new challenges presented by the Internet.

CRA Concerns
How the Internet-only bank would meet the requirements of the Community Reinvestment Act was one major concern.

“The Community Reinvestment Act is definitely based on lending in geographical areas; it requires that you lend in those communities,” Venables said. “But the definition of a community is really tough when it’s in the Internet world.”

The start-up company has been working closely with the Division of Banks, the Senate Committee on Banks and Banking and the FDIC to ensure that the bank meets CRA requirements – and that regulators acknowledge the special complications associated with Internet-only endeav-ors.

“The goal for us is to be a very good corporate citizen. We will certainly incorporate that spirit of the CRA,” Venables said, praising regulators for recognizing the changing needs of today’s financial institutions.

Given the new institution’s business plan and initial regional focus, the Division of Banks is confident that Lighthouse will be able to meet CRA guidelines.

“Our intent is to look at their lending within their assessment area, the distribution of loans, much like a typical bank … They’ve identified Eastern Mass. as their investment area,” said Steven Antonakes, senior deputy commissioner of the state Division of Banks. “We feel pretty confident they’ll be able to do that, given their business plan and regional focus.”

If the bank expands its focus in the coming years, the state may require Lighthouse to come up with a self-imposed plan with a new focus, which is allowed under the CRA, Antonakes said.

Security, as with bricks-and-mortar banks, also came under close scrutiny by regulators, which is just fine with Venables.

“Any bank with the Internet has security worries,” he said. “We’re not going to jeopardize our marketing ability by not having an extremely secure system.”

If Lighthouse passes all regulatory requirements, it will face competition from big bank Web sites such as Bank One’s Wingspanbank.com, which debuted last June. But Venables has no qualms about being in the ring with big competitors. Nor is he nervous about the fact that Internet-only banks have been less than successful in garnering more customers than traditional physical branches.

Smart Cards
What will set Lighthouse apart will be its technology, according to Venables.

“We have some truly exciting [technology] applications, which I’m reluctant to discuss … We’ve learned by those who went before us, and everything will be much more ‘intuitively obvious;’ that’s been the catch phrase. We will have help screens, but the idea is that if you need a help screen, it’s not intuitively obvious enough,” said Venables. “It’s very interesting technology. It will be a more advanced process than ‘traditional’ – if I can say traditional – Internet banks offer.”

The new bank will also seek to address an obstacle endemic in virtual banking: making real-life deposits.

The Web site will offer all the services available at already existing Internet banks, such as paying bills and accessing account information as well as Automated Clearing House services, wire transfer and ATM transfer abilities, and it plans to be part of a major ATM network, Venables said. Besides having access to their accounts 24 hours a day, customers will be able to call a support center with questions.

The Lighthouse staff, already based in an office park in Waltham, is set to double to 24 members by April. They will market the new bank first to New Englanders, emphasizing their role as the pioneers of Internet-only banking in the region, and later expand to a national campaign.

The bank aims to draw new customers by offering the lower fees and higher returns “traditional” Internet banks can offer with no overhead or physical infrastructure to support.

Though bank officials have said they are prepared to take a loss in the first few years, they believe that investing in technology now will pay big dividends in the future. Venables described a not-too-distant future of Americans using smart card technology, which will supplant the need to carry cash. The technology, already in use in Europe, stores financial information in a computer chip in much the same way a calling card stores telephone credit information.

“That’s right around the corner, and we will be well-positioned to take advantage of that,” Venables said.

Until smart card technology catches on in American, Venables is convinced that Lighthouse will be able to offer competitive Internet banking services.

“Our target audience consists of two groups of people: Those who are doing it and those who will do it,” he said.