Salem Five Cents Savings Bank is making the unusual move of giving its Internet banking subsidiary directbanking.com a bricks-and-mortar point of contact for customers. The Internet bank will open a “microbranch” in Boston’s Financial Center in September, making it easier for customers to open new accounts and obtain information on the bank’s Web-based products.
But the Internet bank’s future will not be tied to physical branches. Directbanking.com plans to introduce wireless access within 90 days, enabling customers to check balances or make account transfers from their Palm VII personal digital assistants or Web-enabled cellular telephones.
“It’s the ultimate in convenience,” said
William H. Mitchelson, chairman and chief executive officer of the online bank and its parent, Salem Five. “You’re basically carrying your bank around in your pocketbook.”
Although wireless banking sounds like science fiction, it will soon be common, said Joseph J. Banas of the Connecticut On-Line Computer Center. The Avon, Conn., firm helps community banks go online. People can already get stock updates through their cell phones. Wireless access provides “more power and more value than being tied down to a building” he said.
But “just virtual” is an extremely hard sell, Mitchelson said.
“People want to know they can physically touch an institution whether they’re going to frequent it or not,” he said.
The 145-year-old state-chartered mutual launched its Internet bank five years ago, becoming one of the first banks to stake out turf online. Since then Salem Five has grown to $1.2 billion in assets and its Internet banking subsidiary has assets of $100 million and 6,000 accounts. Its Internet banking customers live in 50 U.S. states and 14 countries.
The Boston prototype at 52 Congress St. will be the first of five microbranches to open in a ring around the Hub. Branch employees will be available to serve customers. But if they prefer, customers can use Internet kiosks to transact business and videoconferencing stations to contact bank employees at the Salem headquarters. Televisions will broadcast financial news, and a ticker tape will provide stock market updates.
“This will be the first physical virtual branch that will basically cater to those that need personalized service, and those that would just like to know that directbanking.com is a physical, well-capitalized institution,” Mitchelson said.
The equipment at the microbranch will allow a new customer to open an account, will print the customer’s first checks with their name and address, and issue them a micro-encoded temporary ATM card.
“People will be empowered almost instantaneously,” Mitchelson said. “It will take less than five minutes to open an account and walk out of there with a fully functional account.”
Through the new branch, Mitchelson hopes the bank can draw customers that have a computer at home, but remain reluctant about doing their banking online. It could also serve Internet banking customers that work in the area that may have forgotten to do a transaction at home, he said.
The 1,200-square-foot microbranch in downtown Boston will include areas for customers to apply for mortgages or commercial loans and to receive financial planning advice.
As an incentive to draw new customers, the bank introduced a product called the “HomeBanking Really Free Checking Account.” The free checking account pays 4 percent interest on deposits. Although it’s a virtual bank, customers of directbanking.com already have access to more than 300 ATMs in Massachusetts, plus the surcharge-free ATMs in the SUM network.
It is yet to be seen how customers receive the Internet bank’s physical branch. Banks tried similar strategies in the past with ATM branches, Banas notes. Fleet Bank operates a high-tech branch in Canton with PCs as well as tellers. There may be more of a future for Salem Five in wireless technology than in new branches, he said.
“What they’re doing is worth a try, but I really think the customer today is looking for wireless,” Banas said.
People from age 21 to 30 in particular, a group Banas calls Generation D for digital, are very comfortable with wireless technology.
“You see them walking down the street with the phone and the pager,” Banas said.
‘Killer Product’
In the rapidly changing world of Internet banking, Salem Five has a strong foundation to build upon. As an early entrant to the field, the bank gained name recognition. The former president of directbanking.com, Mike Fitzgerald, was hired away by the Internet-only NetBank in February. He is president of the $1.3 billion-asset Atlanta bank.
Salem Five has widely promoted the Internet bank through advertisements on television, in newspapers, on billboards and on taxi cabs. Salem Five’s Internet offering has been successful because it has been so heavily promoted and strongly supported by senior management, Banas said.
The brokerage service offered through Clippership Financial Services helped distinguish Salem Five from the competition, Banas said. The bank also offers insurance through the Web site.
The site includes account aggregation, allowing customers to view their credit card bills and bank statements from the same Web site. Because the service is offered through an outside vendor, Yodlee, customers can see their accounts on the bank’s site with a single password, but the bank never sees its customers’ non-bank accounts, such as credit cards or mutual funds. A contract with MyWay.com allows customers to get stock quotes and read news through the bank’s site. In addition, customers get free online bill payment.
The variety of features on the site have garnered directbanking.com honors from Lincoln-based Gomez Advisors, which currently ranks the bank No. 22 among online banks. Fleet Bank is ranked No. 19.
“The bank continues to deliver a highly functional offering and extremely competitive account economics,” Gomez wrote in the review.
However, Gomez Advisors suggested adding an integrated credit card offering and pre-populating applications for existing customers.
Mitchelson said he hopes the combination of services will make directbank-ing.com’s offering a “killer product.”
“We think it’s important that we stay ahead of the crowd relative to electronic delivery,” Mitchelson said. “The pace is exponential. When we started this five years ago, people said it wouldn’t be coming into bloom for a 10- or 15-year period, but now even the skeptics are jumping in with huge amounts of capital and it’s the preferred delivery system for an increasing amount of customers.”
Houston-based Zibex, a vendor of videoconferencing equipment, has asked the bank to participate in beta testing of new features it is developing. By the end of this year the bank could add home video access, allowing a loan customer to speak to a loan officer through their home computer, and see video of the person they speak with.
“In our minds it’s a story to be continued,” Mitchelson said. “In this particular race you cannot stand still or you risk becoming obsolete.”
