GAINING TRACTION
Internet Bank Services Grow Despite Cost for Startups
By ANDREW SIMONS
It’s hard to believe that online banking used to be just a perk.
That’s the sentiment among bankers at Orange County’s community banks, most of whom,from the more established banks to fresh startups,offer online services along with their traditional location-based operations.
And it’s not a choice for banks; if you’re planning to set up a bank, you’ll need to make at least some of your services available online,services that can be costly to introduce.
“It’s very necessary for a business bank,” said Bala Balkrishna, chief executive of Costa Mesa-based Commercial Bank of California, which opened its doors in June.
Commercial Bank’s Web site allows for cash management and wire transfer services. The company plans to offer online bill payment soon.
Pacific Mercantile Bank, an OC-based institution across the street from Commercial Bank, says as much about online services.
The bank has cited growth in its Internet business for a good portion of its gains in attracting deposits. Pacific Mercantile allows its small-business customers to offer payroll, tax and bill payment services over its Internet operations.
The bank also is pulling in revenue from online transactions. Pacific Mercantile’s Internet operations are set up so customers can pay vendors with an electronic check. The bank gets a fee for every transaction it processes.
“(Pacific Mercantile) has a very active online bank that lets their customers do a lot of things,” said Ed Carpenter, chief executive of Irvine-based Carpenter & Co., an investment bank that specializes in consulting and fund-raising for community banks in California, in a prior interview.
That can be critical, according to a survey by Forbes.com and ForeSee Results, which found that customers who were “satisfied” with their online experience were 50% more likely to recommend their bank’s Web site and 19% more likely to buy additional services.
Online banking is seeing solid growth. About 32% of Internet users did some banking online last year, according to the Washington, D.C.-based Pew Internet and American Life Project. That’s up from 17% in 2000. Some 10% said they’re banking over the Internet on a daily basis.
But banks warn that the importance of online services can be a bit overstated,after all, the backbone of locally run banks is their ability to provide the personal service that large banks can’t.
“There have been some recently published reports indicating that the actual rate of growth in the use of Internet banking services by consumers and businesses is lower than had been previously predicted and that many customers still prefer to be able to access such services at traditional local banking offices,” said Pacific Mercantile in a recent regulatory filing.
The bank said the findings back its strategy of offering both traditional and Internet banking services.
Setting up online services can be costly, with banks having to hire outside contractors to handle transaction functions and web design companies to design and build the Web site. Spending on Internet infrastructure can cost hundreds of thousands of dollars, quite a bite for startup banks looking at funding in the low millions of dollars.
“It is a significant investment,” said Marshall Laitsch, chief executive of Tustin-based Sunwest Bank. “Every product offering that you add costs money.”
For startup banks, branch network expansion is key early on, with OC-based banks working hard to boost their presence in the county.
Two-year-old Uniti Bank Corp. of Buena Park raised around $6 million this year to open OC branches. Uniti, which opened in 2001, targets North County’s large Korean American community.
Sunwest Bank also is looking to expand; the bank opened a branch in Laguna Niguel in April. Pacific Mercantile has six branches, with the latest opening in La Habra in September.
The big banks aren’t latecomers to online services.
Bank of America Corp. reported a more-than-50% increase in its online customer base in the past year. It has advertised and promoted heavily to attract users for its Internet services.
But there is one big obstacle: “Consumers are still concerned about security, despite the fact that e-security measures in place at most financial institutions are really very good,” said George Tubin, a senior analyst with Needham, Mass.-based financial services consultant TowerGroup.
“In order to gain the trust necessary for continued online banking adoption, banks must not only fully indemnify their customers from fraudulent activity,they must be significantly more assertive in educating consumers on how they’re protected,” he said.
