ATLANTA -- Net.Bnk, a bank with no branches, tellers or bankers'
hours, is taking on the big banks on the Internet.
Atlanta-based Net.Bnk, with one office and 22 employees, said its
low expenses allow it to pay higher rates for deposits, charge less
for loans and still make a profit. Analysts expect the Internet bank
to challenge bigger banks encumbered with branch networks and
thousands of employees.
"Big banks are handicapped," said Bill Burnham, an analyst at
Deutsche Morgan Grenfell in San Francisco. "Internet banks can offer
great rates; that's what scares the hell out of the big guys."
Deposits at Net.Bnk swelled by about $15 million to $20 million a
month at a time when most banks struggle to keep them. Consumers are
drawn by checking accounts that pay up to 4 percent and require a
minimum balance of $100, and by high-yielding certificates of
and money markets.
Chief Executive and Vice Chairman D.R. Grimes, one of Net.Bnk's
founders, said even though the bank is turning a profit, there is a
lot of ground to break.
"When we had our first audit, the regulators came in and asked to
see our vault so they could count up the cash," said Grimes. "We
don't have a vault, and there's no cash."
If regulators worried about consumers putting their money on an
unsecured network, three years of losses at Security First Network
Bank -- the first "virtual bank" -- didn't help. The Atlanta-based
company spent more on programmers and marketing than it earned from
Because of regulators' reluctance to approve Net.Bnk, it was run
as Atlanta Internet Bank under Carolina First Corp. of Greenville,
S.C., from the end of 1996 until it sold stock to the public in July
Net.Bnk used proceeds from the sale to fund itself and buy a
thrift charter. Bank consultant T. Stephen Johnson, co-founder and
chairman, recruited Grimes, who spent 12 years at Trust Co. of
Georgia, a predecessor to SunTrust Banks, and 18 years at Servantis
Systems an electronic banking software company in Norcross, Ga.
In April, Net.Bnk's deposits increased 19 percent to $160 million
with 10,000 customers in 50 states and 20 countries. Grimes said the
bank may attract up to 20,000 customers and $225 million in deposits
this year. That compares to an average of 1 percent growth in 1997
for big banks covered by PaineWebber.
"I can't think of an industry better fit for the Internet than
banking," said Grimes.
Investors agreed, boosting Net.Bnk shares 155 percent to a record
of 30 last month from the beginning of the year. The stock now
trades around 23.
By March, Net.Bnk was operating at a profit. …