Electronic Commerce: Royal of Canada Putting Its Stamp on Internet Bank
Costanzo, Chris, American Banker
Security First Network Bank, the Internet pioneer, is looking more like a traditional bank as it adopts the principles of its new owner, Royal Bank of Canada.
In seven months under the Toronto bank's wing, Atlanta-based Security First has added such conventional banking trappings as more formal risk management, compliance, auditing, and human resources functions.
It has hired experienced people to manage those functions, plus a chief financial officer, a senior community banker to handle Community Reinvestment Act issues, and the services of three consulting firms.
It has also created a six-member board that includes three from Royal Bank's board.
Security First's expansion and reorganization reflect a recognition that beneath the hype, an Internet bank confronts all the risks and regulatory issues of regular banking.
"It's not all about technology," said David Noble, president and chief executive officer. "It's about running a bank."
The number of accounts has remained flat at about 15,000 during the transition period, but now Security First is poised for action. "We're ready to start growing the bank," Mr. Noble said.
Last week it announced a no-fee checking account that pays 6% interest until Jan. 1, 2000, with a minimum $100 deposit. The first target is 100,000 new customers. At that point the focus would turn to attracting the next "manageable bite" of customers, Mr. Noble said.
Royal Bank intends to use Security First to attract U.S. customers, having opted against acquiring branches in the United States. It also plans to use the Internet bank to accommodate Canadian on-line banking customers who head to the States for the winter.
Royal Bank has already spent or committed more than $100 million in Internet banking and brokerage efforts and expects "a significant increase" over the next four to six months, Mr. Noble said.
That $100 million, though similar to other large banks' investments in Internet banking, far exceeds spending on other Internet-based banks of Security First's size. For example, Sovereign Bancorp of Wyomissing, Pa., which hopes to attract 250,000 households over three to five years to a national Internet-based bank it is launching, has budgeted $5 million for the effort.
Christopher Musto, senior analyst at Gomez Advisors Inc., pointed out that Royal Bank can look for payback from across its Canadian operations.
The total includes $20 million to buy the on-line bank; a $5 million equity investment in its former technology affiliate, Security First Technologies Inc.; and a $50 million, five-year software contract with that company.
Technology projects already completed include the integration of Security First Network Bank's platform with the Royal Direct platform for Canadian Internet banking customers. …