Home Banking: Wachovia, Huntington Investing in Internet Bank

Wachovia Corp. and Huntington Bancshares are expected to announce today that they will invest in the new bank that a Kentucky thrift is setting up on the Internet.

Each of the two superregionals will plunk down $2 million to facilitate the birth of Security First Network Bank, currently a Pineville, Ky.-based unit of Cardinal Bancshares that will be spun off as a completely Internet- based bank later this year.

Area Bancshares, a $1.2 billion-asset bank in Owensboro, Ky., will contribute $1 million to join the triumvirate of outside bank investors.

Together these three banks will own a minority interest in Security First Network Bank when it is spun off. The majority of the new bank be owned by Cardinal stockholders, who put up $2 million in capital, and by Webtech Inc., the Atlanta software firm that supplied the technology to develop the new network-based bank.

In turn, the investing banks will also be allowed to seize upon the technologies being used in the creation and maintenance of Security First, and employ it in remote banking projects at their own banks.

"This investment represents a major step toward offering on-line services to Huntington customers. We believe that on-line banking will have a major effect on the way people and companies handle their money," said William M. Randle, director of marketing and strategic planning for Huntington Bancshares. "Security First is the right company to partner with because it has the most advanced security architecture, which is a requirement for Internet banking."

Cardinal, a $607 million community bank based in Lexington, Ky., announced its plans to set up a bank on the Internet in early March. In doing so, it caught the attention and imagination of many much larger banks that have proposed remote banking on a more limited scale. Earlier this month, Cardinal received approval from the Office of Thrift Supervision to proceed with its plans.

With government backing under its belt, winning investment and support from these outside banks is "tantamount to endorsement from the private sector," according to James S. "Chip" Mahan, chairman and chief executive of Cardinal. Mr. Mahan will also act as chief executive of Security First.

"It says this little thrift from Kentucky is doing something that some big banks are interested in," said William M. Bluestein, a research director with Forrester Research.

Mr. Bluestein contended that although this is "an experiment" for all parties involved, the involvement of Wachovia, perceived by many as a technologically conservative bank, "may goad others into this." Mr. Mahan himself worked in the corporate banking group of Wachovia for a decade between 1973 and 1983.

The core of Security First is already complete, and the system's designers are focusing on working out the kinks of hooking the network bank to other mainframes and bill-payment vehicles. Then the bank will run some mock transactions before it is piloted among about 500 Cardinal friends and employees this summer.

Security First is expected to be up and running on the Internet during the third quarter, Mr. Mahan said.

The bank will start with assets of $41 million. Anyone who has access to the Internet, the interconnected cluster of thousands of computer networks, will be able to open an account and bank completely by way of personal computer.

Security First and its creators hope not only to make money and win greater recognition in the banking community, but also to extend this technology beyond Security First. In fact, it is the hope of officials at Cardinal and of Michael McChesney, chief executive of Webtech who conceptualized the on-line bank, to create a whole new banking infrastructure on the Internet.

"We believe the banking industry is going to set up an electronic banking system that goes far beyond credit cards," Mr. McChesney said.

Mr. Mahan did not discount the possibility that Security First, which will acquire Webtech as part of its spin-off, would bring in other bank partners or just sell the technology outright to other banks.

Security First is opening a site today on the World Wide Web, the multimedia-capable annex of the Internet, to aid in promoting itself and its services. The Web site will also feature a demonstration of Security First, to give users an idea of how it will operate.

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