Salem (Mass.) Five Cents Bank wanted to grow, but the thrift wasn't ready to commit to the high cost of buying banks or starting branches.
So Salem Five turned to the Internet, creating in 1995 a "virtual branch" offering checking accounts and savings products.
"We wanted to attract the time-starved customer, the person who might be interested in banking via the computer," said William H. Mitchelson, chairman and chief executive officer of the $1 billion-asset thrift. "Providing a new point of access seemed more efficient than building new branches."
That branch has grown to $65 million of deposits, with 2,600 customers in 49 states and 12 foreign countries. The operation is cutting edge, according to one industry observer.
"They were one of the first banks on the web in 1995," said Jim Bruene, the Seattle-based editor of Online Banking Report. "And they have been one of the first to do real selling on the web, using real clever strategies along the way."
Salem Five's basic Internet product is a checking account with no minimum balance requirement and no monthly fees. It provides a debit card, a limited number of free electronic transactions each month, and free access to the thrift's call center.
The best selling point, Mr. Mitchelson said, has been waiving fees and minimum deposits.
"People want to test drive the product," he said. "They don't want to write a check for $1,000 up front. They want to kick the tires, pay a few bills. If it works, they will keep it."
So far, so good. The average customer signs up for direct deposit 90 days after opening an account.
Mr. Mitchelson said his thrift was not worried about making money on these customers. "We get very healthy average balances with cheaper processing costs," he said. "We also get an audience to cross-sell to."
The average checking account balance at the virtual branch is $1,200. And the cross-selling seems to be working. The 2,600 customers have about 5,000 accounts with the thrift. Salem Five sells brokerage services, money market accounts, insurance products, and personal lines of credit on-line.
The branch costs about $300,000 per year to operate, considerably less than a brick-and-mortar location, Mr. Mitchelson said. The thrift employs only one in-house programer. Special projects are done by freelancers.
The biggest challenge of the virtual branch, Mr. Mitchelson said, is keeping Salem Five's web presence new and fresh.
"When the web site is launched, that is not the end of the process," he said. "That is when the process has begun."
Salem Five tries to update at least one item per week, and add at least one feature each quarter, to keep people coming back to the site.
"I hope people come away with our personality from our web page," he said. "Our message is, 'We are a community bank that gets it.'"
