Almost a year to the day after the first Internet-based bank opened its virtual doors, the second such entity - Atlanta Internet Bank - has begun taking deposits.

The new bank, a part of Carolina First Corp., is hoping to skim customers off the Internet by offering an eye-catching 7% interest rate on money market accounts.

The founders say they are trying to prove the viability of the Internet as a banking channel and to show that the low overhead associated with doing business electronically can be passed on to customers.

In the last year and a half, several well-established banks have opened "branches" on the Internet, enabling customers to pay bills, apply for loans, and manipulate accounts on-line.

The services have proven popular, and both BankAmerica Corp. and Wells Fargo & Co. say the number of customers migrating to the remote channel has "exceeded expectations," although neither will divulge precise figures.

And last Oct. 18, a Kentucky banker named James S. "Chip" Mahan took the idea to an extreme, establishing with great fanfare the Security First Network Bank, in which customers transact business exclusively on-line and over the telephone. The bank has since been spun off from its community bank parent, Cardinal Bancshares, moved its physical operation to Atlanta, attracted more than 4,000 customers, and amassed $15 million in assets.

Across town from Mr. Mahan, an Atlanta entrepreneur named T. Stephen Johnson decided to put together a rival institution. Beginning early this year, he hired a skeleton executive staff and secured an investment from Carolina First, a $1.5 billion-asset bank based in Greenville, S.C.

Then he forged a partnership with AT&T and, this Tuesday, the bank went live on the telecommunications giant's on-line service. Plans call for a full product line by yearend.

"The reason we're so late in getting open is that we started watching to see how this thing was unfolding," Mr. Johnson said. "It seemed you had to start with Internet users and try to make bank customers out of them."

Today, the Atlanta Internet Bank exists as a "product" of Carolina First, said Mack Whittle, the South Carolina bank's chief executive. But the term is mostly semantic.

"Our plans are to roll it out as a separate, stand-alone financial institution sometime in the next 12 months," he said.

Mr. Johnson said he has formed a corporate shell that is prepared to buy all the new bank's accounts from Carolina First. "We wanted to go ahead and get in business so we're doing it as a subsidiary, but we have a company that has a right to buy all the accounts for a dollar," he said.

Mr. Whittle anticipates the Internet bank will raise private equity capital or issue an initial public offering next year. Carolina First will own 40% of the new entity, he said.

Mr. Whittle predicted the drift of customers to cyberspace would happen "faster than most of us want it to," and said banks needed to learn quickly how to deliver banking services electronically.

"It's about 70% cheaper to deliver it through the Internet than through traditional means," he said. "Plus, the next generation of consumers is going to demand it."

If Silicon Valley was the first to put Internet banking on the national map, then Atlanta seems to have become the second pushpin.

Atlanta has "more PCs per capita and more Internet users per capita than anywhere else in the South," Mr. Whittle said.

Even so, Mr. Whittle said, the Internet bank is reaching for a national customer base, competing "very definitely" with Security First.

"We're trying to market this not to our customers as much as to Internet users," he said. "It's a much easier sell for us to market to people who are already accustomed to using the Internet."

Mr. Johnson takes a slightly different view.

"I hope they don't think we're competitors, because we don't think they're competitors," Mr. Johnson said of Security First. "I think we both have a lot of hard work ahead of us to get the public to use this as a means by which they conduct financial business.

"We won't compete with Wells Fargo or any of the other people involved" in the Internet banking arena, he said. "We all have a job to do, which is ultimately to help all the banks get their overhead structure in line with other businesses."

Michael McChesney, an officer of both Security First and a subsidiary, Five Paces Inc., said the officers across town at the competing bank were "friends of mine," and wished them luck.

"I'd like to see anyone who gets on the Internet doing banking succeed," Mr. McChesney said. "Our belief is that every bank will be on the Internet in five years."

That said, Mr. McChesney also predicted the two banks would "compete head-to-head for some Atlanta Internet customers" and that it would be a "gentlemanly competition."

Despite the mutual kind words, some hard feelings may linger: the Atlanta Internet Bank had originally agreed to use software supplied by Five Paces, then changed its mind and chose a system from Edify Corp. instead.

The Atlanta Internet Bank tested its site with 60 to 70 people - mostly Carolina First and AT&T employees - and drew 150 newcomers in its first few days, said Donald Shapleigh, whose title is president of the Atlanta Internet Bank.

The bank's Web site - at www.atlantabank.com - is spare, with far simpler graphics than those of Security First and other banks in the virtual world.

"This is not Disney - it's a bank," Mr. Shapleigh explained. "We want convenience, speed, and access. We want people to feel like we're a bank, to know that it's FDIC insured, but also to know that it's different because we're a virtual bank.

"We don't have any branches and we're not interested in running a fleet of branches. We want people who are savvy with computers."

For the first six weeks, the new service will be accessible only through AT&T's WorldNet. WorldNet, which charges a flat rate for unlimited Internet access, has 425,000 subscribers.

The on-line service is giving the Atlanta Internet Bank a free advertising "banner" on its home page, placing subscribers a mouse-click away from the bank. The banner will remain in place at least until the bank receives two million "hits," or visits.

Mr. Johnson said his goal is to have 20,000 accounts after a year - or one for each 100 hits.

"Even credit card solicitations run about one percent," said Mr. Johnson, who will be? the new bank's chairman.

Such a success rate would run counter to the experience of Security First Network Bank, which has run banners on America Online and elsewhere. The advertisements generated heavy traffic but relatively few accounts.

Beginning Dec.1, the Atlanta Internet Bank's products will be available to anyone on the World Wide Web of the Internet.

The whopping 7% interest rate - which applies only to a short-term money market account - will end at that time.

Future rates will be "very aggressive," said Ched Hoover, director of marketing for the Atlanta Internet Bank. He said the highest money market rate he had seen other banks offer was 5.5%, which his bank would beat.

Other initial offerings include interest-bearing checking accounts, direct deposit, electronic bill payment, account transfer capability, and ATM cards.

Loan products and brokerage will be added by yearend, Mr. Johnson said.

The nascent bank has four officers and eight customer service representatives. Mr. Shapleigh, the president, is a 20-year veteran of retail and corporate banking who has worked at SunTrust Banks Inc. of Atlanta.

The tie-in with Atlanta Internet Bank is just the latest of several quasi-experimental technology initiatives that Carolina First has begun recently. The bank has installed 17 loan kiosks in shopping malls, and is preparing to place others in automobile dealerships. It is also investing in supermarket branches.

"Like most banks, we see the delivery system changing," Mr. Whittle said. "We have tried to be as innovative as we can in seeking lesser expensive ways of delivering the product, in ways that the customer of the future is going to expect."

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