Its top executives call it a "guinea-pig bank." Its customers love it, but say it's not for everyone. And for a bank with less than 5,000 customers, it has drawn a hailstorm of attention. Security First Network Bank, which opened for busi- ness last October, claimed a place in history by becoming the first depository institution to transact business only on the Internet. At the time, the bank's only physical location was an operations center in Pineville, Ky., across the state from its parent company, Cardinal Bancshares in Lexington. In the 10 months since, the Internet bank has been spun off in a $60 million public offering and has moved to Atlanta. But the hype has been hard to live up to. Within a month of opening its virtual doors, Security First bragged that 2,000 customers had signed on. But then the bank went mum, sparking speculation that things weren't going so well. Last month the bank's leaders conceded that only 2,000 more customers had signed up since November. Now they are talking more about the longer term, emphasizing the bank's role as a showcase for Five Paces Inc.'s software. "We certainly admit to the world that the bank is a proof-of-concept company for the software business," said James S. "Chip" Mahan, chief executive officer of Security First and chairman of Five Paces. "Having said that, I believe the bank could be truly successful in its own right," he added. When the day comes that it can offer "a complete product set, I think that's going to change things a whole lot." Security First now offers only checking and money market accounts and certificates of deposit. Customers get paper checks by mail and a Visa debit card providing automated teller machine access. But soon customers will be able to apply for Visa credit cards issued through Security First. And this fall the bank plans to offer brokerage accounts on-line. Even without these products, the bank has been able to amass $15 million in assets. Michael S. Karlin, the 28-year-old president and chief operating officer, said the reason is that balances in CDs and money market accounts tend to be high. Mr. Karlin joined Security First in its infancy, having worked in a division of Cardinal. He remembers the date - June 26, 1994 - that Mr. Mahan approached him at a bank retreat. "Chip looked at me and said, 'Mike, do you think we could put a bank on the Internet?' I said, 'I have no idea, but let's find out.' "Then I read about 10 books on the Internet in three weeks." In a surprising twist, the futuristic bank is planning to open storefront offices, one on each coast. Customers will be able to open accounts there or apply for loans, but the bank will still require that each customer rely primarily on an electronic connection. "I liken this situation to Schwab, which opens 800,000 new accounts per year," Mr. Mahan said. "They built their business on the telephone. They have admitted that people don't really use their branches - they just want to know they're there." With the cash from its public offering, Security First has raised its advertising budget and is attracting attention among the Web-surfing public. In July, the bank received an average of 80 to 90 new-account applications a day, Mr. Mahan said - about twice as many as in April. Some customers came out of curiosity, and dabble in small accounts - with 40,000 to 50,000 "hits" on an average day, the Security First Web site attracts many more window-shoppers than buyers. But some are true believers. "If this is a guinea-pig bank, then I am most happy to go 'grunt grunt, squeak squeak,' " said Thomas Smith, data base marketing manager at Provident Bank in Cincinnati, who considers Security First his primary bank. He said procedures are simple. The bank sends him deposit envelopes, handles all his bill payments on-line, and provides an instant record of withdrawals and cleared checks. He especially enjoys being able to download and print images of canceled checks. "I have asked them not to send me a statement anymore," he said, but the bank has to. It's the law. Not surprisingly, a considerable number of Security First customers work in banks or high-technology fields. And Mr. Smith said he wouldn't recommend Security First to people not computer-literate. "I am probably more at ease with electronic transfers than most people would be, because I know how it works - and I know how to get it fixed if something goes wrong," he said. Mr. Karlin said his bank's customers tend to be wealthier and better- educated than average. "All the statistics you read about your typical Internet user are translated almost directly into the typical (Security First) bank customer," he said. Another customer, electronic banking enthusiast and Cybercash Inc. executive Richard K. Crone, said he recommends Security First to friends. It "runs the best telephone service in the country," he said. Its call- center people "sell, service, and help you with your modem problems - try calling them at 1 in the morning." Far from just being a pilot operation, Security First "raised the bar for everyone," Mr. Crone said. To maintain interest, the bank overhauled its Web site in July, giving all its pages new looks. "The point was to make it more of a sales tool, to get people more excited about becoming customers," said Katy Jackson, whose thoroughly modern title is director of hypermedia content. "Styles on the Web evolve, and if you have a style from a year ago, you look old-fashioned." Alan Martin, the Security First technologist who designed the new site, said his goals were to make the graphical presentations more compact and thereby reduce download times. For dazzle, he added a few pieces of animation. "We used what we thought were softer colors, a new logo," Mr. Martin said. "We tried to make the account application easier to understand." Another feature: pictures of the bank's executives. "People are concerned, 'Are we really a bank?' " Mr. Martin said. "This helps them see that there are really people behind this." Randy Carter, whose title is interface architect, is working to code the bank's brokerage product. He said the biggest challenge is designing a program that is easy for experts to use and for beginners to learn. The bank's marketers wrestle with similar challenges in trying to decide whom to target and by what media. "Our print advertising is overshadowed by our on-line stuff, because being on-line is a prerequisite to being a customer," said James R. Quimby, one of the bank's in-house ad designers. Ads on popular Web sites - including CNN and some of the Internet search engines - are supplemented by pages in Wired magazine. The print ads are geared for various groups, including senior citizens, business travelers, military personnel, and college students. One ad aimed at students features a can of spray cheese and suggests using Security First is just as easy and fun. But even if the bank grows, its executives say, it's main role will be as a showcase and testing ground for Five Paces. How will the software work "when you have 100,000 customers?" asked Michael C. McChesney, chairman of Security First and CEO of Five Paces. "Does it still work? What are the problems?" The bank must grow to answer such questions, he said. Security First customer John B. Lewis, a senior research associate at the Bank Administration Institute in Chicago, also said he expects growth to take off once the Internet bank enhances its product line. For the computer-savvy, he said, clicking icons is a lot more fun than licking stamps. "But it's not a solution for all users," he added. "My mom will not be using it."

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