Way back in the Stone Age of the Internet - 1995, to be precise - Frank O. Trotter 3d was at the center of what was then considered among the most forward-looking payments projects around: a Web site, hosted by the bank he worked for, that let people exchange greenbacks for digital money and spend their cyber-dollars at the handful of online merchants that accepted it.
The Ecash trial was one of many early visions for how e-commerce would play out, but its run ended in 1997, after Mr. Trotter's employer, Mark Twain Bank, was bought by Mercantile Bancorp of St. Louis, which had no interest in digital pioneering (several mergers later, Mercantile is now part of U.S. Bancorp). In 1998, Digicash Inc., the technology company that invented Ecash, went bankrupt.
But Mr. Trotter - who came up through commercial lending, capital markets, and other conventional departments at Mark Twain - did not let those disappointments sour his taste for the Web. Today, armed with the lessons from the Ecash experiment, he runs one of the last remaining stand-alone Internet-only banks, everbank.com.
"We feel pretty passionately that a remote, branchless institution has the efficiencies that everyone has been talking about for so long," the CEO said in an interview Thursday. "We focus on upscale, sophisticated customers."
With the luxury of hindsight, Mr. Trotter can pinpoint some things that he thinks distinguish his Internet bank from the legions of e-banks that failed. For one thing, he and his three partners come from the commercial banking and investment products fields - they're not technologists. For another, they aren't focused on the mass market, but on building relationships with wealthy people who enjoy the convenience of a remote bank. Though everbank offers favorable rates - indeed, it pledges to pay among the top 5% of rates at all times - 80% of its accounts are checking accounts, and its certificate of deposit business is minimal.
"Wingspan's 10% checking teaser rate sticks in my mind," Mr. Trotter said, referring to the eye-popping deal that Bank One Corp. offered to try to attract customers to its separately branded Internet bank. "That was just off-the-wall."
His bank pays a 3.01% teaser rate on checking accounts, which falls to a base rate of 1.15%. Money market accounts pay 1.51% interest.
Mr. Trotter said he thinks some pure-play Internet banks failed because of "a focus on numbers of customers, as opposed to numbers of valuable customers." He said, "We looked at the residuals of one of the institutions, and the average account balance was $102." He wouldn't name the institution.
Everbank opened to the public in January 2000, and since then has attracted 25,000 customers (representing all 50 states) and assets of $600 million. Last fall it was sold to First Alliance Bank of Jacksonville, Fla., a $2 billion-asset privately held company that has a strong mortgage arm.
Everbank has 64 employees and three physical locations. Mr. Trotter, who spent 16 years at Mark Twain (including nine months at Mercantile), is based in St. Louis. The product development group is in Stowe, Vt., and the call center - a 24-hour facility that everbank owns - is in Islip, N.Y. The Metavante Corp. subsidiary of Marshall & Ilsley Corp. handles everbank's processing. Mr. Trotter said that everbank is profitable, at least on an operations level.
The bank has a lot of products and services that are relatively standard at Internet banks: credit and debit cards, free online bill pay, account aggregation, and a $6-a-month waiver of automated teller machine fees. But it also offers some unusual ones, such as world currency investments. Mr. Trotter had worked in the world currency department at Mercantile, and said he bought that business - which lets people maintain nondollar deposit accounts - after he left. Everbank also owns a broker-dealer.
Though it is a private company, everbank is similar to NetBank Inc., the largest publicly held Internet-only bank, in several respects. Both rely on affluent customers who don't mind sending deposits by mail (or using direct deposit) and who don't particularly care about visiting a branch. Both are run by executives who are from the traditional banking world. And both are currently targeting the private banking and wealth management markets. (E-Trade Group Inc., which is much larger than either NetBank or everbank, also shares some similar demographics.)
NetBank said in its second-quarter earnings call last week that it would introduce a wealth management platform this fall. Everbank says it already has one, in the form of the world currency business and its discount broker, but it does plan to come out with a new private-banking-style service in next year's first quarter.
Robert Foregger, everbank's chief operating officer, is one of Mr. Trotter's three partners who hail from the Blanchard Funds and Signet Bank, which bought Blanchard (and ultimately became part of what is now Wachovia Corp.). In 1995 he started and ran Signet's national deposit business, marketing deposit accounts to consumers outside of Signet's branch network.
"We have a pretty significant background in the wealth management business," Mr. Foregger said. "We do have aspirations to build out a more significant wealth management business, with the focus on sort of a private-banking-type relationship. Our current clientele - at least the top tier - would be perfect for that product."
In April everbank introduced a partnership program aimed at steering more wealthy customers in its direction. It cut deals with 30 brokerages and advisory firms, whose combined 5,000 representatives are being trained to cross-sell everbank deposit accounts and mortgages to their customers. Mr. Foregger said that 15% of the representatives have been trained so far, and early results are promising.
"We understand that banking is not going to be the center of the adviser's universe," he said, "but it is a complementary service that more and more representatives want to offer their clients."
Despite Mr. Trotter's background as the champion of Ecash, everbank isn't forging ahead into new technology frontiers. "We didn't chase cell phone banking, or any of the innovations that looked great" during the boom years, he said. "As technology becomes stable and introduces efficiencies, we'll use it."
Mr. Trotter still thinks the Ecash concept is solid, and believes that a need still exists for an electronic, real-time payments system. But a lack of standards - and of venture capital - means that one probably won't be developed soon, he said. When it does, "it's going to be a business-pull system as opposed to a consumer-push system," he predicted.
The Ecash trial at Mark Twain certainly fell into the former category. Web surfers had to open up accounts at Mark Twain Bank in order to buy the digital coins, and the list of merchants accepting them was meager (indeed, some were charities).
"It was a good project," Mr. Trotter said. "It was successful at that beta level."
These days Mr. Trotter does not know what David Chaum, the cryptographer who invented Ecash, is up to. He does know that Mr. Chaum's patents on Ecash have been sold several times. Periodically, Mr. Trotter said, he hears from the latest owners, who want to do business.
"I say, 'Call me when you're ready to implement - we'll talk.' "
