Another nonbank company with a popular brand name - Volkswagen - has stepped forward with intentions to offer full-service banking in the United States.
The German automaker, which already offers home equity and vehicle loans in the United States, said Monday that by yearend its Volkswagen of America Inc. unit of Auburn Hills, Mich., would operate an Internet bank complete with checking and savings accounts, certificates of deposit, debit cards, and online bill pay. A vendor has been hired to handle the processing of banking transactions, and a Volkswagen executive was recently named interim bank president while a permanent successor is sought.
"It makes us one of the most bank-like auto companies, and certainly one of the most active," said Rob Tubman, the marketing director for Volkswagen Bank USA, a subsidiary of Volkswagen AG's lending arm, Volkswagen Credit Inc.
That said, Volkswagen sees the bank as a niche provider that will cater primarily to Volkswagen car and truck fans, Mr. Tubman said.
Volkswagen is one of several major retailers trying to parlay their brand names into trusted financial relationships with consumers. Some of them, such as Mail Boxes Etc. and H&R Block, are trying it by making their retail locations function as branches of a sort. Others, such as BMW, one of Volkswagen's rivals, have gone the Internet-only route, while General Motors Corp. has become a force in mortgage lending.
Indeed, car companies say that the vehicle financing they offer is a natural entry point into other financial products and services.
"Our goal is to extend the relationship with our drivers," Mr. Tubman said. Volkswagen drivers are often fiercely loyal to the brand, he said, and, "We think there is that demand for additional services."
The Salt Lake City company is putting the finishing touches on its banking service, and by the end of this month plans to begin a pilot test with active and retired Volkswagen employees. Mr. Tubman said certificates of deposit will be offered to the public in November, followed by checking and savings accounts by yearend or early 2005.
Volkswagen Bank will be similar to the direct banks operated by NetBank Inc. and ING Group, but it probably will not attract as many customers as those banks have, Mr. Tubman said.
Volkswagen plans to sign with one of the national automated teller machine networks so that its depositors can access their cash at those machines at no charge. The bank will also reimburse customers for ATM fees incurred at other machines. Volkswagen has no plans to buy any ATMs of its own.
For Volkswagen, the move into banking is primarily an attempt to create a new revenue stream. "This is a good way for us to diversify," Mr. Tubman said.
He said the company has a short checklist for increasing its bottom line. Marketing its core automotive products comes first, followed by offering a limited number of financial products, such as in-house financing and home equity loans. Retail banking is considered the final step.
"Our goal is to do things that our parent company can't do," Mr. Tubman said. "This is last on our list of things to do."
Gwenn Bezard, a senior analyst with the Boston market research firm Celent Communications LLC, said the strategy makes sense. "This is a nice way to generate revenue," he said. "They are trying to attract customers using their brand. Their asset is their brand, so why not try to expand into financial services?"
Beth Robertson, a senior analyst with TowerGroup, the Needham, Mass., market research house that is owned by MasterCard International, said that banking can be lucrative and the barriers to entry are low, making it appealing to Volkswagen and other nonbanks. "It's becoming a bit of a trend for nonbanking entities to get into the banking market," she said. "Volkswagen probably sees this as an opportunity to extend their franchise into a whole new arena."
Volkswagen has operated a similar direct bank in Germany for a decade, and it now has assets of close to $7 billion. Mr. Tubman said the idea to move into banking here originated on this side of the Atlantic, but that his operation has benefited from the experience of the German bank.
Mr. Bezard said as many as 20% of the German bank's customers do not own Volkswagen cars, though some may have once owned them. In the United States the primary target market will be Volkswagen drivers, but Mr. Tubman said the bank will be open to anyone.
Volkswagen Bank has been offering home equity loans in the United States since early 2003. Including the auto loans that the company has bought from Volkswagen Credit, the bank has assets of $523 million, the majority from auto loans, Mr. Tubman said. Volkswagen Bank USA first applied for a banking charter in April 2001, and began doing business in January 2002 with an industrial loan charter.
Mr. Tubman said Volkswagen Bank offers its home equity customers a rebate of 10% of the interest paid, which can be applied to Volkswagen products and services, including the purchase of a new car. Volkswagen credit card holders also accumulate points that can be applied in the same manner, though he said it was too soon to say whether consumers could expect similar incentives to open Volkswagen bank accounts.
The bank will be issuing Visa debit cards to customers, and the cobranded Visa credit card that Volkswagen markets will continue to be issued by Bank One Corp., which was bought last month by J.P. Morgan Chase & Co.
Metavante Corp., the banking outsourcing provider that is majority-owned by Marshall & Ilsley Corp., has been hired to build and operate the banking system for Volkswagen.
Ms. Robertson said the growing interest among consumers in convenience in financial services may draw them to their car company's in-house bank. Moreover, since people who can afford Volkswagens are apt to be relatively well off, they may be profitable as banking customers.
Even so, Volkswagen's desired demographic is small. "They are looking at a limited market segment, but one they feel has certain value," Ms. Robertson said.
Christine Pratt, a senior analyst with TowerGroup, said that Volkswagen's entry into retail banking will hardly be noticed by the rest of the financial services industry. She said that large, established financial companies from the insurance and brokerage industries pose more of a threat to banks because of their large customer base and substantial assets; nonbanks, in contrast, have neither. "Volkswagen Bank isn't going to shake anybody up," she said. "This is a niche player."
Still, Mr. Tubman said that as nonfinancial companies continue to enter banking, consumers are becoming more accustomed to doing their banking with retailers. "It's an idea that's gaining traction."
