E-Trade Group Inc., which used the raging bull market to coax millions into trading stocks on the Internet, on Tuesday formally unveiled E-Trade Bank, the online bank it hopes will attract a larger share of its customers' financial services business.
E-Trade Bank combines the Menlo Park, Calif., brokerage's online trading and investment products with the FDIC-insured banking products of Telebank, the $5 billion-asset Internet bank owned by Arlington, Va.-based Telebanc Financial Corp., which E-Trade bought in January.
First, E-Trade will focus on getting brokerage customers to open bank accounts. In a month or two, the company will try to attract new customers to the combined offering with a $40 million print and broadcast advertising campaign.
"The goal is to become and to be the dominant blue-chip financial services company for the 21st century," said Mitchell H. Caplan, E-Trade's chief banking officer and the former president and chief executive officer of Telebanc Financial.
"E-Trade recognized the importance of a bank to our overall strategy," Mr. Caplan said. "If all we were trying to do was deliver a bank product to our customers, we would just cross-sell."
E-Trade's goal is to let customers log on through a single screen and gain access to a wide range of financial services, Mr. Caplan said. They will see consolidated account statements and will easily be able to transfer funds between bank and brokerage accounts, he said.
Because the Internet-only strategy lets E-Trade keep costs low, it will try to attract customers with higher-than-average interest rates and will waive fees for accounts with $1,000 or more in balances.
Large banks and wirehouses "each have a different piece of what we offer," Mr. Caplan said. "The goal is in putting them all together."
Telebank, which had over 130,000 customer accounts on Dec. 31, adds an average of 10,000 customers a month. E-Trade, with over two million brokerage accounts and $44 billion of assets under management, was adding about 110,000 accounts monthly at the end of 1999. With the introduction of E-Trade Bank, the Telebank name will ultimately wither away.
Some observers questioned whether E-Trade will have the same success capturing - and keeping - banking customers.
"It's not going to get them to be a big player in banking," said Brook Newcomb, an analyst at Forrester Research in Cambridge, Mass.
Banking customers are less likely than brokerage customers to do transactions online, he said, and even San Francisco-based brokerage Charles Schwab & Co. is hedging its bets by adding physical branches.
If E-Trade wants to compete against banks, "they're going to have to have a physical presence," Mr. Newcomb said.
Last month E-Trade did add a real-world component to its business when it announced a deal to buy Card Capture Services Inc., the Portland, Ore.-based automated teller machine operator. E-Trade aims to place its brand name on the 8,500 machines in Card Capture's network and to modify the ATMs to accept deposits.
E-Trade also plans to convert many of the ATMs into kiosks that give customers access to all E-Trade products, from basic banking to brokerage.
Mr. Caplan said the ATMs should satisfy customers' needs to touch and feel their bank. Even at traditional banks, "the Internet banking customer never walks into a branch," he said.
While online banking and online brokerage are "somewhat analogous," there are significant differences, said Ellen McKay, a principal of Optima Group, a consulting firm in Fairfield, Conn. Bankers, like full-service brokers, still rely heavily on face-to-face contact, she said, while "online trading is really discount trading."
William Wong, an equities analyst at Josephthal & Co. in New York, estimated that Telebank had profit margins of 73.9%, compared with 51% margins for E-Trade's brokerage business.
E-Trade's brokerage margins will likely go up as it adds customers and achieves economies of scale, Mr. Wong said.
Editor's Note: Each link opens a new browser window. We have no control over the content or availability of sites not part of American Banker Online.
