That is just one-tenth the rate in on-line banking, according to an Internet research firm. Thirty-three percent of customers who sign up for on-line banking stop using it, Cyber Dialogue found, and 65% of the defectors say they have no intention of returning.

Eight-month-old First Internet said one reason for its stable customer base -- which is also more loyal than the norm in traditional retail banking -- is its focus on customer service. Another reason is its integration of checking, savings, and loan information into single accounts that are updated in real time.

Chairman David B. Becker says customers have to experience this feature to appreciate it. "The account integration is a big deal, but it's tough to explain in a 30-second conversation," Mr. Becker said. Once customers understand the advantages of having all their updated information accessible through a single account number, they are hooked, Mr. Becker said. And they tell others. Between 25% and 30% of his customers come from referrals.

"There is a phenomenal grapevine in the Internet world," Mr. Becker said. "When you're good, customers come from nowhere. They find you."

The low attrition rate may just reflect First Internet's newness, said Michael Weiksner, manager of finance strategies at New York-based Cyber Dialogue. However, he said, many smaller on-line institutions really do have low attrition, because they focus on service.

That is "one of the few dimensions the on-line-only institutions can compete on," Mr. Weiksner said.

By last month First Internet had attracted 3,200 customers, $85 million of deposits, and $97 million of assets. The average customer has 2.8 First Internet products, and more than $25,000 on deposit with the bank. One-quarter of the customers are from Indiana; some live abroad.

At its launch First Internet offered checking and money market accounts, certificates of deposit, credit cards, ATM cards, installment loans, and lines of credit. In August it added a free bill payment service, a line of small-business accounts, and mortgage lending in conjunction with E-Loan. This quarter it will add individual retirement accounts.

"I was really impressed by the extent to which FIB launched so many products at once," said Christopher Musto, director of financial services at Gomez Advisors, which ranks Internet banking services in a quarterly scorecard.

Gomez ranked the Indiana institution fourth overall among Internet bank offerings, and first in terms of its on-site resources. This parameter measures banks in terms of product breadth and the depth they add through features such as electronic account forms, transactions, tools, and information look-ups. The bank's broad product range sets the stage for it to build deep, multifaceted relationships with customers, Mr. Musto said.

Most of the early Internet banks offered a limited product set, Mr. Musto said, focusing first on favorable deposit rates, not on the loan side. For example Telebank, a long-running Internet bank with 100,000 customers, intends to continue to offer only deposit products.

First Internet also has "solved a lot of banking problems in terms of providing up to the moment account information," Mr. Musto said. From the start, the bank offered the ability to transfer funds from a money market account to a checking account where they could be accessed immediately through an ATM.

First Internet exerts control over its back-end processing software, supplied by a company that Mr. Becker founded four years ago, Virtual Financial Services Inc.

Mr. Becker still oversees that company as chairman and chief executive officer. First Internet is the only bank using the software, which is installed at 58 credit unions.

First Internet actually had its genesis in Mr. Becker's failure to persuade banks to use Virtual Financial's software to support a "pure play" Internet bank.

"I couldn't convince banks it would work, so I became my own vendor," Mr. Becker said.

Mr. Becker also occasionally wears the hat of a customer service representative. The eight employees of First Internet's call center, six of whom are former branch managers, are expected to respond to e-mails within 24 hours and answer phone calls in 30 seconds.

On occasions when customers have been on hold for more than 30 seconds, Mr. Becker has been known to pick up the phone.

"I can handle 90% of them on the first pass," Mr. Becker said, adding that his knowledge is not as complete as that of his customer service representatives, who are paid "considerably higher" than the norm and enjoy bonus and incentive plans.

"Our No. 1 focus is on customer service," he said.

Mr. Becker said he figures the bank will become profitable once it reaches $100 million of assets, which should occur around yearend. The bank kept its marketing and advertising budget down to about $1.5 million this year, far below the hundreds of millions of dollars some Internet banks are spending. It expects to increase the budget to about $6 million in 2000.

Only 3% to 5% of First Internet's revenues come from fees. Consumers do not pay transaction fees for any services. Corporate customers are charged a $10 monthly maintenance fee and pay 33 cents an item for bill payments.

"We don't need to get fee income" to make money, Mr. Becker said. The bank has generated $3.8 million of loans and expects to completely automate lending within six months.

Until recently, the bank put most of its marketing efforts into publicity.

It benefited from "a phenomenally effective" public relations campaign in which an estimated 70 million Americans either heard, read, or saw the story of the Internet bank's launch, held in New York City, Mr. Becker said.

Over the last 60 to 90 days, the bank has rolled out a provocative advertising campaign in major newspapers and magazines, including USA Today. The ads encourage people to "Bank Naked," "Bank Free," and "Bank High," (while on an airplane at 35,000 feet).

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