Following three high-profile Web banks' announcements that they would give up Internet-only status and open branches, three other Net-only banks said they were hanging tough.

The Internet-only business model suffered a major setback last week when executives from WingspanBank, VirtualBank, and First-E Group announced at an American Bankers Association conference that they would open physical locations. The tendency of people to seek out other people for help in opening accounts and carrying out transactions is too strong to disregard, they said.

But, in interviews this week, Everbank, Principal Bank, and NetBank officials reaffirmed their commitment to "pure" Internet banking.

"We do not have plans to open branches," said Frank Trotter, president and chief executive officer of nine-month-old "We feel comfortable with the online model and feel strongly that it's a great long-term approach to the business."

Everbank, the Internet-only division of Delaware's Wilmington Savings Fund Society, garnered more than $125 million of deposits in its first six months and continues to be "right on track" in adding customers and deposits, Mr. Trotter said.

Steven Ollenburg, president and CEO of Principal Bank, the Internet-only operation of the life insurer and 401(k) provider Principal Financial Group of Des Moines, called Internet-only banking "still very opportunistic."

Principal Bank turned a profit in the fourth quarter of 1999, after about 18 months of operation.

Mr. Ollenburg, who said he does not intend to open branches, characterized the decisions by others to do so as hasty and misguided. He also faulted Internet banking business plans for requiring immediate hypergrowth.

"In any Web-oriented business, it is easy to be swayed by changes in the marketplace, by technology, and by consumer behavior patterns," Mr. Ollenburg said. "If you have a solid business plan, you can remain focused and it's not necessary to change."

Principal Bank has attracted 40,000 accounts and $230 million of assets by cross-selling accounts to customers of its parent company. The bank now plans to strike affinity partnerships to help it expand beyond Principal's customers, Mr. Ollenburg said. It also is considering using Principal's network of insurance field personnel and brokers to cross-sell banking products.

Atlanta-based NetBank has no plans to open branches in the foreseeable future, said D.R. Grimes, its CEO. But he added, "I will never say never."

Branches can give customers a sense of reality and offer them a place to make deposits and get commercial loans, Mr. Grimes said. But these reasons alone will not spur NetBank to open a branch network, he said.

About half of NetBank's 125,000 customers already have their paychecks directly deposited into their NetBank accounts; the rest mail in their checks, he said.

NetBank is exploring the possibility of using automated teller machines to accept new deposits. Currently, only existing customers can make deposits at ATMs. "It would benefit us all in the banking industry to solve that problem," Mr. Grimes said.

Mr. Ollenburg said he is open to using ATMs to add a physical dimension to Principal Bank. "I don't think you can equate a $10,000 to $30,000 ATM with a $1 million to $2 million branch building," he said.

E-Trade Bank of Arlington, Va., a subsidiary of E-Trade Group Inc., said its acquisition of an ATM network, Card Capture Services Inc., has enabled it to operate a network of 9,600 ATMs for the same annual cost as four bank branches. "Our position is not to focus on branches at all," said an E-Trade Bank spokeswoman. "Clearly, ATMs are a way to get street-corner presence without sinking in the operating cost of a branch."

E-Trade Group is slowly broadening its physical reach. By yearend it will have a store and corporate offices on Madison Avenue in New York City. This outlet will have E-Trade ATMs along with Web-connected terminals and information kiosks.

This week E-Trade opened its first financial services center at a SuperTarget store in Roswell, Ga., to offer Target customers banking, brokerage and investment planning services through Web-connected terminals and ATMs. If successful, centers could be rolled out to SuperTarget stores nationwide.

Most analysts remain convinced that Internet banks need branches. Internet banks will "increasingly choose to create a physical presence like a stand-alone store, an employer work site, or a private-label opportunity because access to an ATM network will not be enough," said Asheet Mehta, a principal at McKinsey & Co. in New York.

"Internet-only banks targeted at certain demographic segments may survive, but they will never be mass-market," said Peregrine Riviere, European Internet and financial services analyst at Morgan Stanley Dean Witter & Co.

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