E-Loan Inc. will join the increasingly crowded online banking market today and says it will compete on price, service, and its name recognition and experience on the Internet.
The Pleasanton, Calif., unit of Puerto Rico's Popular Inc. will start by offering certificates of deposit and a high-yield savings account, executives told American Banker.
The executives said E-Loan will start offering credit cards and personal credit lines in about six months. Boat and recreational-vehicle leases and other deposit products should follow. Product bundling - such as offering lower home equity rates for those who have a deposit account, or a no-fee personal line with a mortgage - is scheduled to start early next year.
E-Loan will start offering the savings account, which will be fee-free but accessible only through automated clearing house transactions, with a rate of 5.5%, or about 35 basis points above the best offers on Bankrate.com as last week. The rates on CDs, which also will be accessible only through the ACH, will be 5.6% to 5.75%, depending on maturity; those rates also would be above the best offers on Bankrate.com.
"We are going to be very aggressive on rates, because we think our cost infrastructure is considerably lower than a lot of the brick-and-mortar people," said Mark Lefanowicz, E-Loan's chief executive.
But Joel Bosch, its executive vice president of retail banking, said low costs are not the only thing that let it offer better rates.
Traditional banking companies that are getting into online banking must factor in the fact that some of the money they gather will come from their customers' offline accounts, he said. Also, a banking company that already has a big online operation must offer its best rates only on "new money" added to accounts since repricing older balances would do a lot of damage to its margin.
Last year Popular bought E-Loan, which has offered only first and second mortgages and auto loans. This month the parent said it planned to consolidate all its mainland subsidiaries, including E-Loan, under a national charter. That setup will make it easier to move deposits and assets to the bank unit and give E-Loan federal preemption.
The bank will issue the credit cards that will carry the E-Loan brand. Popular has not issued cards on the mainland for several years.
Banco Popular North America will launch online-only banking under its own brand early next year, an E-Loan spokeswoman said. (Popular's island and mainland units offer traditional online banking tools for branch customers.)
Mr. Bosch said E-Loan expects to raise $3 billion of deposits in its first year.
Citibank Direct, the Internet banking operation that Citigroup Inc. launched March 29, accumulated $3 billion of deposits by early June. The New York company has said about a third of those deposits came from existing Citi customers.
Mr. Lefanowicz said that E-Loan wants to be part of the consumer's entire banking "lifecycle," and that the unit's online focus will help it get in on the ground floor with college students, probably through credit cards.
Its previously slim product menu - which had only three main products - limited its ability to cross-sell, though the average customer E-Loan has 2.7 products. More than 4 million people have applied for a loan at E-loan.
In March, Mr. Bosch joined E-Loan from Washington Mutual Inc.'s Providian Financial Corp., where he had managed its deposit business. He said that in 2000, when Providian was an independent credit card issuer, he helped turn the phone- and mail-based deposit business launched in the 1980s into an online one.
In online banking, "up until now people have competed on brand and rate, and those people who have won have a good combination," Mr. Bosch said. "But as you see more momentum, as you see more customer awareness and people moving into these products, they're going to care a lot more about service and the customer experience."
That is where E-Loan has a real advantage, he said. The unit "didn't invent mortgages, but they clearly made a better mortgage product online."
E-Loan says some things that will make its service stand out in online banking are a superior Web site, superior offline help, and simpler products. Mr. Lefanowicz said each keeps with E-Loan's "fast, easy, affordable, open, and honest" philosophy and its experience in the online world.
It will not offer teaser rates on savings products, and its no-fee policy will apply to things like copies of statements. E-Loan will also offer a one-day, purely online method for signing up for accounts, and a one-page online application.
Mr. Bosch said E-Loan would avoid two policies of ING Group NV: The Dutch company does not allow customers to customize login names, which are their account numbers, and it makes them call to change home phone numbers on accounts.
Kate Fitzgibbon, a spokeswoman for ING, confirmed those policies but said its customers can give their accounts a name separate from the login name, and they can change their addresses and business phone numbers online.
E-Loan will use Banco Popular North America's back-office operations in its banking effort, and it will send deposits to the banking unit, which will use E-Loan's front-end technology in its own coming online effort. E-Loan has built a Web application and customer-service tools on top of the core deposit platform from Marshall & Ilsley Corp.'s Metavante Corp. that Banco Popular uses.
A spokeswoman for E-Loan wrote in an e-mail that its tools make account opening and management more customer-friendly and will enhance Banco Popular North America's online offering.
For example, "when a customer fills out an application and … misspells their maiden name, rather than decline the application, or slow down the application approval time, the technology will recognize the error by matching it against other information, and the customer representative will be prodded to ask them for the correct spelling of their maiden name," she wrote.
