Aiming to boost noninterest income while attracting home banking customers, community banks are entering the Internet business.

Several of these smaller banks have gone so far as to become Internet service providers, either acquiring local companies in that business or starting their own.

Britton & Koontz First National Bank, for example, cross-sells Internet access with its checking product. For $19.95 a month, customers get a checking account, 30 hours of Internet access, and the ability to bank from home.

The Natchez, Miss., bank is one of thousands of Internet service providers, or ISPs. The fragmentation of the business concerns some small firms that may find it difficult to compete against nationwide marketers like America Online or Erols. But a community bank can regard Internet access as an adjunct to its core business.

"Our aim is to 'incent' our customers to try banking on the Internet," said W. Page Ogden, president and chief executive officer of Britton & Koontz. The $170 million-asset bank became an ISP in 1995 to fill a void- there was no other access service in its community.

That was also the case in Newton, Ill., where Peoples State Bank became an Internet provider as something of a public service.

"We are in a small enough community that people recognize when a business does something for them," said Gregory Ikemire, president of the $120 million-asset bank. Peoples established the service last year, offering a discounted rate of $19.95 a month to its Club Checking customers.

Finding new sources of revenue is another motivation for community banks entering the Internet business. That is one reason City National Bank of Charleston, W.Va., bought CityNet Corp. last month for an undisclosed price.

Even CityNet customers who do not bank with $1.3 billion-asset City National represent income for the bank, paying at least $25 a month for a basic Internet plan. Steven J. Day, president and chief executive officer of City Holding Co., City National's parent, estimates CityNet will have to more than double its 6,000-person subscriber base to be profitable, however.

To bulk up, he said, he plans to market the program to the bank's customers.

"Offering their service to our checking account customers presents an intriguing opportunity," Mr. Day said.

Other cross-selling possibilities could include marketing CityNet's World Wide Web publishing service to small businesses.

Internet service is already making money for Apollo (Pa.) Trust Co. The $107 million-asset bank created its Internet service subsidiary in early 1997. And while exact figures were not available, Tony Hockenberry, network administrator for Apollo's Internet service, said income is slightly outpacing expenses.

"We don't expect to make a killing on it, but it is profitable," he said.

Bankers said Internet subsidiaries are valuable whether they turn a profit or not. That is the case at Citizens Banking Co., Salineville, Ohio, which bought ValueNet Inc. for an undisclosed price last August.

"We are not looking at it as a noninterest income generator," said Marty E. Adams, president and chief executive officer of the $1.4 billion-asset bank. "We see it purely as a complement to our Internet banking product."

If, over time, access helps lure people to lower-cost PC banking-in lieu of visiting tellers-it's a worthwhile expense, he said.

"It is so much cheaper to handle transactions that way, I think we could win even if we gave the access away," said Joe Edwards, chief executive officer of United Bank Corp., Barnesville, Ga.

The $365 million-asset United first offered Internet access early this year. It charges $9.95 a month, but offers the service only to customers with a United checking account.

Small-town banks could reap an intangible benefit as well.

"We have associated our name with the ultimate form of technology," Britton & Koontz's Mr. Ogden said. "Our big-bank competitors have a lot of fancy products, but they are not associated in people's minds with the Internet. That's hard to put a price tag on."

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