VirtualBank is hoping to stand out from the Internet-only pack by doing its own lending.

Two weeks ago the North Palm Beach, Fla., bank, which also handles its own mortgages and new car loans, introduced a used-car loan service meant for deals between individual buyers and sellers.

Most other Internet banks either do not offer loans at all or offer those of third-party providers. Courtney McCashland, executive vice president and chief marketing officer, said some Web banks have avoided lending because they were in a hurry to get their deposit operations up and running quickly. And Avivah Litan, research director at GartnerGroup Inc of Stamford, Conn., said some Web banks have shied away because they tend to pay more than traditional banks for funds - and because hiring lending experts can be expensive.

This month First Internet Bank of Indiana in Indianapolis said it would stop making commercial loans.

Ms. McCashland said Virtual Bank's approach to lending helps it convey the image of a full-service institution that maintains close relationships with its customers. "The bank is the one that is providing funds for the loan," she said. "The relationship stays with us - we don't shop it. You apply with us, and we take care of you."

Third-party aggregators usually provide online auto financing for banks, many of which are tied to pre-existing relationships with auto dealers and cannot offer Internet deals that would undercut those relationships, Ms. McCashland said.

Ms. Litan said the used-car market is ideal for VirtualBank. "No one has targeted it yet," she said. "There are no financing methods between people right now. That sounds very innovative."

While VirtualBank's product reach is broad, it is keeping a tight rein on its target market. Privately held Virtual Bank, which has 104 employees, is promoting itself to high-tech companies through affiliate relationships. It is rolling out co-branded intranet banking sites for employees of EMC Corp., Compaq Computer Corp., and Textron Financial Corp.

The primary focus of these promotions is "the newly wealthy and the tech savvy," Ms. McCashland said. "Niche marketing is the only way to go."

The bank is picky about its affiliate relationships and has even turned away some employers that did not fit its desired profile, she said. "We look at who we think is a brand leader in each of the areas of technology. So we are not trying to do a whole mass number of affinity relationships, but more proactively pursue companies where we really want to bank their employees that are high bred."

VirtualBank has not yet begun a traditional marketing campaign. "We are starting with a narrowly defined niche and will expand it as we grow our business," she said.

Ray Graber, senior analyst of e-banking at TowerGroup of Needham, Mass., said Virtual Bank's approach "basically makes them analogous to a credit union, and they have an instant market … of consumers that are drawn to the Internet."

VirtualBank plans to open "private banking boutiques" in Seattle, San Francisco, and Atlanta, starting early next year. "We are looking at these as being kind of high-end, high-touch," Ms. McCashland said.

The bank also expects to convert its North Palm Beach office into a boutique. The office served as the administrative headquarters when Virtual opened 18 months ago, but only a few weeks later branch-style services were added in response to a steady stream of requests for customer service. "We were surprised that we got so many local people coming to the physical structure," Ms. McCashland said.

VirtualBank offers more than one million automated teller machine locations through national and regional networks. It is also looking to build strategic partnerships with companies in regions where the bank wants to expand.

Mr. Graber said VirtualBank is "taking baby steps, and that is fine."

"I think the idea of moving cautiously into a new area, getting some presence there, and then opening a branch is good," the TowerGroup analyst said.

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