Lauritzen Corp.'s First National Bank of Omaha has added three new accounts at its Internet bank FNBO Direct in an effort to retain customers who have been drawn in by its high-yield teaser rate for savings accounts.
Rajive Johri, First National's president, said the bank sees a chance to win national business far outside its Midwest territory. "This is not about an account," he said. "This is about a strategy."
First National introduced a no-checkbook, interest-paying transaction account that it calls FNBO Direct Online BillPay Account, certificates of deposit with terms of nine months to 24 months, and a credit card that offers 1% cash back.
It announced the accounts Monday as part of a "Pay Yourself First" marketing campaign that urges consumers to channel their direct-deposit transactions to their savings account, then fund the demand account as needed.
The bank kicked off marketing for FNBO Direct in May, offering a 6% rate on a savings account through Sept. 30. Mr. Johri said it attracted 50,000 new customers and almost $1 billion in fresh deposits, raising its assets to $8.6 billion as of Sept. 30, from $7.7 billion on March 31.
"We exceeded our goals in the first eight weeks," Mr. Johri said.
However, First National expected a 25% to 30% deposit runoff after the introductory rate expired, and the account dropped to a current 5.5% rate, which "is exactly what happened," Mr. Johri said.
But customers closed fewer than 5% of their savings accounts, he said. "They are keeping an option to transfer in money if the rate is better."
Unlike some competitors that limit their higher-yield direct-banking accounts to customers who agree not to use branches — so as not to cannibalize their conventional business — First National offers its direct-banking service to all its customers, Mr. Johri said. "Our position was that we don't have much business to be cannibalized."
George Tubin, a senior analyst at TowerGroup of Needham, Mass., an independent research group owned by MasterCard Inc., said the direct-banking strategy becomes more challenging as more rivals enter the market.
First National has "had a tremendous amount of success in a short time for a fairly unknown bank," Mr. Tubin said.
"The challenge is how do you keep those customers?" he said. "The strategy is creating more of a relationship. Moving a savings account is very simple."
