Flushing Financial Corp. chief executive John R. Buran is confident that the market can support yet another online-only bank.
His Lake Success, N.Y., thrift company plans to establish a Web bank next quarter to help it gather more deposits to fund its loan growth. And though Flushing would compete for online deposits with some of the industry's biggest companies, such as Citigroup Inc. and ING Group NV, Mr. Buran said he believes his company "can get our fair share."
Unlike most of its competitors, Flushing plans to run its online bank under a separate brand. A common strategy is to simply attach the word "direct" to a brick-and-mortar name - ING Direct or Citibank Direct, for example - but Mr. Buran said the Flushing unit will use a different brand, because "nobody knows Flushing Savings Bank in California."
Using a different brand name also might help Flushing avoid having current customers move their deposits to the higher-paying online unit, he said.
"I have some concern about being aggressive on the Internet and then all of a sudden all of our money flows out of the brick-and-mortar bank," Mr. Buran said. "We don't have to take that on as an issue at this point."
Industry observers agree that the $2.4 billion-asset Flushing has an opportunity to attract deposits.
George Tubin, a senior analyst at MasterCard International's TowerGroup Inc. in Needham, Mass., said banks are realizing that the Internet offers an economical way to acquire customers and deposits, and he expects the influx of newcomers to continue. "It's much cheaper than opening up a branch."
Jim Bruene, the editor of the newsletter Online Banking Report, pointed out that Citigroup has gathered more than $4.7 billion of deposits through the Citibank Direct unit it introduced in March. HSBC Direct, a unit of HSBC Holdings PLC, has attracted $4.8 billion in U.S. deposits since launching late last year.
"To me, that says there's room for more," Mr. Bruene said.
About 40 financial services companies have Web-only units, including community banks and at least one credit union, he said.
Washington Mutual Inc. began pilot testing its online savings accounts last year in markets where it has no branches. This week the Seattle thrift company started rolling out the accounts nationally, offering a rate on savings of 4.75%
Alenka Grealish, the manager of the banking group at the Boston research and consulting firm Celent LLC, said that the potential customer base for online banks is growing, as people get more comfortable with the concept.
"It's definitely the wave of the future," she said.
Still, though there is room for more players "to a certain degree," the market is not limitless, Ms. Grealish said. "They're going to crowd each other at some point."
The U.S. online-only bank with the most deposits - around $38 billion - is ING Bank of Wilmington, Del., which markets itself as ING Direct.
The success of that bank, which the Dutch banking giant ING Group opened in 2000, is helping to spur the competition, analysts and bankers say.
"We saw ING," Mr. Buran said. "It made us realize what has been the traditional business of a thrift - certificates of deposit and money market accounts - is being taken away. It also occurred to us that in cyberspace you really have the ability to do these types of transactions much more efficiently."
He said that he does not expect Flushing's online unit to always have the best rate, but that its deposit goals are considerably more modest than those of competitors such as Citi and HSBC.
Mr. Buran compared Flushing to the $13 billion-asset Emigrant Savings Bank in New York, which launched its online bank, EmigrantDirect.com, early last year. That unit has since brought in about $7.3 billion of deposits.
"Emigrant is not beyond our range, and they were highly successful," he said. "We think we can be successful as well."
Howard P. Milstein, the president and CEO of Emigrant's parent, New York Private Bank and Trust Corp., said having a Web unit is "very challenging," because it requires sophisticated technology and marketing skills.
Mr. Buran said his company needs more deposits to fund loan growth at Flushing Savings, which operates a dozen branches, mainly in New York City. It has a loan-to-deposit ratio of roughly 130%, and he would like to get that down to 100% ideally.
The new unit's marketing - which would be mostly online - would target only areas where Flushing has no branches, Mr. Buran said. The plan is to start by offering savings and money market accounts and possibly adding other products later.
Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP in New York, said he thinks Flushing's strategy is a good one.
"What I like ultimately about their Internet model is that it's not going to cost them very much to do it. They already have the technology, so it shouldn't be a big impact on their financial statement," he said. "But it has the potential to be very helpful to them, if they are successful at bringing in deposits from outside the New York market at lower rates."
Sunmark Federal Credit Union in Schenectady, N.Y., created an online-only unit last year for a different reason.
Susan Siegel, senior vice president of marketing and operations, said the $420 million-asset credit union added two counties to its community charter that summer and started RateEdge.com to better serve rural areas where it has no branches.
The unit got a separate brand to avoid diluting Sunmark's reputation for high-touch service, she said. "We felt we needed to brand RateEdge separately because it's not at all the same thing. It is a different experience than what people expect of Sunmark."
RateEdge.com's deposits are pooled with Sunmark's, Ms. Siegel said, so she does not know how much the online unit brought in. However, "we're happy with the response."
Mr. Bruene said Sunmark, which can accept only customers who live, work, or attend school in certain counties, is proof that small players can make a go of it online, too.
"You don't have to be HSBC or Citi," he said. "You can do it in one market."
But Ms. Grealish said she does not advocate using a separate online-only brand, as Flushing and Sunmark are doing. She said a better strategy is offering a special, higher-interest account that people can get and access only online, as OneUnited Bank is doing.
Consumers are more hesitant to trust an unknown brand online, so banks should leverage their own brand equity, she said.
Though the bank-branded approach is likely to attract a bank's current customers at first, Ms. Grealish considers this a positive, since it keeps deposits from being siphoned off by the likes of ING Direct.
"You want to first attract your own customers," she said. "Your branches are your best billboard."
Robert Patrick Cooper, the general counsel of OneUnited, which has branches in Boston, Miami and Los Angeles and targets blacks, said it views its online services as a way to fill in its branch network.
So far the Web site brought in "tens of millions" of deposits from customers across the country, without any extensive marketing, he said.
The amount, while dwarfed by the likes of Citibank Direct and ING Direct, is fine with Mr. Cooper. One of the concerns is that attracting too many deposits would cause the capital ratios to suffer, he said.
Other community banks with separate online banks include the $9.9 billion-asset First Federal Bank of California in Santa Monica, the $3 billion-asset Union Federal Bank of Indianapolis, and the $2 billion-asset Amboy National Bank in South Amboy, N.J.
Mr. Bruene said that nearly 4 million U.S. households have an account at an online-only bank, and that online-only banks have about $80 billion of deposits, or 1.3% of the $6 trillion national total.
