Washington Mutual Inc. is jumping on the Web-only bandwagon for gathering deposits.
This month it will begin pilot testing a new service, Wamu Direct, in four metropolitan markets.
"The strategy is to explore additional distribution channels to gather deposits in a very low-cost structure," said Kerry Killinger, the chairman and chief executive of the Seattle thrift company, in an interview Tuesday.
He spoke in New York after an investor-day meeting there at which the $334 billion-asset company said it would begin testing the service in Atlanta, Boston, Philadelphia, and Phoenix.
"Increasingly, we are going to use the Web to sell as well as service," said Steve Rotella, Wamu's president and chief operating officer, in a presentation.
Wamu Direct will offer relatively high rates on savings accounts opened electronically. In its presentation, Wamu showed a mock-up of a Wamu Direct Web page offering 3.75%.
"You're going to hear a lot about that over the next several years," Mr. Killinger told investors. "It's a great new distribution channel that we're going to test very aggressively."
Chris Musto, a vice president for research at Watchfire GomezPro in Waltham, Mass., said Wednesday that brand recognition created by Wamu's branch network and its national mortgage business may help establish Wamu Direct in a crowded online market.
But Wamu will have to worry that the online offering will anger branch customers who get lower rates on deposits, Mr. Musto said. It might also draw deposits away from branches and into more expensive online savings accounts, he said.
"What are their branch customers going to think about there being these really high-yielding accounts being offered by Wamu?" he said.
Online campaigns have proved effective for gathering deposits in a rising rate environment.
ING Bank FSB of Wilmington, Del., the Internet-only U.S. unit of the Dutch banking giant ING Group NV, went from $6.7 billion of deposits on June 30, 2002, to $34.9 billion three years later. The operation, which uses the ING Direct brand name, currently offers 4.7% on a 30-month CD.
In January, Emigrant Bancorp Inc. of New York launched EmigrantDirect.com to offer high-yield savings accounts to customers willing to do business almost exclusively electronically. The American Dream Savings Account offered through EmigrantDirect now pays 4%, which the company claims is "America's highest rate" on a savings account.
Wamu had $134.6 billion in retail deposits at the end of the third quarter, 5% more than a year earlier.
"Clearly, we've seen people like ING demonstrate the success of raising deposits this way," said Frederick Cannon of Keefe, Bruyette & Woods Inc. "It's not a low-cost source of funds, and it doesn't provide any franchise value for banks, but it has been proven a successful funding mechanism for banks."
Washington Mutual has not provided a time frame for a full-scale rollout of Wamu Direct.
"We are excited about the launch," Mr. Rotella said, "but it is a test right now, and our approach will be very disciplined."
Mr. Killinger noted that Wamu has retail branches in two of the test markets, Atlanta and Phoenix, but none in the other two, Boston and Philadelphia.
Mr. Cannon said Wamu Direct is "appealing because Washington Mutual can pay up for deposits from rate-sensitive customers without cannibalizing … non-rate-sensitive customers" who use its branches.
Mr. Killinger said Wamu will use the results from the four test markets to "sort out" how Wamu Direct "plays into our cross-sell initiatives and how we want this to interact with our retail branching system."
Executives told investors Tuesday that a major focus next year will be cross-selling through the branches.
Mr. Rotella said that one goal for next year is to increase the amount of business Wamu does with customers, and that "the biggest opportunity is in credit cards."
But the company also expects to market home equity loans and mortgages increasingly through its branches.
Diversification of product offerings has created a need for new branding and advertising at Wamu, which until now has promoted itself heavily through inviting branch designs and, perhaps more important, free checking.
"You will see something new in advertising and branding in 2006, because we are working on the branding position and the selection of a new agency," Mr. Killinger said in the interview. Wamu first hired a branding agency in October, and it expects to announce the selection of a new ad agency early in 2006.
"I would anticipate that we'll continue to want to have free checking as the centerpiece of what we're doing," Mr. Killinger said, but "we felt that it was time for us to make a change to reflect the size of the company today and all the growth opportunities we see.
The product diversification and new branding campaign are related to Mr. Killinger's ongoing effort to shed Wamu's thrift heritage and transform Wamu into a banking company, whose stock would carry a higher price/earnings multiple than a thrift's. Mr. Killinger has complained in recent years that investors have failed to value his company as a bank.
He said Wamu's five-year plan has aggressive financial targets, including double-digit earnings growth, "and if we meet those, then we should be in the top-tier performers of the major banks in the country."
Investors should focus on "the potential for a P/E expansion as the company becomes viewed more as a high-performing bank rather than as a thrift or mortgage company," Mr. Killinger said.
