A startup financial company is hoping to revive a niche-oriented online banking model that has failed in the past, by focusing on small businesses.
Swift Financial Corp. says that its target market gets too little attention from larger banks and will be attracted by its focus on customer service and lending, especially now that credit is suddenly hard to come by. The Wilmington, Del., company also is betting that small-business owners are more comfortable doing business online than the groups that could not generate enough activity to support earlier Internet banks targeting specific demographics.
Ed Harycki, Swift's chief executive, said he wants to target the dentists, contractors, landscapers, pizza shop owners, and other small entrepreneurs that he argues are not well served by big banks.
Most banks treat small businesses as an extension of either retail consumer banking or corporate cash management, Mr. Harycki said in an interview. "None of those things do the small business justice because you can't view them through those lenses."
Analysts agree that small businesses are often poorly served by conventional banks but noted that they are the most branch-centric segment of the market and questioned whether direct banking would appeal to these customers.
The online banking model has proven difficult in the past. The former Bank One Corp.'s online-only unit, Wingspan Bank, failed to catch on with customers and folded in 2001.
And companies hoping to reach specific niches through the Internet channel have had their own problems.
G&L Bank, which targeted gays and lesbians, was opened in 1999 and liquidated two years later. BankBlackwell announced in 2005 that it would open an Internet-only bank targeting affluent African-American households but abandoned the plan the next year after failing to secure backing.
Mr. Harycki countered that times have changed as customers become more comfortable with online banking and with new capabilities, such as no-fee, remote check deposit.
He also said that it is incorrect to characterize Swift Financial as an Internet bank. Instead, he compared his strategy to those of the credit card monolines like MBNA Corp. in Wilmington, Del., where he headed the small-business issuing unit before the company was bought in January 2006 by Bank of America Corp.
Swift Financial is trying to attract businesses with less than $2 million of annual sales, rather than the $5 million to $20 million that he said is the common definition of small business among many conventional banks.
Among the 25 million small businesses, 95% have sales of less than $2 million and thus would be Swift prospects, he said.
Since its soft launch in May, Swift Financial has signed up 4,000 customers with more than $50 million of loans outstanding, he said, and he projected 20,000 small-business customers and $350 million of outstandings by yearend 2008.
Swift has received $25 million of funding from venture capital firms and from Marshall & Ilsley Corp. in Milwaukee, and is using M&I's charter to provide FDIC insurance to its deposit accounts.
Thomas J. O'Neill, an executive vice president at M&I, said Swift Financial offered an innovative opportunity to reach an underserved market.
"We have a long history of partnering with other companies to extend our reach, either through our brand or through our partners' brands," he said. "I think they will fill a niche in large metropolitan markets, which is their strategy."
Mr. Harycki said such arrangements are not uncommon. For example, MBNA held accounts for such clients as Wachovia Corp., which marketed cards under its own brand.
"We're doing the marketing. We're doing the lending and the underwriting. We're handling operations. We're handling the customer service functions," and "Swift Financial bears the first loss on credit."
Swift is also trying to attract customers with its lending, at a time when many businesses are finding it hard to borrow.
Though the company is targeting customers in the prime to superprime category, with FICO scores well above 700, "we're not an automated scoring shop," he said.
The company uses advanced analytics, from both personal and business credit bureaus, as well as its own internal scoring systems.
And unlike conventional banks, Swift Financial designates a personal relationship manager for each customer's calls.
"At a lot of institutions, if you've been in business two years or less, you're an automatic decline for credit," he said. He cited the example of a dentist denied a credit line, who had been in business less than two years, but had six years of professional experience and had bought an existing practice. "We can get at the stories behind the data," he said.
The company offers lines of credit of as much as $100,000 in as little as 15 minutes, and two levels of checking service.
The company also offers free check scanners for remote deposit, Mr. Harycki said. "We've eliminated a whole page of fees that are charged by other institutions."
John R. Barlow, the president of Barlow Research Associates Inc., a specialist in business banking, said, "There is a niche that is going to be attracted to this. The question is how large is that niche."
Deposits and loans are not the only things small companies need, Mr. Barlow said. For instance, 46% of small businesses rely on branches for currency and coins, he said, and 43% use merchant processing for card acceptance.
Dan M. Fisher, the president and chief executive of Copper River Group Inc. in Fargo, N.D., a consulting and research firm for independent community bankers, also expressed interest in the concept.
"It changes the whole paradigm of fishing for customers here," he said. "It makes a lot of sense to me."
However, he also warned that the model is easy to emulate. "Others will be able to copy them," he said, and if customers "are willing to jump to Swift, they're going to be willing to jump away just as quickly if they're not satisfied."
