Internet deposits may be “hot,” but a new auction site and two additional third-party, internet-based services just might show you the money.
By Steve Cocheo, executive editor,
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Online deposits draw bankers and savers of different stripes. Three web-based services use different approaches to attracting deposits
In a recent survey, community bankers said their top competitive challenge, by far, was raising deposits. One out of three respondents cited it.
Several options exist to remedy the problem, most of them well known. They include simply raising rates, increased marketing, premiums, and, on a longer horizon, adding or acquiring branches. To attract large deposits, especially now when such depositors may be more nervous, there are services such as CDARS, which can significantly expand FDIC coverage under a single bank. (CDARS— Certificate of Deposit Account Registry Service, offered by Promontory Interfinancial Network, LLC, is an ABA-endorsed program.)
But one avenue that relatively few community banks have explored raising is funds through the internet. Some smaller institutions have established “internet branches,” some with their own identity. But the reach of such efforts is limited by the bank’s ability to generate enough internet buzz to show up on search engines, or its willingness to pay for preferred placement in search engines, which bigger players routinely do. It’s a classic web challenge—you may build it, but if folks don’t know it’s there, they won’t come.
But there are alternatives that can put your institution on the internet deposit shopper’s map. We looked at three such alternatives, and at efforts of banks that use them. One alternative, MoneyAisle, debuted in the middle of the year, and the others, Bankrate.com and Bauer Financial, Inc.’s product family, have been available for some time.
One caveat: The internet doesn’t appear to be a path to core deposits. Bankers’ descriptions of the success they have had with internet funds gathering indicate that this is “hot” money, money with a rate-savvy saver behind it, who will likely not know your bank as anything beyond a good rate, FDIC coverage, and a web page, with some exceptions.
What follows is a description of these three options.
MoneyAisle: Where banks bid for deposits
Many banks post their current deposit rates on their websites, and some bank sites permit depositors to open accounts online, and possibly even to fund them online. It’s the stock-in-trade of ING Direct, HSBC Direct and other internet-only institutions.
This is the equivalent of “no-haggle” pricing at those car dealerships that offer nonnegotiable price tags. The bank posts what it wants, and if the depositor is willing, a deposit results. If the depositor thinks they can do better, they move on to someone else’s site.
MoneyAisle, launched in June 2008 with approximately 100 depository institutions now participating, represents a very different approach to online deposit gathering. Prospective depositors enter the rate, term, and other details, including their location, into the software at www.moneyaisle.com. And then, institutions looking for the type of deposit indicated bid for that prospective depositor’s funds.
Right on screen, the prospect can see each round of what amounts to an online auction, and how many institutions are participating in each round. Finally, a winner is announced on-screen, including both name and logo. Links to the winning institution’s website and other helpful data are provided, including guidance on how to move on to completing the transaction.
The only institution name that the prospect sees is that of the winner, in contrast to services that list tables of top rates and the institutions offering them.
Each participating institution governs the bidding using an artificial intelligence routine—or seller automated engine—incorporating such factors as type of deposit; minimum amount per transaction; market or markets they are interested in bidding in; rate parameters; and even how aggressively to bid against other institutions. Tiered interest rates can also be built in, so that higher rates will be bid for larger deposit amounts, within a single strategy.
Institutions using MoneyAisle can actually employ multiple engines, such that they can run different campaigns for different products and maturities. The equivalent of a “master switch” can be employed if money-market conditions or some other event dictate the bank’s sitting things out to get its bearings.
MoneyAisle dashboards enable the user to evaluate how well its various campaigns are doing.
While the banks, of course, aren’t permitted to see each other’s engines and tolerances, the dashboards do enable them to see how the rates they are willing to offer are stacking up to what’s going on in MoneyAisle’s deposit market “world.” Each campaign can be set for a maximum fulfillment level, too, to help keep deposit costs in control. Once a campaign’s goals have been reached, it can be set to automatically shut down.
The bottom line is that the participating banks can raise funds at rates that beat the market—that is, the nearest competition’s rate and rate tolerance—but not necessarily rates at the ceiling of what they will willingly pay, notes Brian Rosenblat, senior marketing manager at NeoSaej Corp., Burlington, Mass., www.neosaej.com, creators of MoneyAisle.
Institutions only pay for offered deposits that turn into booked accounts. There are no separate advertising costs or click-through fees, according to Mukesh Chatter, NeoSaej president and CEO. Consumers and businesses using MoneyAisle pay no fees for using the site. The site carries no advertising. (Presently MoneyAisle only handles CDs and high-rate savings accounts. Expansion into additional services, including credit, is planned.)
How does MoneyAisle work in practice?
Isabella Bank, $1 billion in assets in Mount Pleasant, Mich., has been using MoneyAisle auctions to garner CDs since June. Greg Mapes, vice-president and treasurer, says the bank had raised about $2 million in CDs as of mid-August.
“We were looking for an internet funding source, another tool in the kit,” Mapes explains. The bank has found the ability to readily adjust pricing handy. Mapes likes the software’s ability to lock out requests for bids from the bank’s own markets, which helps avoid having the online pricing jack up the cost of local accounts.
Overall, Mapes says, raising money through MoneyAisle is more expensive, on its face, than doing it locally. Mapes notes, however, that costs are not as high when the full costs of obtaining deposits through a branch are factored in.
Mapes says the MoneyAisle approach is more akin to tapping brokered deposits, and though one expert told us that it may not be required, Mapes says the bank books MoneyAisle deposits that way for regulatory purposes. (NeoSaej representatives say some other clients follow this practice, others don’t.)
At present, once the prospective depositor is lined up through the website, the bank completes the details by telephone, though MoneyAisle offers internet options, too.
(Another service that Isabella Bank has used, is National CD Rateline, Inc., www.cdrateline.com, a subscription-based website designed for institutional depositors.)
The Beverly National Bank, a $486.4 million-assets bank in Beverly, Mass., has been soliciting deposits online for several years. Paul Germano, senior vice-president, says the bank had been using Bankrate.com’s listings for some time. This was a viable strategy, Germano says, but it became an increasingly expensive one. “They charge you per click,” he explains, whether the prospect becomes a depositor or not. The bank stopped using Bankrate.com.
Instead, the bank has been using MoneyAisle for several months. Germano reports mixed results.
“We’ve had accounts come through,” he explains, “but not as many as we’ve hoped for.” The site is producing traffic for the bank, he elaborates, but not as much of that is turning into opened accounts as he’d expected.
On the other hand, Germano likes the success-based pricing. “If MoneyAisle doesn’t get us a customer,” he says, “we don’t pay anything.”
Bankrate.com: Clicking through to banks
Bankrate.com uses almost the complete opposite approach to the saver and the banker that MoneyAisle does.
Savers plug in their information, specify how broad a search they want, from national to local, and receive in a return a table. The table includes institutions’ names; their Bankrate.com proprietary ratings (MoneyAisle does not rate its banks); the rate and annual percentage yield being offered on that type of deposit; the minimum deposit required to obtain that return; and, for banks that pay, an advertising message, or a message with a hot link. Savers can have the table reranked by rate, APY, minimum deposit, or offering institution while online. Banks that pay have their name appear as a hotlink.
The banks that show up in the listing come from two sources, according to Thomas R. Evans, president and CEO at Bankrate.com. Evans says the foundation of the company’s database is a regular survey, conducted by various means, some inbound and some by outbound polling, of over 5,000 depository institutions. Some banks that participate in the regular survey may change their rate offerings as often as four times a day, says Evans. Both surveyed banks and banks not surveyed can contract to have their rates included in the Bankrate.com listings.
Banks that don’t contract with Bankrate.com appear in the tables in ordinary type, with their name, city, and state listed for contact purposes. But it is up to the shopper to pursue things further. Alternatively, a bank that chooses to be an advertiser has a hotlink attached to their name. For deposits, the banks pay per click.
The charge for click-throughs applies whether the customer opens an account or not. Evans says completed openings tend to be high, because Bankrate.com shoppers tend to have money they want to put someplace, and aren’t “window-shopping.” He also indicates that the dollar amount they have to place is significant, averaging around $50,000-$55,000.
A Bankrate.com spokeswoman ex- plained that the bulk of the paid appearances on the site are by larger institutions. (One interesting appearance, though not as a paid click link, was by IndyMac Federal Bank, currently operating under FDIC management, and offering $100,000 one-year CDs for 4.25% APY, one of the highest in that table.)
One community bank that has made significant use of Bankrate.com over the last three years or so is $942 million-assets National Bank of Kansas City, Mo.
National Bank, when in the market for additional deposits, has typically budgeted a set amount for clickthroughs, explains Christa Spencer, senior vice-president and director of marketing. When customers click through, they go to an online form that the bank posts. The form gathers appropriate customer identification and account opening information. Funds are delivered to the bank in person, by wire, and, predominantly, by mail. Spencer estimates that 90% of Bankrate.com visitors who click through and complete the form wind up delivering funds and actually opening their accounts.
When the bank has been actively campaigning for funds, she says, the company’s visibility using Bankrate.com can’t be beat. Besides its own site, Bankrate.com provides its tables to numerous websites and print publications, including The Wall Street Journal.
Have no illusions, however. “It’s all rate driven,” says Spencer. “The people who use Bankrate.com are very savvy, and they want to get the best rates out there for their money. When their CDs mature, you probably won’t keep them as a customer, unless you still have that great rate.”
Even though the bank must pay for clickthroughs, even if they don’t turn into accounts, on Bankrate, Spencer says the bank felt this was a better deal than MoneyAisle offered. MoneyAisle’s pricing “seemed high,” she says.
Spencer notes that Bankrate.com requires banks to offer internet shoppers obtained through its service the best deal for that type of account that the bank has. She says Bankrate employs online mystery shoppers to police this requirement.
If that sounds skeptical, it’s no more skeptical than the people who use Bankrate. Spencer says even after they line up a possible account with National Bank, many prospective customers will call, in order to make sure that her company is a real bank with bricks and mortar someplace.
[Some banks use paid clickthrough links on Google and other services to attract deposits, as well. In fact, search for “bank deposit” in Google and one of the links will take you to Bankrate.com.]
BauerFinancial: The strong get exposure
BauerFinancial, Inc., Coral Gables, Fla., www.bauerfinancial.com, launched its Jumbo Rate News newsletter 25 years ago. Initially the publication was a print product, but now it can also be purchased online.
From the beginning, the newsletter has been devoted to reporting rates on CDs larger than $100,000. A significant proviso is that Bauer won’t list rates offered by institutions that it considers to be unhealthy, based on its five-star rating system, reviewed quarterly. The company brags that no depositor has ever lost principal or interest after placing a deposit based on a current Jumbo Rate News listing. Banks pay no fee to list their rates in the newsletter, which caters to institutional investors and does not list consumer CD rates. Bauer does not accept advertising, though it does sell collateral materials for banks that want to promote the fact that they have a higher Bauer rating.
A different web-based Bauer product, CD RateWatch, handles consumer CD rates, subject to much the same rules, and, again, at no charge to the banks. Along with APYs, minimum deposits, and Bauer ratings are links to bank websites and phone numbers, typically toll-free.
To be eligible to be included in Bauer’s CD RateWatch listings, an institution must be willing to accept deposits at posted rates from anywhere in the country.
CD RateWatch draws from a fairly small survey base, as a result of that requirement, according to Karen L. Dorway, president.
“Many don’t want hot money,” she explains. “These are not core deposits.”
Coming in at the top of the Bauer CD RateWatch table for MMDAs for the week of Aug. 20, 2008, was GCF Bank, a 105-year-old savings institution with $425.9 million in assets, based in Sewell, N.J.
A link takes the prospective customer to GCF’s website, which includes an extensive online new-accounts desk. The savings bank’s “Tell Me More” link on the Bauer site takes the prospect to a page where they can order Bauer reports about the bank. BJ
The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj1008/index.php?startid=18
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