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Big online banks discover the urge to merge

Holden LewisCustomers who logged onto CompuBank's Web site last week got a surprise -- news that they no longer had CompuBank accounts. Instead, they now had accounts at NetBank.

The urge to merge banks has hit the Internet. Altanta-based NetBank has bought Houston-based CompuBank's accounts. They were among the oldest Internet-only banks. NetBank goes all the way back to the first Clinton administration, and CompuBank was the first nationally chartered Internet bank. CompuBank seemed stable.

"I was shocked," says CompuBank customer Seth Kaplan. "There were no signs that this would happen."

A match made of money
NetBank's president says it's too soon to say how the purchase of CompuBank will affect former CompuBank customers. CompuBank had a few features that NetBank didn't have: free wire transfers, customer-to-customer transfers and up to $6 per month in reimbursements for ATM fees.

NetBank will decide over the next few weeks which, if any, of those features to keep.

"What our plan is," says D.R. Grimes, president of NetBank, "is to look at every individual service and look at what we offer at NetBank and look at what provides the best value overall."

Grimes notes that NetBank has its own features that warrant boasting about: free checking accounts that pay interest, free online bill payment, credit and debit cards, account aggregation. He says CompuBank's customers are similar to NetBank's: They use the bank mainly for checking accounts, hold roughly the same average balances and have comparable demographics.

To hear Grimes and his CompuBank counterpart tell it, CompuBank wasn't having financial problems, and the two bankers simply decided that it made sense to merge.

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"It's very normal to see consolidation," says Frank Goldberg, chief executive officer of CompuBank. "I view it as a very positive thing for our customers and our people."

Grimes: "I think it represents a decision to look at the options and opportunities that were available."

There you have it. According to these guys, CompuBank said, "I do," not "I surrender."

A spokesman says NetBank had 162,000 accounts before buying CompuBank, which had about 50,000 accounts. Now NetBank will have well over $1 billion in deposits.

NetBank is the largest online-only FDIC-insured federal savings bank, but it still has a ways to go to become a major player among the megabanks. By way of comparison, Bank of America ended 2000 with $364 billion in deposits and 32 million accounts.

Kaplan, the former CompuBank customer, describes himself as an online banking refugee. He once had a checking account through X.com, which abruptly shut down its online banking services a year ago and gave its checking customers a few weeks to close their accounts. Kaplan, a believer in online banking, shopped around and selected CompuBank. He says he'll give NetBank a shot.

"I'm confident the transaction will go well," he says. "I trust CompuBank as opposed to X.com, who didn't have things well in hand."

Some signs of trouble
Although CompuBank customers such as Kaplan might not have discerned warning signs, keen observers of online banks might say that CompuBank dropped some hints that things weren't going so well. About a month ago, it instituted a $2 monthly fee for checking accounts with a balance of less than $50. In January it laid off 20 employees.

When an online bank raises minimum balance requirements for free checking accounts, take that as a sign that trouble could be brewing. A few weeks before it closed its customers' checking accounts, X.com raised its minimum balances, too.

Grimes says NetBank's purchase of CompuBank's accounts was done so smoothly that it will serve as an example of how acquisitions will be done in the future. That statement tells you two things: Grimes believes that this won't be the only time that one Internet bank buys another, and that he hopes NetBank does some of the buying.

He clearly thinks NetBank has a good chance. It has 11 consecutive profitable quarters, successfully went public in 1999 and is one of the largest independent online banks.

Sending money through Checkspace
A company called CheckSpace has come up with an elegant way to send payments electronically.

CheckSpace customers who use QuickBooks (the small-business version of Quicken) and Peachtree (similar to QuickBooks) can write the necessary information in the program's check register, click "Print ... " in the pull-down menu, and send the checks electronically instead of printing them out.

The service is aimed at businesses with one to 25 employees. Users not only can send checks electronically, but can send bills electronically through QuickBooks. Brian Reisland, CheckSpace's marketing director, says the idea is to speed up cash flow between small businesses.

CheckSpace also has developed a separate service -- online billing and payment software for Internet banks. That service is Web-centric and doesn't require users to have Quickbooks or Peachtree. Ironically, the first (and so far, only) bank to offer the service was CompuBank.

-- Posted: April 6, 2001

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