As customers move toward mobile banking, is an online-only and branch-less bank the bank of the future?
Bank of Internet's CEO Gregory Garrabrants told an audience at an investing conference in San Diego last week that his bank, with roughly $2.4 billion in assets, can compete with its larger rivals because it's not weighed down by real estate costs and has a lean staff.
Garrabrants, speaking at Stocktoberfest, a conference run by social investing site StockTwits, said Bank of Internet is able to cut out the layers between consumers and the bank. Based in San Diego, the bank has just one branch and none of its own ATMs. But its offers free service at all ATMs in the US.
Bank of Internet (BOFI) has been a winner for investors this year. Shares are up 74%. But more impressively, the bank has shined since the financial crisis in 2008. Even though Bank of America (BAC), one of the best performing bank stocks in 2012, is up 72% this year, its shares have severely lagged its online rival since September 2008.
In an era where smaller banks are struggling to make a profit as Dodd-Frank and other regulations have made it more expensive to operate as an FDIC-insured bank in the United States, Bank of Internet has benefited as consumers do more banking remotely.
Bank of Internet's lean model has allowed them to eliminate overdraft fees on certain checking accounts too and offer higher interest rates on deposits. The bank offers consumers other easy services like giving them the option to take a picture of a check on their mobile phone and deposit it that way.
The bank also hopes to compete with Google (GOOG) Wallet and other innovative banking operations by Internet companies by open up its mobile platforms to outside software developers similar to how Facebook (FB) and Apple (AAPL) let programmers write code directly to their platforms. By doing this, Garrabrants expects to use customer data to offer its customers local coupons and other rewards.
While Garrabrants admits that banking hasn't reached a point yet where customers want to completely give up on tellers and ATMs, he says he's noticing a shift. "We're seeing a lot of movement away from the branches."
And who knows. Maybe it will be able to lure more customers who are afraid of investing in the market to stash cash with them. Paul Berry, former chief technology officer of The Huffington Post and founder of social media aggregator RebelMouse, joked at the StockTwits conference that he and his wife have almost all their savings in FDIC-backed accounts as opposed to the market because he's "just that [bleeping] paranoid."
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