By introducing a high-yield savings account available only through its new EmigrantDirect.com Web site, Emigrant Bancorp is attempting to compete with the more established Internet-only banks on interest rates.
But the New York company must target the product to a new group of customers to avoid cannibalizing its existing ones, and it does not want to dilute the Emigrant brand in doing so.
So far the marketing seems to be doing a good job of walking that line.
Howard P. Milstein, Emigrant's co-chairman, president, and chief executive, said that 80% of the customers signing up for the EmigrantDirect.com Internet-only savings account are from outside New York. The company took in $1.1 million of deposits on the site's first day of operations, Jan. 5, and has been receiving $5 million to $10 million a day since, he said.
With a 3% return, the company says it pays more than any other U.S. bank for savings accounts, including the giant of Internet banking. That would be ING Group NV's flagship ING Direct savings account, which pays 2.35% for U.S. accounts.
"This is a broad market. I think ING has shown everybody that there is a lot to be had there," Mr. Milstein said. "Some people spend a lot of money advertising. I would rather spend a lot of money on the rate."
Chris Musto, a vice president for research at Watchfire GomezPro in Waltham, Mass., said banks have had little success creating Internet-only brands. Nor does competing solely on rates have a great track record; customers often jump ship once market conditions force banks to lower their interest rates, Mr. Musto pointed out.
Customers will stick around longer, Mr. Musto said, if they associate the brand with something more than rates.
That is what ING has done. Though its interest rates, once 5%, are now less than half that, ING is still one of the biggest online banks in the country. Most of the online operations of community banks that focused on returns, meanwhile, are gone, Mr. Musto said.
Creating an online brand from scratch can be just as tough as competing on rates. The former Bank One Corp. tried it in 1999, but instead of drawing new customers, Wingspan Bank competed with bankone.com, which had a known brand supported by an extensive branch network. (Wingspan was shut down in 2001, and Bank One was bought by J.P. Morgan Chase & Co. last year.)
The Wingspan experience taught J.P. Morgan Chase that it needed a single brand, said JPM Chase spokesman Tom Kelly.
The "physical presence of branches is a must for most customers," Mr. Kelly said. "Neither a branch-only world nor an Internet-only world works well."
Mr. Milstein said he is trying to learn from Wingspan's experience.
Marketing for EmigrantDirect.com targets people who do not use the bank's branch network, and the high-rate savings account does not compete with Emigrant's branch customers, because "our depositors in the branch system are generally not Internet users," Mr. Milstein said.
Fewer than 4% of the bank's 250,000 depositors are enrolled at the older online-banking site, emigrant.com, he said.
Except for a few billboards in New York City, promotion of EmigrantDirect.com has been limited to the Internet and word of mouth, Mr. Milstein said. (Billboard advertising is restricted to buildings owned by Mr. Milstein, who is a member of the Milstein real estate family and the chairman of Milstein Brothers Capital Partners.)
Mr. Milstein said emigrant.com will coexist with the Internet-only accounts offered through EmigrantDirect. "The online banking system is designed to be used in conjunction with the branch system," he said. "EmigrantDirect is designed to be used as an alternative to the branch system."
Mr. Musto said that Emigrant's strategy of offering only a savings account is smarter than trying to bring in new checking customers. Since people typically access their savings less frequently than their checking accounts, it is easier to get them to try something new. Customers can enroll at ING or EmigrantDirect without making either their primary bank, he noted. "You couldn't do that with Wingspan."
Gwenn Bezard, a research director at AITE Group LLC of Boston, said Emigrant can succeed without becoming an e-banking colossus. "They don't want to create the next Bank of America overnight," he said. "But they found a niche that they want to target, and they believe they can make some money off of that."
