The growth of financial institutions that primarily interact with customers online is helping drive major changes in the multitrillion-dollar industry, bankers and analysts say.
For one thing, it’s forcing conventional banks to invest more in such technology to compete.
“It keeps us on our toes,” Nikhil Bijlani, e-operations manager for Capital Bank, said in a third-floor conference room at the institution’s headquarters overlooking the downtown Rockville Metro station.
Capital Bank is among a handful of Maryland institutions that have grown deposits and assets faster in the past three years than the nation’s three largest online banks. Deposits at Capital Bank have shot up 104 percent to more than $300 million since the Great Recession ended in mid-2009, faster than the growth at online banks Capital One 360, Ally and Discover.
Ally and Discover, in turn, have grown faster than the nation’s largest conventional banks, with 74 percent growth to $44 billion and 44 percent growth to $42 billion, respectively. Capital One 360 — the former online institution ING Direct — is larger with $86 billion in deposits as of June, but hasn’t been growing as fast more recently.
The nation’s three largest banks in deposits — JPMorgan Chase, Bank of America and Citibank — have three-year deposit growth rates of less than 26 percent, while the national average is 18 percent.
The same technology that Capital One 360 and others have used to grow is helping smaller conventional banks compete, said Bijlani, who has worked in the field for more than a decade at banks such as PNC and the former HarVest Bank of Maryland. But it’s not so much the online banks sparking those changes — it’s the customers who see what both other conventional and online banks offer, and push their banks to keep pace, he said.
“Technology is the great equalizer for banks our size,” Bijlani said. “We level the playing field with the big banks through technology.”
Capital Bank, which has two branches in Maryland and one in Washington, D.C., has seen online banking transactions and users more than double in the past two years, Bijlani said. The bank has not only upgraded its online banking capabilities but rolled out more technological advances to help attract and retain customers as far away as California and Israel.
Many small-business customers use check image scanners and can bank remotely, Bijlani said. The bank also upgrades its own internal technology, such as its videoconferencing system in conference rooms, he said.
Capital One Bank of McLean, Va., the fourth-biggest bank in Maryland with $10.4 billion in deposits as of June, according to the Federal Deposit Insurance Corp., also has seen an increase in online banking in recent years, said Amanda Landers, a bank spokeswoman. Customers can access accounts online and also through mobile sources such as smartphones, she said.
Even before purchasing ING, Capital One Bank had a significant online banking system in place and began offering online accounts 15 years ago, Landers said.
“We offered online banking products for customers who wanted competitive interest rates, no fees and no minimums, and didn’t feel the need for a branch-banking experience,” she said.
Capital Bank is developing a mobile banking service, Bijlani said.
“As people get more comfortable with banking online and on their phones, we will offer those products and services,” he said.
More credit unions are offering online and mobile banking. Montgomery County Employees Federal Credit Union, which opened a 20,000-square-foot headquarters in Germantown in 2008 with many technological upgrades, offers not only online and mobile banking but banking by text, CEO James Norris III said.
The credit union continues to roll out new technology for its roughly 14,000 members, such as an app for the iPad, he said. While online banking has increased among members, “they will still have questions, and we have employees here to answer them,” Norris said.
What Capital Bank provides that the out-of-state remote banks largely don’t is personal customer service, Bijlani said. For instance, he recently went to the home of a North Potomac customer to help her access the system.
“People are surprised that bankers make house calls,” Bijlani said. “But that is something we provide. Technology is only as good as the people who understand it. ... We offer technology with a fair amount of hand holding.”
Internet banks held the top four spots in a recent national list of the highest interest rates for savings and money market accounts compiled by MoneyRates.com, a Foster City, Calif., personal finance website. Such banks have less overhead and can pass savings to customers in the form of higher rates and lower fees, said Richard Barrington, senior financial analyst for MoneyRates.com.
“They don’t have to support a massive branch system,” he said. “They operate with less physical overhead and personnel.”
In the fourth quarter, the average savings account rate at online banks was 0.60 percent, significantly higher than the average at conventional banks of 0.11 percent, according to MoneyRates.com. The average online money market account rate was 0.65 percent, also much higher than the conventional money market average account rate of 0.17 percent.
Ally Bank of Midvale, Utah, had the highest savings account rate in the fourth quarter at 0.95 percent, while Discover Bank of Delaware was fifth at 0.80 percent and the former ING Direct was seventh at 0.75 percent. Capital One Bank offered among the highest rates among conventional banks, coming in ninth at 0.53 percent.
First Mariner Bank of Baltimore had one of the highest money market average rates for conventional banks at 0.50 percent.
Capital One not only rated high in the MoneyRates survey but was named the best bank for standalone checking accounts by Money Magazine last fall. Its High Yield Free Checking account offers a rate that is five times the national average, and the bank offers two rewards checking accounts “at a time when a lot of banks have eliminated rewards,” Landers said.
The number of branches in Maryland dropped by 5 percent from 2009 to 2012 to some 1,750, according to the FDIC. The trend has been slower nationally, with a 2 percent decline.
Bank of America, the largest institution in Maryland with $24 billion in deposits as of June, has seen branches decline by 8 percent in the past three years nationally to about 5,700 and by 5 percent in Maryland to 185.
The largest online banks have not added any branches in the last three years, while the three largest conventional institutions based in Maryland — Sandy Spring Bank of Olney, EagleBank of Bethesda and Columbia Bank of Columbia — have. Among those three, EagleBank has seen the most growth, doubling deposits in the past three years to $2.5 billion.
Some of the growth was through EagleBank buying OBA Bank’s lone D.C. branch in 2011, but most of it was organic. EagleBank agreed to buy Alliance Bankshares of Chantilly, Va., in 2011 but that deal fell through.
EagleBank’s growth has been aided by larger banks turning down small businesses for loans, Ronald D. Paul, chairman and CEO of the institution, said in a recent blog.
“We significantly increased our small business lending in 2012,” Paul wrote. “During the year, EagleBank made over $185 million in new loans to area small businesses. Retailers, restaurants, contractors, consultants and professionals all benefitted from having a community bank that is willing to make loans to small businesses, understands the business model and knows how to underwrite it.”
As the number of branches decline, bank jobs are dwindling and changing. The number of commercial bank employees nationally fell by 1.4 percent in the past year to about 1.3 million, according to federal labor figures. The sector has seen 23,500 in job losses in the past five years.
Capital Bank has more than doubled its workforce in the past three years to 91, with some of that growth coming through acquisitions such as last year’s purchase of the assets of American Eagle Savings Bank in Boothwyn, Pa. EagleBank has increased its workforce by two-thirds in the past three years. Other banks have seen slower employment growth, and some, including Bank of America, have seen slight declines.
Meanwhile, online banks Discover and Ally have boosted employment by 87 percent and 50 percent, respectively, in the past three years.
With fewer branches, Barrington, at MoneyRates.com, sees conventional and online banks centralizing customer service.
“You are likely to see more employment in call centers, rather than in branches,” he said. “Unfortunately, that means fewer overall jobs. One person can do more in a call center, where there are calls coming from all over, than in a local branch.
“I think you will see a steady downward slope [in jobs], but it will be a long, sustained slope,” Barrington said.