Executive Q & A

DeepGreen Bank, an Internet-only subsidiary of Third Federal Savings & Loan, Cleveland, hopes to win the online banking war by delivering a few products quickly. Proclaimed "the best of the Web" by the Online Banking Report, DeepGreen's home equity line of credit, or Heloc, allows qualified customers to borrow up to $250,000 at five basis points below prime, and will approve the transaction in two minutes. Customers can then opt for a QuickCash loan of up to $25,000 and have the money wired to a checking account within 20 minutes. DeepGreen also offers high interest rate and all-access CDs. e-Profile, a subsidiary of Sanchez Computer Associates, processes DeepGreen's loans and CDs at its operations and data center near Pittsburgh.

Launched last August, DeepGreen Bank is headed by Jerome J. Selitto, a founder and vice chairman of Amerin Guaranty, a mortgage insurance company. A 30-year banking industry veteran, Selitto has held senior management positions at Kidder Peabody, Paine Webber and First Chicago Capital Markets. In an interview with BS&T associate editor Karin Halperin, Selitto talks about DeepGreen's focus and future.

BS&T: You describe DeepGreen as an online bank for grown-ups. What do you mean by that?

SELITTO: We're not the online bank for everyone, and it has nothing at all to do with age or wealth. Someone has to demonstrate a track record of having handled their financial obligations responsibly. That's an underserved market. Whether you have a credit score of 780 or 620, the rate that you're quoted elsewhere is the same.

BS&T: What's your strategy for grabbing this market?

SELITTO: We focus on products in which we can differentiate ourselves by delivering services not currently available. People call them killer app products. We call them products with "wow" characteristics. At the end of applying for a Heloc, someone should sit back and say "wow." I believe we are the only Internet bank where you can apply for a loan online using information in your wallet and receive unconditional approval in less than two minutes. A loan officer is not going to contact you, but we operate a 24 by seven call center, and you can talk to us if you like.

Most Internet banks today are equipped to open checking accounts, maybe transfer money, do electronic bill paying, provide a look at account balances, get account summaries and statements electronically. But once you try to obtain a loan online, you find you either have to talk to a loan officer or complete a paper application and submit it to the bank, and the back-office operation is pretty much paperbound. We do everything electronically, and all the underwriting decisions are fully automated.

BS&T: Is the customer ready for this totally online experience?

SELITTO: We read a lot about how people are not applying for loans online. I believe the reason is that they can't.

BS&T: Can you say how many people you've brought to your site since August?

SELITTO: I can't, that's competitive. One of the biggest fears that anyone has when first starting out in this business is, if I build the technology, will they come? And we certainly have answered that question. They will come. They will apply online.

BS&T: What made you select the home equity line of credit as your centerpiece product?

SELITTO: We have two tests for products: Can we differentiate ourselves and can the product be delivered electronically? That's the reason for the home equity line of credit.

BS&T: Given the experience of Mortgage.com, do you think it's possible to be successful with this on the Internet?

SELITTO: Mortgage.com was a pioneer in the marketplace, and they had some really good ideas. But it did the same old tired paper processing in a back office, with a lot of employees. We have the technology now to fully automate the underwriting process, and automate and outsource the closing process. The early pioneers in the dot-com world, whether it was in banking, lending or retailing, believed all you had to do was spend a lot of money on name recognition and brand building and you'd be a winner. What they failed to realize was that you also had to have the brand experience, so that when people came onto your site they saw a reason for being there.

BS&T: Other sites offer loans and CDs too. Why will customers come to you?

SELITTO: Customer loyalty is built through brand experience rather than brand name or brand recognition. If you deliver on the promise, you will have customer loyalty. We offer a high level of customer service-you can open your CD in less than five minutes. We'll take care of transferring funds through an ACH transaction or a wire transfer. We approve a loan unconditionally-a key term-in less than two minutes. The Internet is about convenience. And that's why we're focused on our product offerings. Your customer is one click away from your competition, and so you have to be competitively priced, provide a fairly high level of service and deliver on your promise.

BS&T: What have you learned from the experiences of other online banks? What is key in creating an online product?

SELITTO: You have to spend money in building technology. And one of the major operations that just closed Mortgage.com was in 112,000 square feet with 700 employees. That's not an Internet operation. That's a heavily paper-processed organization. A lot of companies are using the Internet as a brochure, a catalog, to list the same products you can get in a brick-and-mortar operation. That's not going to be successful.

BS&T: Who's your competition? Brick and mortars offering Internet services or other Internet banks?

SELITTO: We're unique in what we're doing. Wells Fargo claims they have an instant lending decision, but when you go on their site you learn that a loan officer will contact you, there's further documentation and verification that's required. The real competition for us will be the Intuits of the world and the Microsofts-technology companies that are delivering financial products electronically.

BS&T: Are you revamping or creating a marketplace?

SELITTO: The home equity line of credit has been primarily marketed as a debt consolidation vehicle, marketed to the lower end of the credit spectrum. We believe if you're going to purchase anything using debt and you own a home, the smart way is to use your home equity line of credit. It's a lower interest rate, and it's also tax deductible. I don't think people think that way. We're not so much changing a market as trying to change a perception that if you're going to buy something on credit, the best way is to offer someone security for the loan.

BS&T:: Are you looking at partnerships as your company moves forward?

SELITTO: We have an active... I hate the term B2B, but we have strategic alliances. We're working diligently on allowing third-party originators access to our technology, so that a loan officer in a brick-and-mortar could input information into our system on behalf of a client. We're working with one of the largest lenders in the country, and that lender will market our Heloc product to their existing customers. We actually have four alliances-one with an Internet company as well as one with one of the top 10 brick-and-mortar lenders in the country. We will be on one of the major portals, and we have a fourth affiliation we are about to launch.

BS&T: What will be the biggest changes in banking?

SELITTO: The entire banking environment from a retail customer perspective is changing dramatically. Most consumers today probably carry three credit cards issued by three different financial institutions. They may have their car loan at a credit union; they have their home loan maybe through a mortgage company or through a mortgage broker. And their money market accounts are probably with at least one or two securities firms. If you ask most consumers where they bank, they will tell you where they have their checking account. That franchise is very vulnerable, especially to the Internet and electronic payments.

I started with a savings and loan association in Florida, and I was responsible for all their branch applications, making recommendations to the board as a market analyst for branch locations, branch sites. Back then and today, people choose a bank because of convenience, and there's nothing more convenient than the Internet. The statistics today show that 50% of the American population has access to the Internet either at work or at home. If I were looking at where I would locate a branch, if I thought that one out of two Americans had access to my branch location, that's where I'd have a branch.

BS&T:: What new products lie in DeepGreen's future?

SELITTO: We're going to stay pretty monolined in our products. We're looking at offering first mortgages electronically. We're also looking at some transaction accounts, checking accounts. But again, it's, can we do something just a little bit differently than what's being done in the marketplace? We're looking at this unsecured loan as another product for us. We're looking at whether we can form strategic alliances with some of the big ticket retailers, such as major furniture stores, major appliance stores, where maybe we'll set up a terminal.