The Wall Street Journal published a story today that marks the growing importance of branchless online banks, Online Banks are Boosting Yields. Our sister publication, Online Banking Report, was the source for the article’s market statistics on branchless banks, which have developed a small, but significant following around the world.
In the United States, there are several dozen branchless banks, but more than three-quarters of the total branchless bank deposits are held by two banks, ING Direct and E*Trade Bank. Total branchless bank* deposits in Q3 2004 were about $65 billion, or 1% of all U.S. deposits, or about 2% of all deposits under $100,000. See below for more specific details.
Branchless Bank Deposits
As of Sept 30, 2004, the deposit totals of the major branchless banks are as follows:
ING Direct $26 billion in 1.9 million accounts ($14,000/acct)
E*Trade Bank $23 bil in 2.3 million accounts ($10,000/acct)
NetBank $2.7 bil in 200,000 accounts ($14,000/acct)
Everbank $2.3 bil in 370,000 accounts ($6,200/acct)
All the rest $5 to $10 billion total
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Total $60 to $65 billion
Total US Deposits
The total amount of deposits held in U.S. commercial banks on 9/30/04 was $6.4 trillion including retail and commercial deposits.
If you look only at deposits of $100,000 or less (a proxy for retail deposits), total deposits were $3.7 trillion.
Branchless Bank Deposit Market Share
Branchless banks hold about 1% of all U.S. deposits ($65/$6400).
Looking at just deposits under $100k, branchless banks hold just under a 2% share ($65/$3700), actually 1.8% if you want to be more precise.
Source: FDIC
What it Means
It’s not as big of a splash as Amazon made in books, but it’s a solid start for an niche about 7 years old (Netbank started in 1997). I expect it will continue to grow 25% to 35% per year for the rest of the decade, eg, doubling the branchless banking deposit base every 2 to 3 years.
*We define "branchless bank" as a separately branded insured depository institution that derives the majority of its business through direct methods (mail, phone, online) with minimal brick and mortar presence. We are excluding direct banking units operating under lending or insurance brands such as Principal Bank, State Farm Bank, IndyMac, MBNA, and so on.
—JB