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6.14.99  
An Upstart Jumps into the Small-Biz Banking Breach
Ebank.com wants to lure entrepreneurs with better service

Do you know who your banker is? If you're like most entrepreneurs, your old local bank has changed hands so many times that you barely know who to ask for a loan.

Enter Ebank.com. The 10-month-old, one-branch upstart from Atlanta says that by the end of June it will step into the breach left by bank mergers, offering basic banking services -- over the Internet and eventually via 24 branches in U.S. cities -- to entrepreneurs who feel neglected. "You will come to me because you are fed up with Citibank and Bank One," says Richard Parlontieri, Ebank.com's chairman and chief executive officer. p>Entrepreneurs will be able to open credit lines, checking, savings, and sweep accounts, and track them -- all online. Ebank.com will also offer commercial real estate and home mortgage loans, but the commercial loans are only available through the bank's brick-and-mortar branches.

"Small is beautiful" marketing campaigns abound at big banks these days. And no wonder. Meridien Research Inc., a Newton (Mass.) market-research firm, predicts small businesses will spend $61 billion a year on banking services by 2001, up from more than $40 billion in 1998. Many entrepreneurs complain they get mostly lip service at megabanks, though: Just try getting a loan for a young company with few assets.

Parlontieri insists his venture will be different: An atom compared with such mammoths as Citigroup or Bank One, NASDAQ-traded Ebank.com won't compete on lower fees and higher deposit rates, but on service. For one thing, says Parlontieri, his board of directors consists primarily of former entrepreneurs who have also worked in community banks lending to other small businesses. Unlike most bank call centers, Ebank.com will have specific account representatives for each small-business customer. Ebank.com will also be more willing to take risks in lending to small businesses with few assets than big banks are, he claims. Ebank.com's first loan center is already open in Atlanta, with another to follow in that city this summer, and others in Orlando, Charlotte, N.C., and Washington, D.C., by the end of the year.

How will tiny Ebank.com make money at something large banks traditionally shied away from -- namely lending to risky young ventures? "The small-business segment is the fastest-growing segment of the economy, and with the continual shrinking of the banking industry in the country through mergers and acquisitions, what has happened is the fastest-growing business segment is being underserved," says Parlontieri.

Still, it's not clear how Ebank.com will establish itself -- or even get much notice. Its sole retail banking presence is Atlanta's 10-month-old, one-branch Commerce Bank which has less than 1,000 customers and about $25 million in assets. Ebank.com plans to launch a national advertising campaign and to promote the bank's services through office-supply and computer companies, payroll-service providers, and other businesses that cater to entrepreneurs.

The bank, which is currently funding new loans out of its own capital, also plans to drum up business by recruiting loan officers from bigger commercial lenders, says Parlontieri. Ebank.com is also beating the bushes for new investors.

There's certainly evidence that small business craves better service. PSI Global Inc., a Tampa market-research firm, found that nearly 75% of entrepreneurs it surveyed had seen their banks merge in the past 12 months. And one third of them reported service had worsened in the same period. Ten percent were so annoyed they took their business elsewhere, and 14% said they plan to switch in the next 12 months, the highest percentages in the 11 years that PSI has been doing this annual survey.

One thing missing from Ebank.com's strategy is discount service. Parlontieri says savings on overhead via the Web won't necessarily be passed on to the consumer. "We are in business to make money, not to make a model," he says, adding that once the bank builds volume, prices on his products may come down.

Ebank.com, like other virtual competitors, won't have an easy go of it, says Warren Heller, research director for Veribanc, a bank-research firm in Wakefield, Mass., especially since larger banks are beginning to understand that they can't ignore the small-business market. "The pure Internet play may not be a paradigm that works. It may be the big bank with plenty of resources that throws up an Internet site and that becomes another channel," Heller says. Entrepreneurs are consumers like everyone else -- they do business with whomever has what they need.

By Jeremy Quittner in New York jeremy_quittner@businessweek.com

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