UPS Delivers Real Presence for Virtual Bank

Chris Erice works for a medical services company in downtown Honolulu. He’s surrounded by banks. The nearest teller machine is located less than 100 feet from the lobby of the office building in which he works.

So when he wants to make a deposit to his savings account, he walks a block away.

To the UPS store.

No, United Parcel Service has not suddenly morphed into a savings and loan. Nor has it become a bank. It remains a package delivery company.

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Erice instead is a customer of a bank that exists only online. His bank, called NetBank, is based in Atlanta—like UPS.

NetBank is using the retail staff of its crosstown corporate cousin to act as its own nationwide set of deposit-takers. It operates no branches.

Instead, UPS’ 3,800 stores instantly solve the most vexing problem facing a bank without walls: how to take in checks from customers when there is no one to hand them to and essentially no machines for sucking them in. And do it speedily.

“We have time-starved customers,” says Sonja Kennedy, NetBank’s director of operations. “We have to fulfill any needs they have”—without being able to talk to them, face to face.

Until this year, NetBank relied on conventional approaches to taking deposits. More than half —53%—of deposits were payroll checks, expense reimbursements or other items that could be processed electronically and automatically, from a transmitting account to its receiving center in Alpharetta, Ga., an Atlanta suburb.

The other 47% were handled by mail. The mechanism? A postage-paid business reply envelope.

The problem? Time.

For Chris Erice, it could be seven business days before a deposit wound its way through the postal system to Alpharetta.

“We wanted to shrink that time for our customers and make it look like they walked into their own branch” of NetBank, Kennedy says.

With only two teller machines able to take deposits for this Internet-based bank, NetBank had to get creative.

And it had to do it in short order. Ten years old, NetBank may have “risen to the top of the Web-only banking heap,” as business chronicler puts it, but its bottom line still left much to be desired.

Losing money in 2002, the company had earned a record $50.5 million in 2003, then watched all but $4.2 million disappear in 2004. Revenue fell from $435.8 million to $346.9 million. The culprit? Its attempt to be a “financial intermediary,” a.k.a. mortgage broker. That business went into a tailspin in 2004, as interest rates rose.

Pretax income in the company’s “financial intermediary segment” dropped from $158.1 million in 2003 to $23.2 million in 2004, according to company filings with the Securities and Exchange Commission.

NetBank set out to firm up its footing, getting equal parts of its revenue and profits from brokering financial transactions, processing transactions for itself and other institutions, and online banking.

The UPS deal would help the company balance on two of those three feet.

Talking to UPS about how the banking business could really be an extension of its package delivery business fell to Mickey Ross, chief of strategic initiatives at NetBank.

The pitch? That taking deposits would be a new way of getting more people to come into its stores. UPS had spent $200 million in 2001 to acquire Mail Boxes Etc. That gave it a nationwide set of nearly 4,000 storefronts to deal, in person, with Americans of all stripes. Rival fast delivery service FedEx followed suit, and then some, spending $2.4 billion last year to acquire the 1,200-outlet Kinko’s chain.

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