Security First Network Bank

» see sfnb.com as it lived, on the wayback machine

~ the obit ~

In 1995 I was eleven and three years away from my first modem. A bank that existed only inside a web browser was not something I could have reached from Turkey, and internet banking did not turn up in my life until the middle of the next decade, by which point it was a tab on a normal bank's website that everybody's parents were afraid of. Security First Network Bank is here because it is the one that went first. The tab is downstream of it.

It opened on 18 october 1995 out of Pineville, Kentucky, and moved to Atlanta a few months later. Michael Karlin and James S. Mahan III built it around a thrift charter, which meant the Office of Thrift Supervision had to decide whether an institution with no lobby was a bank at all. The regulator decided that it was, and issued the first charter in the United States for a bank that lived entirely on the internet. There were no branches to shut when it ended because it never opened any in the first place.

What the website did looks thin now and was remarkable then. You could see your balance and pay your bills from a browser at two in the morning, and you could pull up scanned images of your own canceled checks, which was not a thing any teller could hand you faster. The bank came with a wholly owned software company from the beginning, and that arrangement is the whole story of what happened next.

~ the rap sheet ~

~ how it landed ~

Every bank in the country wanted to know what an internet bank looked like from the inside, and Security First Network Bank was the only one they could look at. The software company attached to it, Security First Technologies, sold that same platform to institutions that had branches and tellers and no idea how to put a checking account on a web server. The bank was partly a real bank and partly a demonstration unit for the code, which is a strange thing to be while also holding people's money.

~ the cracks ~

The money never came. By the end of 1997 the bank held only about 55 million dollars in deposits, and its chief financial officer Robert Stockwell said publicly that it would take 300 million to make the thing profitable. Losses for 1996 and 1997 together came to 50 million dollars, which was 3 million more than the company had raised in the first place. The banking operation on its own was the smaller problem, losing 4.2 million dollars in 1996 and 689,000 in 1997; the expensive part was writing the software.

That gap is the thing worth keeping. A bank without branches was supposed to be cheaper than a bank with them, and on paper it was, but nobody had solved the other half of the problem. Branches are how banks acquire deposits from people who have never heard of them. Take the branches away in 1996 and there is no substitute yet, because nobody is searching for a bank on a computer.

~ what it became ~

On 30 september 1998 Royal Bank of Canada bought the banking half for around 13 million dollars, a small premium above book value, and paid another 7 million in technology licensing and consulting fees to the software side. The software side kept the money and the future: it was spun out as S1 Corporation and went on to be worth several orders of magnitude more than the bank ever was. RBC ran Security First Network Bank as a subsidiary for another few years, bought Centura Banks of North Carolina in june 2001, and merged the online bank into RBC Centura on 1 june 2002.

There is one detail in the merger paperwork that says everything. RBC Centura took the Atlanta and Largo offices that Security First Network Bank had been using and converted them into full service branches. The first bank in the world built on the promise of having no branches ended as two of them.

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