AFTER FOUR YEARS of brokering equipment leases through the Internet, First Sierra Financial has decided it’s time to set up its own virtual bank.
Later this year, the Houston-based firm will open what it describes as a “business-to-business bank” online, with an eye toward expanding offerings to smaller businesses.
“We want to be offering business financing, which yields margins around 12%,” says senior vice president Peter Tallas. “With consumer loans like car loans and mortgages, the interest rate is around 7%.”
First Sierra plans to promote the bank through telemarketing, direct mail and sales calls to existing customers, says Tallas. Later, depending on response, the company will roll these efforts out more widely.
Seeks to Boost Revenue First Sierra is looking to add another $15 million (or about $1 per share) in revenue annually from banking. To this end it will offer a range of conventional banking services on the Web, using a system similar to the extranets it has set up for its leasing customers, notes Tallas.
“Our new Internet bank will allow us to offer additional high- margin e-commerce products to our business customers,” said executive vice president Michael Sabel in a statement. “We believe that our focus on the business customer has the potential to drive higher margins than the more commoditized Internet consumer-bank model.”
The company (www.firstsierra.com) already has a database of 50,000 small businesses, including the offices of doctors, lawyers and other professionals to which it leases computers as well as telecommunications and diagnostic equipment. Sierra says it signed on 7,500 new business customers and processed $270 million worth of business during the past quarter.
Tallas says First Sierra got the notion to jump into the virtual banking arena because of the bank consolidation in recent years. That left small businesses with no place to go, as bigger institutions didn’t want to bother with the tinier volumes smaller concerns generate.
“Our Internet business strategy is to focus on the high volume of repeat transactions that small businesses conduct every day,” he says.
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