Telebank Takes Low-Tech Approach To Banking Tiny Virginia Bank Goes After Depositers Who Are Intimidated By Technology

If big banks are the hares in the race toward high-technology banking, then tiny TeleBank aims to be the tortoise.

Leaving personal-computing and the Internet to other banks for now, TeleBank has set up a national branchless bank whose main technological tool has been around for decades: the telephone.

“Our strategy is not to innovate, but to integrate,” said Mitchell Caplan, TeleBank’s co-founder and president.

Caplan and his partner, chairman and chief executive David Smilow, are no technophobes. They plan to add computerized banking, but not until they are convinced that banking customers will use it.

Caplan believes banks are investing big money in technology that most customers do not want or can’t use.

Instead, Caplan and Smilow are going after the customer who has a middling comfort with technology, who doesn’t need to meet with a banker but is comfortable telephoning TeleBank’s offices and mailing them money - lots of it.

TeleBank operates out of a converted computer warehouse in a strip shopping mall in Arlington, Va. While TeleBank does take walk-in business, from 10 a.m. to 2 p.m. Monday through Friday, face time with bankers is discouraged and customers are told it’s much better to transact their business by telephone and mail.

In fact, most of TeleBank’s 12,000 depositors never step foot in the bank that is holding their money.

Caplan, a 39-year-old former New York real estate and securities attorney, and Smilow, a 34-year-old mortgage-backed securities banker, acquired the bank in 1989.

After doing some market research, Smilow and Caplan chucked plans to put up branches in the Washington, D.C., area, and decided instead to focus on telephone banking.

Their business plan was simple: by chopping overhead costs, TeleBank could offer an attractive rate to customers all over the country on federally insured money market funds and certificates of deposit. It could do so even if it invested customers’ money in relatively riskless residential mortgages that did not pay a top yield.

A calling room is the heart of the operation. Nine “telebankers” field more than 5,200 monthly incoming calls, converting more than half of them to customers.

TeleBank offers CDs from three months to 10 years and two types of money market accounts. By the middle of next year, TeleBank hopes to offer full-service checking and credit cards, automatic bill-paying and debit cards.

Meanwhile, Caplan and Smilow hope to capitalize on American’s hesitancy toward on-line banking. They believe tiny TeleBank can slide into high-tech banking unencumbered by an expensive branch system, by letting the big players do the innovation and not investing in technology that consumers aren’t yet ready to use.

“Thankfully, we’re not betting on the come line,” Smilow said. “If this is as big a niche as we ever carve out, that will not be a terrible thing.”