Is Bank of Internet Really Better Than Other Banks?

Some stocks, like TV shows, build up a cult following over time. A classic example of this is Bank of Internet, or BOFI Holding (NASDAQ: BOFI). The modest online bank has attracted a legion of rapid fans that swear it is the future of finance.

The BOFI fans think that this small company has a bright future because of its high level of customer service and lack of some of the baggage that plagues brick and mortar banks. Some of the financial figures show that there is some logic to the Bank of Internet bulls’ argument.

BOFI has reported steadily growing TTM revenues for the past few years—since 2010 in fact. In June 2010 BOFI reported a TTM revenue figure of $58.84 million by June 2014 that number had grown to $174.59 million. That’s an impressive rate of growth that has not shown signs of slowing down; Bank of Internet reported a TTM revenue of $129.34 million in June 2013.

Yes, BOFI is still growing, but it is still tiny when compared to the big banks. US Bancorp (NYSE: USB), a relatively small national bank, reported a TTM revenue of $19.66 billion on Sept. 30, 2014. On the same day Bank of America (NYSE: BAC) reported a TTM revenue of $87.01 billion, Wells Fargo (NYSE: WFC) reported a TTM revenue of 83.57 billion, JP Morgan Chase (NYSE: JPM) reported a TTM revenue of $94.85 billion, and Citgroup (NYSE: C) reported a TTM revenue of $76.80 billion.

In terms of revenue, Bank of Internet has a long way to go before it can challenge the big national banks. It is still a small, niche player that simply lacks the resources of those giants. BOFI simply lacks access to the vast flows of cash that the big banks with all their flaws have.

To be fair, Bank of Internet is not even the biggest online bank in its niche category; EverBank Financial (NYSE: EVER) is. Everbank reported at TTM revenue of $910.8 million on Sept. 30, 2014. Unlike Bank of Internet, EverBank has been plagued by declining revenues. It reported a TTM revenue of $1.12 billion in September 2013.

How Apple Pay Threatens Bank of Internet

So what about the argument that BOFI will beat those institutions with good customer service and low fees? That it will somehow become the Apple of banking by being the company everybody likes?


Well, there’s a big problem with that argument; Apple Inc. (NASDAQ AAPL) itself has become a huge threat to BOFI and competing online banks like Capital One Financial (NYSE: COF) and EverBank with Apple Pay. The popular app threatens online banks by making banking easier and more convenient that ever.

A person can access an account at a participating bank through the touch of a button at Apple Pay. You can even pay directly with your checking or credit card balance at major banks through Apple Pay. There’s no more need to go the bank or deal directly with the bank.

The bad news for Bank of Internet is that most of the big banks, including Chase, Citi, US Bank, Bank of America, Wells Fargo, Capital One, and PNC Financial Services (NYSE: PNC), have signed up with Apple Pay. So there’s no more need to sign up with a small boutique bank to make banking more convenient.

To make matters worse, Apple Pay is only the tip of the iceberg in the world of payment apps. Current C, a rival payment app being developed by a consortium of big retailers called the Merchant Customer Exchange, or MCX, could actually have a wider appeal than Apple Pay. Time writer Alex Fitzpatrick noted that Current C could be used on many more phone models and integrated with retailers’ loyalty card programs.

Another gigantic advantage to Current C is that the MCX includes some of the nation’s biggest retailers, including Wal-Mart Stores Inc. (NYSE: WMT), Target (NYSE: TGT), Costco Wholesale (NASDAQ: COST), Best Buy (NYSE: BBY), Walgreen (NYSE: WAG), and Kroger (NYSE: KR), that currently don’t accept Apple Pay. These stores are MCX members that don’t want to accept Apple Pay until their alternative has been rolled out. Current C is being tested at Target stores in Minneapolis but is not supposed to be rolled out until next year.


The news reports about Apple Pay and Current C show that creating a payment app is fairly simple. That means we’re likely to see dozens of payment apps, including offerings from, PayPal, and big credit card companies in the near future. If payment apps become widespread, banks could become inconsequential because everyone can access their money any time through an app.

BOFI currently offers its own banking app, but it isn’t on the main page for Apple Pay. It needs to be there if it wants to compete on a serious nationwide basis.

One has to wonder how a player as small as Bank of Internet could survive in this new environment. How are they supposed to stand out in a world where banks are simply an image on a phone screen?