Why Did NetBank Fail?

10.24.07 | Online Banking | 0 Comments | by junger

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NetBank made news recently as the first Internet-only bank to fail, having been shut down by the Office of Thrift Supervision.

netbankfail.jpg

While we know that the bank had "significant" losses from loan defaults and poor business strategies, Ron Shevlin expands upon the closure.

He argues that because they had a poor product strategy and they were a loss-leader, they were doomed to failure.

Bottom line: NetBank was at a disadvantage from the start. The US adult population, still dominated by boomers and seniors, didn't want a branchless bank as their primary financial institution.

Shevlin makes a great point in his comparison of NetBank to ING Direct, the most successful online-only bank. ING didn't try to completely replace the brick-and-mortar bank when it opened — instead offering high-yield online savings accounts — making the financial shift gradually.

Today, ING can essentially replace a brick-and-mortar, thanks to its Electric Orange checking account and savings accounts. But it took time to get there — and there are still kinks to be worked out.

(Is The Internet-Only Bank A Viable Model? - Marketing ROI: Whims from Ron Shevlin)

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