Nexity

PROBLEM STATEMENT

Nexity's major problem is their competitor's size in the banking industry. Nexity is relatively small compared to their major competitors. Virtual banks, such as Nexity has only captured 2 percent of the total U.S. banking market share thus far. Nexity's lack of market share and brand awareness within the banking industry is a major concern of theirs. Nexity's problem is how they are going remain successful in the banking industry, increasing their market share, and grow within the banking industry. Nexity's competitors have the capability of offering the same products, with better customer service.

While the convenience and great rates were attracting to some online consumers, Internet-only banks, such as Nexity had suffered pitfalls stunting their growth. The lack of person-to-person contact forced consumers to resolve problems over the phone or via e-mail, which could be frustrating for some.

Concern over deposit and cash still limited the convenience of Nexity. For customers without direct deposit capabilities, mailing checks to Nexity was the only means of depositing money. Waiting for deposits to be posted could be an inconvenience for customers. Nexity also has no ATM network and no branches, requiring customers to use other banks' ATMs, or by using cash-back services with debit cards. Nexity reimburses consumers $2, for four monthly trips to foreign ATMs. Customers have to cover the cost of using foreign ATMs exceeding four uses per month.

Nexity also faces an increase in rivalries. By examining Nexity within the banking industry rather than the online banking industry, we see the intensity of competition in the banking industry is increasing. The growth of the internet in the last six years, has forced many brick-and-mortar banks to consider and develop online banking. Most online accounts are held at the online divisions of brick-and-mortar banks. Of the top 10 banks in each of the 35 largest markets, more than half offer online access, according to data service Bankrate.com (The Truth...). Now customers can get the best of both worlds. They are able to complete transactions both via internet or walking into brick-and-mortar banks themselves. If a customer happens to have a problem with their online banking, the customer is able to walk into their brick-and-mortar branch and talk to a representative from the bank face-to-face, which at times can be more convenient than talking to a representative from their call center or waiting to hear back from an e-mail.

It is much easier for a brick-and-mortar bank to develop an online banking system than it is for an on-line banking system to develop a brick-and-mortar banking structure. The capital required to develop brick-and-mortar banks are far greater than that of developing an online banking system.

Another minor problem that Nexity faces is that they are unable to reach the entire consumer market. Consumers without internet access are more inclined to open up an account at a brick-and-mortar bank, rather than to open a virtual banking account. According to a survey released by the Pew Internet & American Life Project the number of U.S. adults with access to the internet is 104 million or 56 percent of U.S. citizens. This gives brick-and-mortar banks the upper hand.

ALTERNATIVES

Netflix's major concern is how they are they going to compete with their larger competitors and grow in size. Netflix's generic strategy is best-cost provider - giving customers more value for the money by incorporating good-to-excellent product attribution at a lower cost than rivals; the target is to have the lowest (best) costs and prices compared to rivals offering products with comparable attributes (Thompson Jr., 116). Service, coupled with a breadth of competitively priced produces, has been Nexity's strengths. For example, E*Trade's annual percent yields (APYs) for their checking, one-year CD, and money market were 1.01%, 1.44%, and 1.11%, respectively in 2003. Whereas Nexity's rates for checking, one-year CD, and money market were 0.75%, 2.11%, and 1.75%, respectively in 2003. (Thompson Jr., C172). The following are alternative solutions for Nexity's problems:

1. Expand services

2. Form strategic partnership with an outsource vendor

3. Expand correspondent banking domestically

4. Expand internet banking internationally

5. Acquire a brick-and-mortar banks

6. Form strategic partnership with real estate company

Expand Services

Nexity's product offerings are: interest checking accounts, home equity lines,

home equity loans, online bill paying, savings, IRA CDs, money market accounts, and mortgages, but do not include insurance. Approximately one in four households are completely without coverage. Many families that do have insurance get it through their workplace. Because they depend on their employer for coverage, they could find themselves uninsured when their family can least afford it, such as a layoff or retirement. Only 53% of Americans own any kind of life insurance making the market underserved and under penetrated (Thomas). With Nexity's low overhead cost Nexity will be able to offer insurance to their customers at a better rate than insurance companies, keeping their best-cost generic strategy. Selling insurance will also open the opportunity to cross-business, allowing Nexity to become a first-mover in offering insurance online. Nexity being seen as a first-mover will increase consumers brand awareness and brand recognition.

Form strategic partnership with an outsource vendor

Forming a strategic partnership with an outsourcing vendor such as Fiserv, Satyam, or Cognizant will enhance Nexity's chances for success, domestically. Fiserv provides comprehensive, integrated solutions to financial institutions in either a Service Bureau or Resource Management processing arrangement. Fiserv ITI (Information Technology, Inc.) Outsourcing provides resource complements in the areas of Client Training, Applications Conversions, Specialized Technical Support, Electronic Banking Support, Network Support, Clients Services and Relationship Management - all combined to deliver proven, state-of-the-art, one-stop shopping for data processing needs (www.Fiserv.com). Fiserv will provide all the technology Nexity needs to run its operations; from deposit accounts, to loans, to general ledger, and to check processing. Fiserv