Nexity and the Us Banking Industry

Introduction of Nexity3 I. inter issue compend3 A. Industry and consec mark Analysis3 B. PEST Analysis6 II. INTERNAL ANALYSIS9 A. Resources View Analysis. 9 B. survey chain analysis10 III. Nexity pecuniary analysis12 A. Nexity hope tonal pattern of work simulation and strategies. 12 B. Nexity Financial Analysis. 13 IV. SWOT ANALYSIS15 V. TOWS ANALYSIS16 Conclusion17 Introduction of Nexity Nexity is an online affirm, which was initi tot wholeyy cal guide the slew State of revered and it was opened in February 2000. Its headquarters atomic number 18 located in Birmingham, Alabama, USA.Currently, David yen is the President of Nexity and Greg Lee the CEO. The turnover re personateed an amount of $13,018 millions in 2003. chamfer buildinging online is a real(prenominal) bully opportunity for the sticking constancy, there was a projection of 67 million of Ameri dissolve using it by 2007 comp ard to 38 millions by 2003. thither were a lot of conform toers in this c ompetitive marketplace but Nexity had a generic dodge of differentiation by spreading its geographic and demographic customer base throughout the US. External Analysis Industry and Demand AnalysisHistorically, there was a rebound of the bordering industry and rapid growth in this area after the Great Depression and World War II, with the expect to extend the industry from being utmostly concentrated. Indeed, the US coasting industry was a fragmented and dispersed system but it changed in the 1980s. These changes were due to m unmatchabletary legislation which complimentsed to lead to a much than integrated pecuniary system in US in terms of activities and ingatherings The deregulation led to consolidation and consequently to reinvigorated-made tilt.Helped by the Gramm Leach Blileys work out passing playing extended situateing but as well by the changes in colloquy and information technologies, the US buzzwording industry knew a merger frenzy and a lot of acq uisitions were d iodine. All had the same goal to develop a much national brand recognition in a market freshly concentrated. But s force outdals also appeared due to these new changes. Concerning the size of the industry, it is obvious that the density could be seen betwixt 1980 and 2002.Number of institutions declined from 14,434 to 7,887 contrary to their branches which raised a lot from 38,738 to 66,185. up to now it is important to make the distinction here mingled with two types of banks. At first, there were the brick-and-mortar banks and then appeared the realistic champions, such as Nexity. Now, lets equate Nexity in the US virtual banking environment by a review of the briny(prenominal) actors performances in 2002. Institution Assets (in thousands) Deposits (in thousands) E*Trade Bank $17,453,676 $9,157,328 ING Direct 16,142,091 13,112,826 NetBank 4,280,899 2,479,421 Principal Bank 1,967,342 1,826,018 BMW Bank of North America 1,149,732 156,983 theme Inter bank 645,448 528,516 Nexity Bank 501,167 368,523 Ameri sight Bank 472,181 336,288 Here we house see that Nexity is the seventh virtual bank on the market in terms of assets. more important, we also notice that E*Trade Bank and ING Direct are the first and second ones, with a coarse gap separating them from the others, among which competitor is sincerely hard. Porters five forcesEven though there are less(pre tokenish)(prenominal) and less institutions since the 1980s, there is still a high rivalry among the competitors in virtual banks. Clients are more and more oriented to the more rent subject streets like internet and ATMs. practical(prenominal) banks consequently deliver a lot of wait ons but still through internet that seize to reduce be in occupancy and salaries in order to straits better rank of liaisoningness (to 3 times better than averages). Virtual depression-costs positioned banks compete once a pile upst other virtual banks with good customer service, in-ho procedure costumer selective information and service center ope confines, unwavering management teams, a good immingle of enticeively priced produces, and low marketing costs.Its a price competition which includes start out margins directly. What about the entry obstructions with strength entrants? It is a low threat. The largest barrier to entry is the expenses in founding a bank a new bank needs to raise 8-12 million to begin ope rations. But start-up costs for virtual banks are much less expensive than for handed-d sustain banks virtual banks could begin operations for millions less than traditional banks (no offices, and so forth ) , even though theyll hand to invest a lot in marketing and advert budgets in order to seduce depositors at the start-up time. The second barrier is faithfulness to matureer, larger, and more effected brand-name banks.Here we buns talk about a interlock effect. And third, an existing bank retention conjunction endures investme nts and backing for the new bank by spinning off a separate banking entity. Concerning the substitutes, the only ones could be traditional banks beca intent tidy sum need safety and want to be undisputable about their currency by advices. There would be a transpose from virtual banks to brick-and-mortar ones, because stack are deceived or want to experiment again the first one, with a better consideration of its favors. But there is less possibility for this than the opposite because raft want more and more to gain time. Thats why there is a low threat of substitutes. Clients are the buyers.They exhaust a relative passeling power especially on the rate of by-line on accepts. The first throw off an interest to bargain and contain a dicker power because of the rate of interest as a complement revenue and because banks need liquidity to shut away. He stub buoy withstand some influence on the bank with other clients. give voice of mouth works a lot with a service you u se daily. Brand recognition also can be negative. Suppliers They are the companies that provide inputs/service that banks purchase in order to be able to borrow and lend money. It can be a safety certificate for online web, labelsetc. With an environment force by scandals, they can have a bargaining power but it is still relative because there are a lot of suppliers. ==> Internal rivalry, Buyers and Suppliers are the strongest forces in the US online bank industry, whereas potential entrances and substitutes are the weakest.Key Success Factors can consequently be defined for this industry forecasting all the marketing and communication budget for implementing and then safe go forwarding talking about the bank for new customers using the more rentable channels for the customers offering low rate of interest in acceptation and high for revenues to client and convincing people of the value of virtual banks implementing more and more safety with technologies. PEST Analysis One of t he main locates in the external analysis is the PEST analysis. The goal of this portion is to determine which are the main external forces affecting the US banking industry.Then, we go forth introduce and break down in the follo earng victimization which detailors sham directly positively or negatively this sector in dividing them on the political, economic, social and technical views. On the political view, the US presidency has a place of protagonist in the current US banking system. In fact, US government launched series of laws which have completely changed the US banking landscape such as the Reigle-Neal Inter secernate Banking and ramose Efficiency Act and the Gramm-Leach-Bliley Act. The first one allowed a bank holding companionship to buy some other bank anywhere through the linked States without taking into estimate the state law. The second one allowed affiliation between banks, securities firms and insurance family.Logically, this deregulation, or the openin g of state market that it includes, has strongly impacted the US landscape in change magnitude the competition on the national area. Moreover, the deregulation led to a merger mania that is to give tongue to institutions use a process mergers and acquisitions in integrating vertically and/or horizontally in order to have more costumers and so to gain market shares, and to develop the range of products and serve. Finally, the impact of the US government could be seen as an opportunity for banks (the biggest currently) which got out as leaders to the deregulation and merger mania because the market is bigger but as an threat for banks which went to bankrupt.Its epochal to notice how the Fed affects the economy and the US banking system through the actions on the real interest rank. In fact, because the Fed can set the nominal gold rate as a sole supplier of reserves for US banks. But it can influence too the real interest rate thanks to the set of the monetary policy that forge t operate in the future (the monetary policy of tomorrow influences the real interest rate of today). Then, the Fed has a direct impact on the aim of the real rank and consequently on the whole of economy. For example, if the real rates are lower, the activity of banks will sum up because borrowing costs will decrease and investments from households will increase in order to buy goods or function.Increasing of consumption from householders will boost the different industries which will invest in capital, in production capacity or in labour (decrease of unemployment). diminution real rates will get investments as common standard more mesmerizing and will boost the US internal business in limiting imports because the foreign exchange value of the dollar is lessen and so, the foreign product get more expensive. On the economic point of view, multiple factors should be taken into account. One of the most significant points is the interest rate which is developed upside. Finally, that represents an opportunity if the real rates are declining and kind of a threat if it is growing. Moreover, other non-negligible point is the purchasing power of households.In fact, jibe to some economic theories, an increasing part of households consumption is oriented to service expenses on the one hand, and, on the other hand, other certain part of it matches to savings. Generally speaking, a growing purchasing power represents an opportunity for banks because deposits increase and the banks are more resources for investments on financial markets. But its inhering to notice that two significant elements have a direct impact on the purchasing power of households the unemployment rate and the inflation rate. Effectively, if the unemployment rate is increasing and/or if the inflation rate is superior to the increasing rate of reward means that the global purchasing power is decreasing.Social factors impact directly the US banking system because of the diversity of the unive rse, the human ecology, the differences of client expectations concerning bank services all of these elements play a role on the behaviour of the clients. The first point that we have to take into account is the fact that an average costumer want to have trust and confidence in his financial institution. Thats why banks have to reassure their clients about the financial wellness of the institution, about the feature of the offered services and about the security of the operating system. That is a positive impact for oldest bank which have developed a brand name and tensioned on a client-loyalty strategy or for biggest institution which bring proof to the financial health. But through the analysis of the demography, we can categorise the population.For example, old people prefer to keep a physical contact with the banker in emulation to youngest people which have more confidence and more ability to make financial operations on new channels as internet. Moreover, we can distinguish clients in function of their expectations long-term engagement combined with timber of services against short-term engagement with advantageousness (hit-an-run costumer for example). This categorisation of the population linked to a particular behaviour can be seen in parallel to the age, race, social level, kind of job occupied then we can say that its more an opportunity for traditional banks which offer a largest range of products and channels.Concerning the technological factors what is significant to put in relief is the technological improvements perceived as an opportunity for banks and the threat of hackers linked to this news technologies. In fact, thanks to the technological improvements, banks have more and more ways to take in the consumers themselves and these needs. Banks use different ways to satisfy clients such as ATMs, debit cards, call centers and telephone banking, wireless banking and internet sites. These are channels to keep a constant contact with the cli ent for different reasons and to be all the time available to respond to any demand. Moreover, banks develop strategic engineering science partnerships (like Fiserv for Nexity for example) in order to save the cost of technology and to have the uttermost(a) updated computer software.Updating software limits the risk of hacking and restores confidence of clients about the security on the account financial information. But even if a regular updating software and a reinforcement of the security, the threat of hacking stays pervasive. Furthermore, with the development of internet, we have seen emerged a new kind of competitors for the traditional banks which are the virtual banks as Nexity or ING Direct. INTERNAL ANALYSIS Nexity gets the opportunity to growth quite fast and its profitability could be High. In order to understand the most appropriate strategy of the go with, we will try to highlight its different aspects by presenting its Resources View Analysis and its Value Chain. A. Resources View Analysis.As the matrix exhibit 7 shows us, the community return of a high improvement of its assets that reinforce its capacity to provide a high level quality range of products Tangible asset referable to its activity, the company owns few distinct asset. In fact, its services allow it to only get some offices from its acquisition of People bank of Alabama with 30$ in asset. The company have also a competitive advantage thanks to the location of its call eye that facilitate the exchange of entropy between the main office and the call internality. Intangible asset By getting a top tier award from Bankrate for its High picture on money market accounts and certificate of deposit, the company proves to its customers its ability and in capacity to provide good quality products.By acquiring People bank of Alabama, Nexity has get as well a know-how of over 100 years, which gives it a significant advantage compare to its competitors, as it has enjoyed the differ ent expertises made by the former company so it has been able to produce High quality products but also reinforce the formers one adapting them to the new requirement of the market, and it corpse also a good point for its publicize with it customers they can focus it with the over 100 year of experience which people are tender with. It also ahs the wind vane Trust postage stamp accreditation that is a certification from the services of the American found of Certificate Public Accountant and the Canadian Institute of Chartered Accounts. It proves that its website delivers safe services. So it reinforces the trust its customers give it but also can be very useful in order to attract new one and to spread its market.Capabilities By getting its break-even point in only 18 month, Nexity has a strong competitive advantage compare to most of its competitors that usually get it in 3 years average. That is to say the company can invest money in R&D for example in order to create and pro vide highest quality product. It proves that the company realises large economy of scale, that it is highly efficient to get outgrowth and it is as well pertinent that it is very successful. Its renowned customer service, which has a very good image with its Customer, as it remains friendly and quick, allow the company to keep its customers as they trust it to give them High quality services.It is the result of the proximity between the main office and the call centre employees are able to provide High quality says to customers as they keep being updated about the characteristics of the products and services and the evolution of them. The competitors cannot give as quick answer as Nexity does because they readiness have their call centre farer away from their office, and perchance abroad, sot hey cannot give more relevant answer as Nexity does. By reimbursing customers using other ATM than Nexitys ones, the company can take in some weaknesses as it costs it quite a lot of mone y Value chain analysis Firm infrastructure The firm has a main office with all the facility costs to support, and its call centre with the same type of costs.So all those generic costs are not a constraint for Nexity and they can concentrate their budget to the R&D or to the improvement of its strengths such as the customers service. Human resources management The main cost is due to the call centre as the company is very focus to give a high customer service. Technology development Nexity website is highly renowned as it gets the Web Trust Seal accreditation, which is a proof of quality for a company that uses the Internet for its distribution channel Inbound logistics As the company provides services, it only has to increase if necessary its tangible and intangible assets. So it has not have to deal with any inbound logistic and it is a strength for its economy of scale politic. OperationThis might be the main department of the company as employees from the call centre with pres ent the different product but also supply strong customer services and those to point are the most important one for the firm to provide a competitive advantage compare to its rival. trade and sales Focusing on an Internet- ground advertising channel like Bankrate. com, the company invest quite a lot to improve its visibility in order to attract as many people as potential throughout the 50 states of the USA. The fact that Nexity proposes a lot of products and services constraints them to happen a lot because they want to provide the best services. This is the result of adopting a differentiation strategy based on reducing costs. ServicesThe company provides a strong customer service in order to keep them as they can be very versatile and find another bank if they are unsatisfied. So it is very important for Nexity to be focused on that and the fact that call centre employees are close to the main office give them a qualitative advantage as people mainly remains satisfied. Nexity Financial analysis A. Nexity bank business model and strategies. Nexity bank is a virtual bank wich works only on internet and earns money from interests rates based on loans. Nexity is build from traditional banking practices, that means this bank is able to deliver all the advantages and financial products1 as a normal bank but with no branche.David Long and the others managers obstinate to applied for their bank the Blue Ocean Strategy wich links at the same time differentiation and low costs strategies. One can talk about blue ocean strategy, because the market was not established and competitors were not really present in this sector. This strategy aims to create a new market space and to make competition irrelevant. Nexitys builders knew that, if they were able to propose at the same time good quality products with attractive interest rates coupled with an efficient call centre they will earn market shares and money. These criterias permited to develop the Nexitys strengh, an d one can take after that the differenciation is based on these same criterias an efficient call center and good quality product at the lowest price.If Nexity has attractive interest rates, is hardly because, it doesnt have to pay high overhead costs (no branche) so Nexity can pay more interest on deposits and charge lower rates on loans. This is the second part of the bleu ocean strategy, the low costs strategy because adopting this concept Nexity attracts price-sensitive consumers. Nexity has the lowest interest rate for the cheking but has the highest for One-year Certificate Deposit and Money Market. That means, Nexity wants to keep its consumer. Nexity doesnt want to be a simple bank where consumers only want to check their accounts. Nexity prefers to have people whose need loans and are engaged with the bank. Moreover, Nexity proposes banks services and level pay online.With these offers, the bank aims to work with people between 32 and 49 years old, with an income average of $81,600 and investible assets of $320,300 and these persons miss at minimum 27 hours per week on the internet. So these people have money and spend many time on the internet that permits to the bank to benefit of good quality consumers. Finally one can accent that Nexity adopt also the low cost strategy for its advertising. In fact they did all their advertising on the Internet so they benefited of a huge advertising compaign at the lowest price. Nexity Financial Analysis. Previously, one discovered the strategies assiduous by Nexity in order to become an important actor in the US (virtual) banking industry. Now, its important to know if these strategies are efficients or not.Firstly, if one look at the bank net income growth, one can chanced that the net income had grown by 181% in 3 years, from $-3,032,000 in 2000 to a profit of $2,461,000 in 2003. This is really important growth wich reflects the good health of the business. pic Evolution of the net income between 2000 an d 2003 One can also observe if the bank regard its strategies. The turnover has grown by 250% in deuce-ace years wheras the overheads grown by only 16%. So Nexity respects the strategy of keeping overheads costs low in order to offer elicit interest rates. If one looks at the distribution of the turnover between the interest income and noninterest income, it can observe that the Nexity makes 97. 1% of its turnover with interest rates and only 2. 79% with the noninterest rates. Secondly, it is enkindle to observe some financial ratios The coumpound annual growth wich gives the annual growth rate. And for Nexity, this ratio is around 30%. It is a good indicator for the companys development. The return on equity, wich is relevant for a bank because it gives the banks profitability by uncover how much profit the bank generates with the money shareholders have invested. For Nexity, the ROE passed from -32,71 in 2000 to 12,99 in 2003. One can easily observed that in threesome yea rs Nexity learnt how to make money with shareholders investments. The efficiency ratio evaluates the overhead efficiency structure of a Financial institution. Banking is no different from any industry. If the bank wants to survive the bank has to keep overhead costs down.The efficiency ration permits to measure how the bank is operating, how much money the bank must spend to generate each dollar its bring on. In the Nexity case, this ratio is getting lower and it is good for the bank ans its shareholder. . In fact the ratio passed from 230. 69 in 2000 to 63. 54 in 2003. Lower the ratio, better it is for the bank. So, one can conclude that Nexity respects its commitments because the bank makes money from interest rates and keeps its overhead costs low. SWOT ANALYSIS STRENGHTS Large range of product High comfort of customers High quality of customer services umteen awards from Bankrate( high quality of products High efficiency of the website( Web Trust Seal Accreditation S trong expertise thanks to the acquisition of Peoples bank of Alabama (over 100 years of experience in the Banking sector) Growth of its assets (over + four hundred% from July 00 to July 2003) Good compound annual growth WEAKNESSES Some costs can be avoid (ATM reimbursements) Increase of other borrowed funds that has to be controlled OPPORTUNITIES sham of the American government with the deregulation of the market ( advantages for leaders Internal rivalry buyers and suppliers Forecasting all the marketing and communication budget Bank and bill pay online customers present the most interesting profiles (high income and lots of investable assets) THREATS Hard to attract new customers as they rely a lot on their old financial institutions. Hackers New competitors should appear TOWS ANALYSIS STRENGHTS WEAKNESSES Large range of product Some costs can be avoid (ATM High satisfaction of customers reimbursements) High quality of customer services Increase of other borrowed funds that has Many awards from Bankrate( high quality of products to be controlled High efficiency of the website( Web Trust Seal Accreditation Strong expertise thanks to the acquisition of Peoples bank of Alabama (over 100 years of experience in the Banking sector) Growth of its assets (over + 400% from July 00 to July 2003) Good compound annual growth OPPORTUNITIES cleanse the advertising on internet and traditional media channel in heart-to-heart a new office in another state in Impact of the American government with the deregulation order to get new customers order to understand the market of the of the market ( advantages for leaders Make advertising on the financial media (magazine, news papers) in western state that have a different Internal rivalry buyers and suppliers order to goat a segment that have high income and asset to invest demography (different insurance depending Forecasting all the marketing and communication budget (manager s, directors, institutions) on the state( natural disaster) Bank and bill pay online customers present the most To wage a good communication manager to improve the visibility interesting profiles (high income and lots of investablePropose investment solutions in order to propose high yield products assets) (for institutions and high income) Improve more and more the quality of services given by the call centre to customers THREATS Impact of the American government with the deregulation of the market ( advantages for leaders Internal rivalry buyers and suppliers Forecasting all the marketing and communication budget Improvement of the quality of the web syllabus in order to propose Invest in getting its own ATM system in Bank and bill pay online customers present the most safe services order to avoid reimbursement and do interesting profiles (high income and lots of investableImprovement of the back up system economy in long term keep doing its assets) s trategy based on low costs People are mistrustful with bank on line Even if we could suggest many recommendations, we would choose the SO strategy the company has to reinforce his strengths as the market can involve positively and it can really propose a competitive advantage compare to its competitors based on the low prices of its products. Nexity would need to be focused on improving its marketing and communication but as well the quality of the websites to win the trust of customers. Conclusion As one said in this paper, Nexity bank has many strenghts which allow it to be one of the learder on the market. Moreover they befool correctly the blue ocean strategy which allow them to generate more profits and to count more clients, but senior executive can not stay on these basis. If they want Nexity to be the number one into this business they have to improve their capacity of attractiveness towards potentials clients.