NextCard, Inc. is a US company that was one of the first online credit card issuers, and the first to offer instant online approval. Its headquarters is located in San Francisco, California, and has offices in Livermore, California and at St. Louis. 44 and Van Buren in Phoenix, Arizona. The issuing bank is known as NextBank and is wholly owned by NextCard, Inc.
NextCard, Inc. began during the Internet boom in the late 1990s. Jeremy and Molly Lent, a married couple, founded the company in 1996 as Internet Access Finance Company, then changed its name to NextCard in 1997. During the early 1990s, Jeremy Lent has served as CFO for Providian Financial Corporation which relies heavily on direct method of email marketing "to identify and recruit customers who use extensively credit cards". Convinced that he can adjust this marketing strategy to the Internet, Lent left Providian to form NextCard.
Video NextCard
Operation
The Lents business plan is based on two assumptions:
- Since the key metrics in the credit card industry are the cost of acquiring new customers, he feels that he can "use the internet to cut the average cost of his competitors" bricks and mortars "and
- He believes his company will "significantly reduce bad debt losses over conventional credit card issuers because marketing research has found that internet users are generally more affluent and, thus, better credit risks, than individuals taken from the general consumer population ".
Because of this assumption, NextCard, Inc. offering credit cards with lower interest rates than competitors.
NextCard issues MasterCard and Visa cards with their own brands, and co-branded cards with MyPoints.com, PlanetOut.com, and Amazon.com. NextCard also issued a secured credit card. NextCard was a large online advertiser at the time, as they only accepted online applications. The website "was regularly named one of the top 50 financial websites by Money magazine and in 2000 attracted more online 'clicks' than any other website in the financial services industry."
The company set an aggressive growth target and went public in 1999. After the initial public offering, the internet 'bubble' in the stock market has exploded. It "effectively shut down NextCard access and thousands of other struggling Internet companies into debt and equity markets". Jeremy Lent's assumptions are also proven to have flaws; per-customer acquisition costs are higher than expected because internet users tend to ignore the online advertising of NextCard (which is also very expensive), and customers are people with a little credit worthiness seeking "lender of last resort".
Maps NextCard
Downfall
To minimize credit losses NextCard refuses to "provide sufficient allowances per period for expected bad loans". The Currency Financial Supervisor (OCC) reviews the company's accounting records and operating policies and procedures and forces NextCard to "significantly increase the allowance for bad debts". In response to this, NextCard stated that the bad debts are high due to fraudulent schemes committed by hackers and the like.
On October 31, 2001 it was announced that NextCard was under capitalization and subsequently investigated by the Federal Deposit Insurance Corporation (FDIC) and the Office of Currency Financial Supervisory. The reason, as stated to the employee, is that the company has categorized it as a "fraud loss" which should be categorized as "credit loss"... which means the company is trying to categorize it as a fraud of some of the money lost by issuing a card to people with very bad credit. The Amazon.com visa issued by NextCard was later issued by Chase following the death of NextCard.
NextCard Investors immediately filed a class action lawsuit alleging that management has engaged in insider trading and hiding the company's financial status. To add controversy, NextCard's external auditors, Ernst & amp; Young, editing past-work audit papers and electronic time stamps to eliminate the responsibility for giving a clean audit opinion the previous year.
One of the auditors, Oliver Flanagan, kept a computer diskette containing proof of editing and submitted it to federal authority. NextCard main auditor from Ernst & amp; Young, Thomas Trauger, will be sentenced to one year in prison and two years of "supervised release."
NextCard's share price fell from a high of $ 53.12 to $ 0.14 per share, and in February 2002 the company was taken over by the FDIC. The bank tried to find a buyer and was negotiating with CompuCredit for a while, but in the end no buyers were found. In early July 2002, most of NextCard's credit card accounts were closed.
Small portfolios of credit cards issued to those with low credit scores are sold to Merrick Bank of Utah, which then increases the annual percentage rate (APR) and costs. In 2003, NextCard was dissolved with a liability of nearly $ 470 million and a realizable asset of about $ 20 million. Fraudulent fees and insider trading fees are filed against the five former executives of NextCard.
In 2005 the US Securities and Exchange Commission annulled its alleged fraud against Jeremy Lent and in 2006 regulatory and shareholder settings against former executives of NextCard were finalized.
References
External links
- FDIC failed bank information for NextBank
Source of the article : Wikipedia
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