Net.B@nk Under Merger Pressure?

Feeling the pressure from the recent $1.8 billion (US$) merger of TeleBanc Financial Corp. and E*Trade Inc., D.R. Grimes, the chief executive of Net.B@nk Inc., told Reuters this week that he’s also interested in forming new partnerships.

Grimes said the Alpharetta, Georgia online bank is looking for opportunities to expand its product line.

“Sometimes the best way to do that is to find someone that already has the ability to offer that product.”

Some analysts say that even though Grimes’ answer falls short of embracing the idea of an inevitable merger, the fledging online bank really has no choice long term. That is — if it wants to survive.

It’s a Matter of Survival

Pointing to the brick-and-mortar world of banking as evidence that merger-mania will soon envelope its cyberspace counterpart, industry experts say the recent foray of financial giants like Merrill Lynch into e-commerce guarantees conventional banks like Citibank will soon follow. Such huge financial conglomerates have the capital to crush or gobble up smaller players at will.

To its credit, Net@Bank has been moving quickly to offer a variety of additional financial services to its accountholders that are projected to grow to about 70,000 by year’s end. It already offers it customers online trading though a partnership with discount broker UVEST Investment services, plus an electronic bill paying service via CheckFree Corp. On June 7th the bank said it would offer its accountholders virtual safe deposit boxes for electronic documents.

Grimes added the bank plans to expand its offerings to include home equity loans and insurance products. But despite all of this, the fact remains that Net.@Bank only generated about $19 million in revenue last year — making it an easy takeover target for any financial brick-and-mortar bank flush with cash. The glitter of the Net@Bank also seems to losing its shine on Wall Street. Its stock is now hovering in the low $30’s (US) per share — a far slide from its high point April 13 when it was selling for more than $82 per share.

A Niche Player in the Making?

Nevertheless, some banking experts point to the same brick-and-mortar merger-madness as an opportunity for the smaller player like Net.B@ank to distinguish itself by creating and latching on to a specific niche. They say instead of Net.B@nk trying to compete with the full-service online financial conglomerates by trying to be all things to all people, it should pick one thing and be superior at delivering it to a predefined niche market. This, they say, is the cornerstone of smart e-commerce marketing.

But no matter how you look at it, Net@Bank has its work cut out for it. It’s time for it and other smaller online players to take their heads out of the sand and prepare for the onslaught of Internet merger-mania.