NetBank

» see netbank.com as it lived, on the wayback machine

~ the obituary ~

netbank was a US-only product at the regulatory layer. it was an FDIC-insured savings-and-loan that happened to have no branches, which mattered intensely to anyone in the United States looking for a checking account that paid more than zero percent interest, and which mattered approximately not at all to anyone outside it. you could not open a netbank account from turkey. you could read about it in tech press as the future of banking. that was the whole consumer-facing distance.

the company started in february 1996 in alpharetta, georgia as atlanta internet bank, founded by D.R. grimes. it was the first FDIC-insured online-only bank in the country. the pitch was straightforward: no branch overhead means we can pay you better interest. by 2000 it had been renamed netbank, taken public, and grown into something that reasonable people compared to what ING direct would later become. the dot-com bust knocked some of the air out of the stock but the bank kept growing.

then management decided to be in the mortgage business. netbank acquired several mortgage originators in the early 2000s and started buying loans on the secondary market. when the subprime cycle started misbehaving in 2006, netbank was holding the wrong end of a lot of paper that defaulted before its first payment. the office of thrift supervision later cited "weak underwriting, poor documentation, a lack of proper controls" as the reasons for closure. on september 28 2007 the OTS shut the bank down. ING bank assumed $1.5 billion of the insured deposits for $14 million and inherited 104,000 customers. it was the largest US bank failure since the savings-and-loan crisis of the late 1980s, and a leading indicator of the 2008 collapse that was still a year away.

~ the case file ~

~ how it landed ~

netbank in 1996 was an oddity. the FDIC had to figure out how to insure a bank with no physical address that customers could walk into. the marketing was built around the gap between what a brick-and-mortar bank paid in interest (close to nothing) and what netbank could afford to pay (a couple of points higher). people who used checks rarely and who valued the higher rate over the branch convenience signed up. for several years it was a quiet success story that the early business press loved to point at when explaining what the internet was going to do to retail banking.

~ how it actually ended ~

the death was not about technology. nothing technological broke. the website worked fine. the death was about a savings bank that had decided to be an aggressive mortgage lender during the worst possible window. netbank had bought market street mortgage and meritage mortgage and other originators between 2002 and 2006, then watched its loan book curdle as the subprime market started defaulting. by mid-2007 the company had reported losses of $202 million in a single year. the OTS issued the closure order on september 28. customers above the FDIC insurance limit lost roughly $109 million between them. the lesson the rest of the banking sector should have learned was filed away and forgotten until the following september.

~ what got buried with it ~

the brand survived in zombie form for a couple of months as ING marketed the deposit transfer, then evaporated. there is no netbank.com today that points anywhere meaningful. ING direct itself was later acquired by capital one and rebranded again. the model netbank pioneered, branchless banking with FDIC insurance and a competitive interest rate, is now the entire fintech sector. ally bank, marcus, varo, chime: all of them are netbank's children, even when they do not know it. netbank itself is remembered, when it is remembered at all, as the first warning shot of 2008 rather than as the company that proved internet banking could be a real category.

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