NextCard

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

~ the obituary ~

NextCard was the kind of product a specific set of people could buy, and I was not in that set. It was an American Visa card underwritten against an American credit file, sold to Americans, and in 1999 I was fifteen years old in Turkey with a modem and no interest in revolving credit. What makes it worth a grave from this distance is that it was the first company to treat a credit decision as something a web page could do by itself, and the first to find out what that costs.

Jeremy and Molly Lent founded it in 1996 in San Francisco as Internet Access Financial Corporation and renamed it NextCard in 1997. Jeremy Lent had been chief financial officer at Providian, one of the more aggressive credit card issuers of the period, so the founding idea was not naive about the industry. It was a bet that the industry's most expensive line, finding new cardholders, could be replaced by a banner advertisement.

The product itself was genuinely new. You filled in a form on a website and got an answer in about thirty seconds, with a credit line attached, rather than mailing paper and waiting a fortnight. You could put your own photograph on the card. For 1998 that was closer to the future than almost anything else being sold on the web, and it worked: the company went public on 14 may 1999 at twenty dollars a share and raised 120 million, and the stock ran into the forties on the first day. It later reached 53.12.

~ the case file ~

~ the pitch ~

The argument to investors had two parts. The first was that acquiring a customer online cost a fraction of what direct mail cost, which was true. The second was that people who were online in 1999 were better credit risks than the general population, which was an assumption dressed as a finding. Being an early internet user correlated with income in 1996 and correlated with much less by 2000, and the company kept underwriting as though the first thing were still true.

Underneath the brand was NextBank, N.A., a limited-purpose national credit card bank chartered by the Comptroller of the Currency, headquartered in Phoenix with the actual work done around San Francisco. It held about 700 million dollars in assets. Everything that mattered legally happened at the bank, and everything anyone had heard of happened at the parent, which is the structural detail that made the ending as abrupt as it was.

~ the numbers that were not real ~

From at least november 2000 the card portfolio was going bad faster than the plan allowed for. According to the SEC's later complaint, rather than disclose that, senior officers made a series of undisclosed accounting adjustments to the books after the quarters had closed, reclassifying losses so that the reported delinquency figures held. An Ernst and Young auditor, Thomas Trauger, altered work papers relating to the audit and later went to prison for a year over it.

The regulators got there in the autumn. On 31 october 2001 the OCC required much larger allowances against bad debt, which pushed the bank into undercapitalized status and forced the company into a sale process it could not finish. The stock, which had been above fifty, ended at fourteen cents. On 7 february 2002 the OCC closed NextBank and the FDIC was named receiver. There were 1.2 million cardholders and 1.9 billion dollars of receivables on the books that day.

~ what got buried with it ~

Most of the accounts were closed by july 2002 and the portfolio was sold off. NextCard Inc. went into bankruptcy and was liquidated in 2003, showing liabilities near 470 million dollars against realizable assets of roughly twenty. The failure cost the Bank Insurance Fund 146 million by the FDIC's own accounting, well under the three hundred million and up that was being estimated at the time, and the handling of the securitized receivables was argued over in the trade press for years afterward. The SEC charged five executives; the fraud charges against Jeremy Lent were dismissed in 2005.

What survived is the idea, which is now everywhere. Instant online approval is how nearly every consumer credit product in the world is sold in 2026, and the thing that had to be built after NextCard was not the form on the page but the underwriting behind it. The first company to make the decision fast was the first to find out that fast and correct are separate problems. nextcard.com is currently a wallet app for keeping track of other people's cards.

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