First Internet Bank of Indiana

Abstract

The purpose of this case is to evaluate the opportunities and challenges the Internet presents for financial service forms of competition and to channel cannibalism.

Excerpt

UVA-F-1286

First Internet Bank of Indiana

In early March 2000, Tanaka Osaka was sitting in his office in New York, thinking about an American company in which his employer Dai-Ichi Kangyo Bank, one of Japan's leading banks, had a major investment. The company, CIT Group, was the largest publicly traded commercial-finance company in the world, in which his employer owned a 24-percent equity interest. As part of his role in assisting the general manager of Dai-Ichi Kangyo Bank's New York office, Osaka followed developments at CIT and prepared quarterly evaluations of CIT's performance and its outlook for the general manager. As he was developing his report for the end of 1999, Osaka became intrigued by a recent development at CIT, its investment in First Internet Bank of Indiana. This marked the beginning of a relationship in which CIT would market First Internet Bank's services to its customers.

CIT Group

In March 2000, with over $ 50 billion in assets and $ 2.2 billion in revenue, CIT Group was the largest publicly owned commercial-finance company in the world. Originally founded in 1908, CIT grew over time through a combination of mergers, acquisitions, and internal growth. On November 15, 1999, CIT completed its largest acquisition to date with the merger of Newcourt Credit Group into CIT. In one stroke, CIT doubled in size using Newcourt to add $ 23 billion in assets to CIT's $ 26 billion. Among the various industry leadership positions that CIT achieved, as a result of the merger, was its position as the leading small-business lender in the United States, where it surpassed even the largest commercial banks' portfolio of small-business loans. Exhibits 1 and 2 provide financial information on the merged CIT at the end of 1999.

The newly merged CIT provided a broad range of financial services. Exhibit 3 summarizes CIT's major business lines. However, as a commercial-finance company without a banking license, CIT could not boast the broad range of banking services provided by its commercial-bank competitors. A small-business customer could not pay his bills with an account at CIT but had to go to a local bank to deposit the loan money provided by CIT. This situation was both a plus and a minus for CIT. It meant the firm was not a full financial-service provider for its customers, but it also meant that it avoided the detailed regulation that went with a banking license. This may have restricted its ability to provide its customer base with loans because the firm's asset-based financing could be limited by banking regulators' credit guidelines.

. . .

Keywords: managing change, commercial banking, corporate strategy, distribution channels, financial institutions, strategy formulation, e-business