Nix+Case


 * Nix Case**


 * Case Analysis Template

Reading: Blue Ocean or Stormy Waters? Buying Nix Check Cashing. Who: Simone Lagomarsino, CEO of Kinecta Federal Credit Union (Kinecta). Immediate Issue/Problem Being Faced: What was the right decision? Was Kinecta setting sail for the ‘blue ocean’ or heading into stormy waters? Metaphors aside, the board members had to vote on the resolution to spend $45 million to buy Nix. And/or But was this the right way to achieve their goals? Was their quest for the blue ocean worth the $45 million price tag and their risk to their reputation, current membership, and bottom line? Basic Issues: • Lagomarsino may be in over her head as she had no experience with credit unions, or for that matter, alternative financial services (AFS). • It is a risky, costly and controversial move for the Kinecta Credit Union because of people’s vision, in general, of an AFS. -There is a cost associated with educating its customers on AFS • U.S. Credit Unions are exempt from Federal Income Tax because they are organized as non-profit organizations, whereas with Nix, the tax structure would make it a bit more complicated. • 39% of Kinecta households had $75K in income, however they were aging; as well, they were the ‘mass-affluent’ – the most sought-after demographic in the highly competitive banking industry. • Kinecta needed to retain commitment of current members, as well as gain new and younger members that could sustain and grow the organization. • ‘Unfounded’ evidence suggests banks closed branches in lower-income neighborhoods and predominantly minority areas – will Kinecta be able to benefit from this group? • Structure, ie. ‘Banking’ hours, bondability of employees and physical environment, must be drastically changed. • The payday lending industry has been described as ‘legal loan sharking’ and a ‘wolf in sheep’s clothing.’ • Nix Check Cashing had previously been ‘in an arrangement’ with Union Bank of California, but the partnership ceased in 2006. As with the Union Bank, will the same problems repeat themselves because of the two totally different industries that don’t complement each other? (ie. Office of the Comptroller of the Currency (OCC) and the two businesses not being totally integrated) • Nix had about 200 shareholders and Union bank to buy out, as well as Nix Jr.’s own personal needs. • It was becoming more expensive for Kinecta to gain members, perhaps, Nix is the solution • To open a new Credit Union, it was extremely costly and the new membership for these was relatively low, whereas to open new Nix stores was far less expensive with far more potential clientele. • Kinecta needs to get approval from the National Credit Union Association (NCUA), however have very little time to do this. -There is a cost associated with educating its customers on AFS -Expanding their services to a new market could mean less of a focus on their 1.6 million, they must strategize to mitigate this risk -The overall reputation of these AFS services are overall very negative and would impact the reputation of Kinecta in the long run -Acquirung 55 new locations from Nix allows for a missive increase in reach for Kinecta. Acquiring the locations alone carries a lot of value Urgency/Importance: While it doesn’t specifically state how much time Kinecta has, it says they have very little time to get approval. At the same time, Nix does not have a lot of time either, as they are seeking out ‘immediate’ partnership. The urgency, therefor, would be a one to two.

Decision Criteria: 1.Time have to be short for the decision. Based on the urgency issue, it says they have very little time to get apporval, this inquired the time should not be long. 2.Low assessment of risk. Company need mitigate the risk to keep the business in safe and the 1.6 million means lots for Kinecta. 3.Help company to expanding the market of increase the customers. 4.It is necessary to keep the reputation. 5.It will be the trend for the industry in the future. Alternatives: 1. Immediately go into partnership/buy-out Nix. 2. Don’t buy Nix. 3. Kinecta should find alternative ways to improve their business. Missing Information: How much time do both parties have before a decision has to be made? Assessment of Alternatives: 1. Immediately go into partnership/buy-out Nix. Pros -Potential for largest market expansion and growth of new uncontested markets -Potential to reach much more than 1.6 million customers -May be the least expwnsive way to gain additional customers

Cons -Greatest alternative for risk and greatest output of $45m in capital -The relationships between the two companies may clash and create organizational obstacles -The redirection of services may negatively impact their retention rates of their existing customers -Nix’s current net income is relatively low and would take many years to breakeven before even considering its potential profitability

2. Don’t buy Nix. Pros -Retain $45m in capital -Focus on current market -Research less expensive and risky alternatives to grow their market

Cons -Forced to continue to operate in a highly competitive market -Little room to find uncontested market unless they attempt to diversify their services -No risk, no reward. Company need new change to improve the business and empower the employees.

3. Kinecta should find alternative ways to improve their business. Pros -Potentially discover a less expensive and less risky alternative to grow -Potential to discover an acquisition with an AFS that has a much higher net income -Potential to find an organization that has a higher asset to income ratio

Cons -They may miss out on this opportunity. I believe, often the first alternative is the best one -There is the risk to cannot find any other good way to inprove their business in short time -Potential to suffer other risk.

Selection of Preferred Alternative: We prefer the alternative 1 that Kinecta buy the Nix immediately. Because it is the potential expansion of market and can be the trend in the future. This increases the competitive asdvantages and attract more customers. Assumptions: We assue Kinecta has enough cash flow to buy Nix Nix has the potential knowledge and will attract more customers if Nix can continue existing. Action/Implementation Plan: First Kinecta should make a deeper research about the Nix like the goodwill and liability. The necessary know about credit unions and AFS need to be done before the implementation plan made. Secondly, huge amount investement should based on the low influence to the original business. The strategy should consider the orginal business first to make sure the business will continue smoothly. ||