Net Earnings, yet another Silicon Valley financial services start-up, has created a service tailor-made for small business banking Webs.

CreditFYI allows users to easily evaluate the credit quality of businesses using simple Web-based forms. The entire process takes about 3 minutes and costs just $14.95.

But the best part of the service is the concise, easy-to-read, and graphical summary of the business’s credit profile (screenshot left).

Front page includes credibility-building logos of partners Fair, Isaac and Experian.

CreditFYI Advice for Denying Trade Credit

If you choose to decline credit or give less favorable terms, use the following explanations:

•  They have had relatively little business credit experience.
•  They have had overdue payments.
•  They have assets pledged as collateral which financially solid companies do not ordinarily use as collateral.
•  They have had relatively few satisfactory trade credit relationships.

Source: Net Earnings, 6/26/98, www.creditfyi.com

Launch Date: June 1998

Pricing (end-user): $14.95 per credit evaluation

How it Works: Since business credit information is not subject to the privacy issues inherent with consumer data, the product requires fewer identify verifications, and consequently is easier to use. Although it’s targeted to businesses, any interested party can use it provided they have a valid credit card number. The user simply enters the target company name, verifies the entry from a list of business name(s) matching or close to matching the desired business, enters their credit card number, and presses submit.

Market Potential: According to Net Earnings, there are currently 3 million small businesses using the Internet. The company estimates that each small business has the need to evaluate business trade credit 30-35 times per year; although most currently don’t use the solutions available from Experian, Dun & Bradstreet and others because they are too time consuming, too expensive, and/or businesses are simply unaware of their existence.

In dollars the potential is:

$15 per report

x 32.5 reports per year

x 3 million small businesses

= $1.5 billion per year

The market would expand as the 7 million small businesses NOT using the Internet today began doing so during the next 5 to 10 years.

Business Model: The service will be sold directly on the CreditFYI Web site and in co-branded partnerships with financial institutions and other Web-based information companies. The company could also sell marketing sponsorships on its Web site.

Future Products: Net Earnings is planning to develop an automatic monitoring service to be sold on a subscription basis. The monitoring service would keep the user apprised of any changes to the target companies’ financial situation so trade credit terms could be changed accordingly, and/or collection efforts could be accelerated. This would be an ideal enhancement for an online business banking program.

The company also operates the Small Business Center www.smallbusinesscenter.com , a small business site positioned as a one-stop shopping service for business related financial and other services. The company is also launching a separate loan-related offering called LoanWise that will compete with Intuit’s Business CashFinder in matching businesses looking for credit with lending organizations.

Financial institution Cost:

Net Earnings plans to charge a fixed license fee plus a transaction fee for each credit evaluation delivered. At the MSRP of $14.95 per report, a bank can pocket a few dollars on each transaction. The remainder of the fee compensates Net Earnings and its two partners: Fair, Isaac who provides company info and Experian who provides credit information.

Financial institution Opportunities: Net Earnings is actively looking for banking partners to offer CreditFYI to their clients on a co-branded basis. Banks could use the service in a number of ways:

•  Spice up small business Web offerings with a useful transaction-oriented service; a welcome departure from the rampant brochure-ware in the market today (OBR 9/97).
•  Bundle it with other online banking services to differentiate your online package from others.
•  Position it as the centerpiece of an image marketing campaign, or as a proof point of how your bank does a better job of taking care of business.
•  Use it as a traffic builder to increase the flow of new prospects to the bank’s Web.
•  Operate it as a stand-alone, fee-based profit center.

Financial Institution Pros:

•  You could be first on the block to offer CreditFYI.
•  The fast, useful, and cost effective service would provide a good impression of your bank’s small business services.
•  It would attract business prospects to your Web, especially if non-customers were allowed to use it.
•  Helps build relationships with existing business customers.
•  Could be a breakeven operation, or even a minor profit center.
•  Easy to implement.
•  Low-risk offering with little financial/operational downside and few privacy concerns.
•  Can be integrated with bill presentment offerings, e.g., before presenting an invoice for payment electronically, the biller could check the credit status of the recipient and alter payment terms accordingly.

Financial Institution Cons:

•  Information presented on new and/or small businesses is often sketchy; can be mitigated by bundling more information into the service such as search engine results.
•  Risk rating can be misleading if based on non-current or small trade credit info.
•  Potential litigation from parties denied trade credit based on inaccurate info in the reports; could be mitigated contractually with indemnification from the information providers.
•  Inability to differentiate service if every bank begins to offer on the same co-branded basis; could be mitigated with exclusive contract, private-branded offering, or bundling with proprietary bank services.
•  Little upside for the service (unless you make an equity investment), especially once it’s an established service offering; you would probably get more bang for your buck by improving the loan origination functions of your Web.

Analysis: In testing the service, we found it to work even faster than promised. It took just 1 minute and 43 seconds to find our target company and retrieve its business credit report. That includes entering and authorizing a credit card number, choosing a company to evaluate, and downloading the evaluation. We’ve spent far longer waiting for a single bank’s home page to download. This makes this product one of the few financial services “impulse purchases” on the Net. For a total investment of 103 seconds and $14.95, businesses won’t think twice before ordering credit reports on all their clients.

In comparison, Experian’s Snapshot Report took 2 minutes and 29 seconds, but that was after spending nearly 3 minutes registering for the service (on subsequent visits registration would not be required).

Net Earning’s report was very easy to read and could be digested in about 60 seconds. The entire report only contained about 150 words. But we were somewhat disappointed at how little information the report contained. That has more to do with the sketchy nature of trade credit files of small businesses, than anything Net Earnings can or can’t do.

However, we found it puzzling that Net Earnings supplier, Experian provides a few more bits of data such as principal name, estimated employees, estimated annual sales, and aggregate dollar value of reported trade credits in its $14.95 Snapshot Report. According to Net Earnings, the extra info isn’t provided for “technical” reasons and will soon be added.

Regardless, a bank offering CreditFYI would be wise to bundle additional information with the credit report, such as search engine results on the target company and/or white/yellow page info from BigBook or others. We predict Net Earnings will do the same in future releases if you prefer to wait.

We spoke with Mr. Grossman and Mr. Belser in San Francisco a few weeks ago. They are anxious to finalize distribution deals with banks, but don’t want to give up their branding if at all possible. They wouldn’t rule out a private-branded deal, but the partner would have to make a significant investment in order to compensate the company for hiding their brand.

If you are comfortable with a co-branded arrangement, you may be able to get in on the ground floor under favorable contract terms compared to those that come later. In addition, a major player may be able to participate in the company’s upside with an equity investment.

Net Earnings needs help finding the three million small businesses, educating them on the benefits, and getting them to try the new service. Banks, with credibility and existing financial relationships with Net Earnings target market, are ideal distribution partners.

No matter how you structure it, if your 1999 plans include attracting more small businesses to your bank, we recommend a trip to the Bay Area to discuss the possibilities with Mr. Grossman.

Contacts:

At Fair, Isaac, Latimer Asch is VP Commercial Products, (415) 472-2211.
At Net Earnings, Michael Grossman is CEO, mikeg@netearnings.com Scott Belser is COO, sbelser@netearnings.com , (650) 401-3600.