New focus on licensing its pioneering platform to larger banks

OneCore shoehorns a slew of great messages on its home page, but they need to declutter the first impression and drive surfers to the excellent online demo.

The Company

OneCore Financial Network
47 employees
5 Oak Park Drive
Bedford, MA 01730
(781) 275-5900
www.onecore.com

In the two years since its debut online in March 1999 (soft launch in Dec. 1998), OneCore has focused on small business financial needs, targeting companies with less than 100 employees. OneCore, based in Bedford, MA, began as Boston Financial Network in August 1998, a geographically specific name which was changed to OneCore Financial Network in late 1998. It’s a true virtual bank, using third parties to deliver state-of-the-art small business banking services, without the cost or trouble of a bank charter.

The privately-held company has 47 employees and has chosen to disclose little about its operating metrics, other than to say that it has “several thousand” customers. During the last six months OneCore’s Web site traffic has been under the minimum threshold (approximately 90,000 unique users) to register on PC Data’s Top 13,000 list, but in Q3 2000 the company averaged 102,000 unique users, and in May and June 2000, when they were more actively marketing the company in print media, it averaged 225,000 unique users.

We were impressed with our first look at the company and awarded OneCore a Best of the Web designation in April 1999. It was the first non-bank to pioneer the truly virtual concept, using a money market mutual fund for checking, and partnering with other providers for other business banking services. The company even established a deposit-taking network striking correspondent banking deals with 10 banks in 25 states.

However, at the time we were skeptical of its ability to attract customers as a standalone operation and concluded that it should partner with established bank brands. Here’s how we closed our April 1999 analysis, “We think a stronger value proposition is needed to get small business owners to move to a new bank. But the OneCore product combined with the credibility of an existing financial institution could be a hit.”

In late 2000, OneCore management reached the same conclusion, de-emphasizing the direct business and focusing on distribution through bank partners. OneCore services are now available for full private labeling. However, the company has yet to land a major deal, and recent executive departures (see below) do not bode well for this business banking pioneer.

OneCore’s customer research in late 2000 found that 75% of existing OneCore customers still had a relationships with a traditional bank, and 90% of those  (68% of all survey respondents) wanted to link their traditional bank accounts to OneCore. So OneCore has folded its money-market-mutual-fund-based checking account and now wraps its services around the client’s existing checking account; precisely our vision of the future for Net-only banking  

Source: Company, 4/01

Funding: OneCore is privately held; a total of $40 million has been raised from Century Capital Management, Paine Webber, Merrill Lynch, CMGI @Ventures, and others. The company raised $30 million in the last round of financing which closed in January 2000. The company says it has no current need to raise capital; and, with its current plan, does not anticipate any additional capital requirements until 2003. To soothe skittish clients, as part of the licensing process, the company is putting source code in escrow for licensees in the event that OneCore went out of business.

Products and Services

Prospects willing to register with OneCore are treated to an excellent online demo that allows them to test most features of an actual account using a test data set. Prospects who prefer not to register, or simply want a quick overview, can choose a step-by-step presentation. During the demo, OneCore makes it easy to take the next step with Register or Contact Us buttons on every page.

All OneCore products and services now work in tandem with existing bank and brokerage accounts. Initially, the company required a OneCore checking account, but that requirement was removed late last year, and as of April 1, 2001, the company has discontinued the money market/checking account and no longer holds customer deposits. Transactions are funneled through the client’s existing bank and/or brokerage account via ACH (electronic transfer) powered by PNC Bank. Since the bank is no longer operating a checking account, it can do away with its unique, but expensive, deposit-taking arrangements it had hammered out with 10 brick-and-mortar banks in 25 states including Fleet and Wells Fargo.

Table 1

OneCore Features

Table 13

OneCore Pricing and Service Providers

Source: OneCore, 4/01

 An important aspect of OneCore’s platform is the multiple level of system access, all controlled by the master account. From the demo, here is an example of the master list of access permission. 

Marketing Partners: Like most Internet companies, OneCore has signed a host of distribution deals with big-name providers such as Cisco, Dell, EarthLink, OfficeMax.com, Peachtree, and Register.com. They also inked deals with Bigstep.com, CenterBeam, ClickThings!com, The Company Corporation, Creative Exchange, eCongo Free Commerce, Entrepreneur.com, Mercantec, Netopia, National Small Businesses United, SmartOnline, Inc., StartupNetwork.com, USAccessBank, and Works.com. In addition, dozens of affiliate send prospects to OneCore. Unfortunately, even with widespread distribution, the company was not able to gain enough of a foothold to continue in the direct business.

Customer Service: The company is attempting to drive business to the email channel with a 2-hour response target during business hours. But customer service, both email and phone support, is limited to 50 hours, 8 am to 6 pm EST Monday through Friday (e.g., no support on the weekends). This means a West Coast company doing payroll on Friday afternoon after 3 p.m. has no OneCore support until Monday morning. An after-hours, “clients only” emergency number would still be reassuring.

Insurance Coverage: Prior to shutting down its Money Market Account April 1, OneCore boasted $25 million in insurance per account; $500,000 from Securities Investor Protection Corporation (SIPC) plus $24.5 million from Travelers Insurance. A nice feature, but the company doesn’t believe it was worth the cost.

Pricing to Financial Institutions: OneCore is targeting its platform to the top 100 banks, excluding the top 10. The customizable package carries a licensing fee, maintenance fee, and per-user fees. The system could be up and running within 60 days depending on the level of customization. 

Although the company is targeting a mid-six figure licensing fee, until it signs some major deals, everything is negotiable. If you are at all interested, we recommend giving CEO Jack Littman-Quinn a call, (781) 275-5900, ext. 133,  jlq@onecore.com  . If you are a smaller bank, you might consider gathering a consortium of five to ten banks that could share in the licensing and operation of the small business platform.

Analysis

OneCore does a lot right; to the outside observer the list of pros is much longer than the cons. However, each con is a major issue, potential deal killers in today’s environment.

Pros

• Good management
• Unwavering focus on small business
• Solid product offering
• Slick marketing communications
• Good reputation, lots of positive press during the first 18 months, but little since mid-2000
• Attention to service with 2-hour turnaround during business hours
• Integration with third-party accounts via electronic funds transfer and account aggregation through Yodlee
• Good Web site, though a bit cluttered for our tastes
• great demo, with test data set that can be put through the paces

Cons

• The inability of the company, and its product line, to attract enough paying small business customers to become a viable stand-alone virtual bank; as a result it is in the midst of corporate strategy shift, from direct distribution to a service provider for other financial institutions
• No track record as a platform provider
• No signed deals, even after 6 months of discussions with financial institutions; the company expects an initial sales cycle of 6-9 months
• A few signs of financial stress:
      - the recent departures of three execs, although the top two remain
      - no customer service support after M-F 8 am to 6 pm EST hours
      - recently discontinued its primary transaction account
      - last financing round was 15 months ago (Jan. 2000); although OneCore says it won’t need to secure       additional capital until 2003
      - no press releases have been posted since Dec. 7, 200
      - The Web site has quite a few areas that have not been thoroughly updated, as of April 19 we noticed
           * no mention anywhere about its 6-month-old focus of third party distribution
           * the discontinued money market account is still mentioned in numerous places, although
              it has been removed from the main product page
           * no news items have been posted since Sep. 14, 2000
           * departed execs are still listed on the management team section

   (Ed. note: OneCore responded that its Web site would be updated by month end)

One Core does a great job of continued communication with customers and prospects. Its monthly email newsletter is concise, attractive, and to the point.

The February 2001 left newsletter included:

• better cash management for your business
• a customer profile
• a special offer to save $50 on any purchase of $250 or more at OfficeMax.com
• 7 steps to smart money management
• (the reference to a Money Market account is no longer valid)

Table 3

OneCore Client/Prospect Survey Results

Source: OneCore 11/00; sample size = 1,922 OneCore clients and prospects; fielded in July and October 2000 respectively.

www.onecore.com

The OneCore.com home page complete with credibility-building quote and picture of founder, prominent link to a demo/tour, and a ho-hum fictional testimonial.

The graphics are excellent, the site is fast, and it does a good explaining features and benefits.

We knew it would happen (see OBR 6/98, “Creating the Amazon.com of Financial Services”) and frankly we’re a bit surprised it took this long, but the first truly virtual bank has opened. It’s not really a bank by the traditional definition, but the services offered, right down to the night depository, are exactly what a traditional bank would offer, and then some.

The Companyy:

Barry Star, Founder

OneCore Financial Network, Inc.

800 West Cummings Park, Suite 2800

Woburn, MA 01801

Phone: (781) 938-1001

Fax: (781) 938-0205

Email: info@onecore.com

Description: OneCore.com is a small business bank that’s not bogged down by a bank charter, bank capital requirements, bank CRA requirements, bank overhead, or bank compliance issues; it simply ports the best bank products to the while offering 250 times more deposit insurance protection than the FDIC $100,000 limit.

History: OneCore Financial Network, formerly known as the Boston Financial Network, was formed in August and launched in December 1998. Founder Barry Star was the developer of Fidelity’s pioneering online brokerage service, Fidelity Online Express from 1989 to 1994. Other key execs include: Jack Littman-Quinn, founder of PCs Compleat which hit $255 million in sales before its sale to CompUSA in 1996; Larry Armstrong, formerly COO of Fidelity Brokerage Services; and Christopher Hill, formerly Marketing Director at Farsight Financial Services, an online brokerage owned by D.E. Shaw. First-round investors, Holden Capital and Crown Venture, both in Chicago, kicked in $3 million in 1998. A $7.5 million second round was completed in February with an investment from CMGI, an early backer of Lycos and GeoCities.

The Products

The virtual financial services company is currently offering banking, cash management, lending, investment, 401(k), credit card, and payroll services. They are the first company to deploy Checkfree’s commercial bill payment service (see OBR 9/98, for more ideas on small business services).

Current Products & Service Providers

Source: New York Times, 2/4/99

Announced Future Products

Source: company, 4/2/99

Service Attributes: Email 7 x 24; phone: 8am to 6pm EST Monday through Friday.

Security Attributes: $25 million in insurance per account; $500,000 from Securities Investor Protection Corporation (SIPC) plus $24.5 million from Travelers Insurance.

Account Pricing: The company has established a base “membership fee” of $25 per month per company which includes a money-market account paying market rates, along with unlimited paper check and debit transactions, reports, access controls and downloading. Prices for individual services are summarized in the following table (upper right):

OneCore Ala Carte Services¹

¹On top of $25/mo base fee

Business owners can set up various levels of
access and transaction abilities for employees.

Analysis

We don’t see the bank charter as so all-important when dealing with a segment such as small businesses that could care less if you have FDIC insurance. The key is credibility, a real weakness at OneCore.com or any other unknown financial institution. While $25 million in account protection is a good start, we need to know when we get reimbursed. If someone breaks in and wipes out a $300,000 balance needed to make payroll, how long will it take to get it back? Hours? Days? Weeks? Months? The answer to that question could mean life or death to a small business.

We also wouldn’t buy until overdraft protection was available from a line of credit. And even then, the $25/mo plus $0.90 per bill paid doesn’t particularly motivate us to change banks. We think a stronger value proposition is needed to get small business owners to move to a new bank.

But the OneCore product combined with the credibility of an existing financial institution could be a hit. If you are looking to make inroads into the small business market in 1999, you would be advised to talk to Star now. Negotiate an exclusive deal to market a co-branded OneCore service in your market.