TAMPA, Fla. – Having just completed its first full year in business CUNA Network Services has yet to break even, but it’s reporting increased revenue and hopes to be in the black by early 2004. The company, formed in July of 2001 by the combination of Sunstar IP Communications (a tech firm CUNA’s for-profit arm CUNA Strategic Services Inc. used for its online offerings) and the e-com assets of CSSI, says it now has about 1,000 CU clients. That number is misleading however in that 500 of the 1,000 are for its car fax service, a product CNS picked up from CSSI and a product not indicative of the high-tech offerings germane to CNS. The other 500 or so CU CNS clients are utilizing Web hosting, Net banking, ISP, security services, and other high-tech products that the company is hoping will fuel its future growth. Last year CNS revenues increased by 36% to $3 million, and it hopes to reach revenue of $6 million by 2004, which would push it into the black. CNS President/CEO John Hobko said monthly recurring revenue went from about a $150,000 at the start of the year to $300,000 by the end of the year. Despite the uptick in business, CNS is looking for more money. In its latest offering, CNS is seeking $3.5 million. It is offering 135 units at $26,000 each. To show his support, CNS Chairman and Northwest FCU President/CEO Juri Valdov personally bought the first unit. “I as chairman of the board felt that I had to take the lead. We continue to look for money because obviously capital is always a problem in a start-up, high-tech company,” said Valdov. The units are open to anyone, whether it be a league, credit union, individual or company. Hobko says CNS needs about $2 million to reach break-even. Valdov said CNS got off to a bit of a slow start because shortly after it was launched came 9/11 and a continued dot-com bust coupled with a recession. Unlike some CUNA for-profit ventures in the past, CNS has certainly been willing to give up equity in the company to outside shareholders. What’s also unique is the investing companies have a stake in CNS since CNS has partnered with them for their products. For example it partnered with EDS for home banking and bill pay. EDS invested $750,000 in CNS and has about a 5% share of the company. Also, SchlumbergerSema, a leading smart card firm, invested about $400,000; it is the company assisting CNS with its smart card initiatives. Other investors include TravelEx ($300,000) as well as the Colorado ($50,000) and California Credit Union League ($250,000). All leagues actually have a stake in CNS as CSSI, which is owned 51% by CUNA and 49% by the leagues, has a 38% stake in CNS. The CNS Board of Managers and the CNS Advisory Board recently held a joint strategic planning meeting in Phoenix. One clear message coming out of that meeting is CNS will stay focused on security products. It’s not easy to get a handle on all that CNS offers. It has a plethora of products ranging from ISP and Web hosting to a smart-card like USB device, Net banking, and Virtual Private Networks. Offering security-related products and services is a track CNS will continue to take says Hobko as credit unions look to secure their offerings. “We have a remote vulnerability product, a compliance product that goes out and reviews the credit union’s Web site for regulatory mandates, our security policy development where we help the credit union understand the issues and how to manage and put in place a security policy,” said Hobko. One of its most recent product launches is SafeID, a smart card-like USB device that acts as an authentication tool for members and their online services, not only from a member’s CU but at other online sites. Hobko said it can help members manage various passwords and PINs, which becomes difficult as members do more online. Beyond the security aspect, it also stores members’ favorite Web sites and other online preferences. Hobko concedes that the potential for this product initially will be relatively small given it is a leading edge product probably only attractive to tecchies. He expects CNS to deploy about 200,000 SafeID units over the next 18 months – a very small fraction of the industry’s more than 80 million members. But he said it’s the way the world is moving and by 2005 these USB devices will be quite common. That future is what CNS wants to position CUs for he said. “American Express launched a campaign in December for all its Blue (chip cards) to have an ID keeper. This same technology that American Express has spent millions on, we want to bring to credit unions for a very small amount of money,” said Hobko. Safe ID is offered for minimal cost as part of home banking. Valdov said CNS is not going it alone by any means as evident by its high-tech partners. “The key to this whole thing is not reinventing the wheel ourselves. We are partnering with these leading edge high-tech companies to get these products out to the market. We think smart cards and the technology that goes along with them is going to be the future of credit cards and other devices,” said Valdov. In another recent CNS move, CUNA President/CEO Dan Mica (also a board member of CNS), recently sent a letter to all credit unions informing them of CNS’ latest bill pay offer that carries no transaction charges for one year. “It’s very rare that I write to you to promote a product. In fact, it’s almost unheard of. But I’ve recently learned of an opportunity that I feel is so important for you to consider that I wanted to write to you personally and urge you to carefully review some information you’ll soon be receiving about Internet Bill Pay,” wrote Mica in the letter. Internet Bill Pay is CNS’ bill pay product offered through EDS and CheckFree. Hobko said CNS is offering one free-year of transaction charges of Internet Bill Pay for CUs that commit to a five-year contract. Credit unions will have to pay a one-time $2,000 set-up charge and in years two through five, $5.65 per enrolled member. Valdov said the CNS board is relying heavily on its advisory board to keep them on the right high-tech track. “That’s why the CNS advisory board was set up. With people like Mark Sieveright (CEO of TowerGroup) and reps from EDS and others, we feel they can tell us what the future has in store,” he said. [email protected]

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