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Good News for New Business Models
...scalability and the Net

Focus on Security First Technologies:
... Turnkey Net Bank Systems

Focus on Starnet
... Online Casino Operating Systems

Focus on First Sierra Financial
... "B2B" Internet Finance and Bank

Focus on HomeCom
... Web Builder for Banks, Insurance Sellers

Focus on Mathsoft
... Portal for Math Scholars?

Focus on Peapod (PPOD)
...Online Grocery Sales

Focus on Radio Frequency Micro Devices (RFMD)
... Wireless infrastructure

Financial Services Online:
March '98 Update on Insurance

Insurance.com
. . . Online Distribution Strategies for Insurance Products

Bi$Net97
...The Net Proves Commercial Viability

Bi$Net96
...Intro to E-Commerce & Law of Net

Update 3/31/99: New Allies & Admirers.
On February 22, S1 announced strategic alliances with Hewlett-Packard and Anderson Consulting. HP will promote S1 as its preferred provider of Internet applications for the financial services industry and make a $10 million equity investment in S1. Anderson will work with S1 to develop business strategies and implementation processes and will make a $4 million equity investment.

A few days later, on February 25, S1 announced a multi-year contract with Royal Bank of Canada, one of its major shareholders, worth $50 million.

On 3/4/99, Motley Fool featured S1 as its Daily Double, referring to S1 as "one of the top dogs in its sector" and noting its increasing margins and user count.

Update 2/11/99: Quarterly earnings report.
Growth was the theme of the quarter ending 12/31/98, according to a press release dated 2/8/99. Combined revenues increased 184% over the same quarter one year ago. Total revenues for the year were up 123% over the full year of 1997, indicating growth acceleration as 1998 closed. Rising gross margins and a moderate percentage rate of growth in S,G&A resulted in improved ratios at the bottom line.

Growth in revenues for professional services was enhanced by projects for several large financial services entities, including projects to add insurance capabilities to the VFM suite. S-1 reported that they expect enhancement projects to be a significant revenue contributor in 1999.

The number of accounts using S-1 technology continued to increase, with S-1 reporting over one-half million accounts being serviced by year end.

S1 reported 127% increase in revenues and a net loss from continuing operations (x charges related to acquisitions) of $5 million, or 44 cents per share. Data Center revenues grew 660% over those for the same quarter last year, to $927 thousand. Revenues from professional services increased 174% over those in the third quarter of 1997, totalling $4.5 million for the quarter, with an increase in operating margin for such services to 38%. Software license fees were flat year-to-year. Also during the quarter, S1 reported a $10 million equity investment from a "major financial services entity" for which S1 issued convertible preferred shares.

Note: On October 1, 1998, the sale of Security First's bank operation was finalized and the NASDAQ symbol for Security First was changed to SONE.

Background and History of Security First:
The banking career of  James (Chip) S. Mahan III began with Wachovia, then Citizens Union and Banc One.  Mahan and other investors founded Cardinal Bancshares in 1987, and in 1995 Cardinal created Security First Network Bank (SFNB), and attracted investment from Wachovia Bank and Huntington Bank.   SFNB went "live" as the world's first Internet Bank on October 18, 1995.  

Early in 1996, Synovus Financial invested $2 million in SFNB and in May, Cardinal spun off SFNB in a public offering at $20/share.  SFNB simultaneously acquired an award-winning software company "Five Paces" and its Virtual Bank Manager (tm) (VBM) software.   In June, Huntington Bank launched a web site using the VBM software licensed from SFNB.

By its first anniversary, SFNB was serving 7,000 customers in 50 states and held $20 million in deposits.  That same month, National Commerce Bancorp (NCBC) licensed VBM and outsourced processing and customer support to S1's Data Center.  In November, SecureWare was acquired and merged with Five Paces to form Security First Technologies (S1) and launced a Virtual Credit Card Manager (tm).  S1 closed the year by licensing Virtual Financial Manager (tm) to Australia and New Zealand Banking Group, Ltd.

New Year 1997 opened with S1 and Brightware teaming to develop an internet loan advisor application.  By the end of July, S1 had licensed applications to Regions Financial, Centura, Wachovia, Bank of Hawaii, Barnett Bank, a Malaysian bank and four banks through M&I Data Services.  In August, the STAR Partner program was launched with five major bank investors.  1997 closed with the acquisition of an experienced provider of three-tier architecture design and Internet applications development and an agreement with Home Financial Network to integrate its home banking software with S1's Virtual Financial Manager.  S1 also announced its plan to sell SFNB itself, to focus upon software development.

Metamorphosis:
"S1" Revealed as a E-Commerce Software Company Disguised as a Bank
In March, 1998, SFNB and S1 agreed to sell its banking business to RBC Holdings, an affiliate of Royal Bank of Canada (NASDAQ: RY), in exchange for $13 million and software license and service fees of $6 million.  Royal Bank also purchased $1 million of common stock and acquired an option to purchase additional shares worth $10 million over the 21 months following the closing (presently scheduled for September 28), at an average price of $13.63 per share.  As a VFM licensee, Royal Bank also joined the STAR Partners program.

In connection with the divestiture of its banking operations, S1 announced a corporate reorganization in which Security First Technologies will become the parent, and Security First Network Bank the subsidiary.  This appears to be part of a plan to restyle S1 as a software and tech services company, to be valued with other such high-tech enterprises rather than with traditional bank businesses.

Mid-1998 Status
By June 30, 1998, 32 institutions were offering S1's Virtual Financial Manager (VFM) to customers wanting to bank, view credit card statements and manage money over the Internet.  Management estimated 263,000 accounts used S1 technology worldwide through its three distribution channels.  For the majority, S1's contribution was the development and support of their licensed software running on the bank's own data center:

In its Press Release about its second quarter results, S1 noted that S1 Data Center revenues increased 92% over the immediately preceeding quarter, as numbers of customers and average revenue per customer both increased sequentially.

S1 was also able to announce that its platform was used by 10 of the top 20 banks on the most recent Internet Banker Scorecard released by Gomez Advisors.  Of the total of 97 banks reviewed, 16 are powered by S1 software, either through direct licensing or through M&I Data Services, a division of Marshall & Ilsley (Nasdaq: MRIS)

"STAR Partner" Program
Over the last several years, S-1 has developed a special relationship with several major banks through their "STAR Partner" Program.  An acronym for "Strategic Tactical Advisory Relationship," STAR Partners invest a substantial sum in exchange for equity in S-1, a seat on S-1's advisory board, and participation with other STAR Partners in the development of S-1's software and service products.   In return, S-1 gets capital and substantial revenue-producing service contracts from the STAR Partners.   The program was created in 1997 with Barnett Banks (now part of Nationsbank), Citicorp (scheduled to merge with Travelers), The Principal Financial Group and SYNOVUS.  Since then, Royal Bank (to which S-1 sold its Net bank) has become a STAR Partner.  Wachovia and Huntington had already become equity investors in S-1 in 1996, before its IPO.

In June, 1998, S1 quietly announced a $10 million equity investment by "a major fianncial services entity" later revealed to be State Farm Insurance, which S1 said would offer S1's VFM suite of online financial services through a newly chartered banking organization to be supported by S1's Data Center.  State Farm's investment was agreed to be in preferred stock to be priced at that of S1's common on the date of the closing, and convertible at a 40% premium.  S1 reserved the right to redeem the preferred shares for up to two years, by paying a premium giving State Farm a return equal to that on two-year Treasury notes.

Equity Exchange and Joint Marketing Agreement with Broadvision
Also in June, 1998, S1 and Broadvision (NASDAQ: BVSN) agreed to exchange $3 million of each company's stock and, in exchange for additional shares of S1 stock, Broadvision granted to S1 a $2 million license for Broadvision's One-on-One marketing suite of software products providing corss-selling, relationship management and content management capabilities.

Virtual Investment Manager
In August, S-1 announced the release of a product that adds transactional brokerage capabilities to a consolidated customer account view, deliverable via the Internet.  Besides brokerage accounts, the VIM can access the customer's bank accounts, credit card statements, CDs and money market accounts, according to S-1's press release.  This offers S-1 customer banks the opportunity to compete with the growing ranks of online brokerage houses, such as E-Schwab, E-Trade, Datek and others, and keep their customers in-house.  S-1 reported that the beta testing of VIM is being done by one of their STAR Partners, and is expected to be available in fourth quarter 1998.

Security First is the subject of an active message thread on Silicon Investor, and another message thread at Yahoo! Financial. Check there for breaking news and views. See the right side gutter for links.

Do your own research before buying any security.

The Net offers tremendous opportunities for those who can appreciate the "increasing returns" economics of networks, the power of community, and its opportunity to eliminate the costs of intermediaries and manual hand-offs in the distribution chain. Many studies have pointed to insurance and financial services as the product offering the greatest suitability for marketing and transactions on the Net.

This article will be archived at nnarc-sone.html and may be edited in the future. Check in with Net Nuggets from time to time. The information contained herein is believed to come from reliable sources, but no warranty of accuracy is expressed or implied. The author may own shares of the company profiled that were purchased on the open market and has never received or been offered any compensation from the company profiled or its employees, agents or affiliates. This article is for informational purposes only, is neither an offer to buy or sell a security and is not intended to constitute financial advice.

If you have verifiable information about this company, its business plan or competitors, you are invited to share it via email with me.

doug.simpson@snet.net

Security First Technologies
...Home Page
...Corporate History & Fact Sheet
...S1 Product Suite
...ExecutiveProfiles
...Financial Results:
2nd Q '98
...PR Archive ('98)
...PR Archive ('99)
...S-1 Online Library

Virtual Financial Manager (TM) White Papers
...ProductOverview
...SecurityArchitecture
...TechnicalOverview

Security First Network Bank
...Home Page

SONE at Yahoo Finance:
...Quote
...Profile
...News
...Messages
...Insider Trades

FreeEDGAR:
SFNB Filings
Reorganization S-4a

Silicon Investor Discussion Thread:
SONE: A new chapter begins today

Motley Fool
Daily Double 3/4/99

Competition:
Edify Corporation (NASDAQ: EDFY)
...Electronic Banking System

Jack Henry & Associates
(NASDAQ: JKHY)

Non-Bank Allies:
State Farm Ins.
Broadvision
Marshall & Ilsley

Online Banking Report

M&I Data Services

M&I Direct Net

Background Reading:

Hansell: "Citibank Plans a New Online Banking System"
...with software from SONE.
---N Y Times, (10/5/98)

"Transforming Consumer Banking Through Internet Technology"
...USWeb White Paper (1998)

Gomez Advisors:
(Net Broker, Net Banker Scorecards)

"On-Line Banking:
Large Banks Turn to Third Parties for Web Needs"
... American Banker, 7/9/98

"Banks Have Growth Opportunity in Less Vertical Age"
... American Banker, 7/1/98 as republished at microsoft.com

Microsoft.com: Industry Solutions for Financial Services

Click on the title or image to buy this book now from Amazon:

Vartanian, Ledig & Bruneau
21st Century Money, Banking & Commerce
(Hardcover, May 1998)
"a practical roadmap to the future of financial services and electronic commerce"
Our Price: $95.00

Mary J. Cronin (Ed.)
Banking and Finance on the Internet
(Hardcover - Dec. 1997)
Our Price $31.50

Financial Services in the Digital Age : The Future of Banking, Finance and Insurance (Work in the Digital Age)
by Paul Gosling

Copyright 1999 Doug Simpson
All rights reserved.

For technical issues, or for permission to link this to a commercial site,
please email: doug.simpson@snet.net