From Rates to Riches

W e are no longer in the selling business. We are in the technology and acquiring business. We are a credit card/transaction acquiring organization that is functional and deliverable through a variety of different technologies."

The organization: Network 1 Financial.

The spokesperson: President/CEO Bill Wade.

The technologies: electronic payment processing, merchant accounting services, high-speed back-end systems specializing in ACH, virtual check and bankcard innovation.

Network 1 Financial traces its roots to 1989, when a group of savvy financial industry professionals decided to venture out on their own rather than be consumed by a conglomerate that had acquired the mortgage banking company for which they worked. With solid expertise in underwriting, documentation and related financial skills, the group knew they could successfully create an infrastructure to support a burgeoning industry whose recurring residual income appealed to them - namely, credit cards.

That confidence translated into the formation of Network 1 Financial, which serviced merchants in Virginia, New England, Florida and Washington, D.C.

Late in 1992, Network 1 changed direction. "We stumbled into the acquiring side of the credit card industry after being in the credit card issuance business for about a year," Wade says. "We liked that we could take advantage of our knowledge of infrastructure and retrofit it for the credit card business."

By 1993, Network 1's expansion ultimately shut down all of its remaining mortgage services, and it focused full time on credit card processing.

For the next few years, Network 1 officials observed that as their business increased, their margins decreased and merchants became more astute, more competitive. As a result, the company launched a development effort that has culminated in a new suite of products, and Wade believes it sets Network 1 apart from other providers.

"In order to safeguard our interest of staying in the transaction business, we needed to branch out to products unique to our company, providing multi- products to singular clients, thus reducing the attrition," Wade says.

Network 1's unique offering includes a "bank independent" suite of electronic funds transfer (EFT) products: EFTBankcard, EFTCash, EFTCheque, EFTSecure and EFTVirtualCheck. These products provide physical and virtual world solutions for automated bill collection, bankcard acceptance, secure e-commerce, check truncation and return check re-presentment.

What does it all mean for ISOs? With a technical, financial and risk- management architecture that enables it to do everything a bank does, Network 1 can negotiate attractive pricing under its contracts - and who isn't always looking for a deal?

"We can offer ISO sponsorship under a conduit processing arrangement whereby other organizations can leverage our volume and transaction activity and take advantage of our vendor contract coattails," says Wade.

Those coattails have emerged from years of development, implementation and relationship-building. For example, take EFTCash, Network 1's EFT recurring debit and credit software product that enables businesses to fulfill credit and debit transactions for their customers and employees.

"EFTCash was the first proprietary product we developed," Wade says. EFTCash was created to fulfill a need for efficiency in processing those transactions while managing it from a risk standpoint. "Our software sticks to the environment," says Wade. "All functionalities are inter-co-existing within our gateway. I don't know anyone else doing this on the ISO side."

EFTSecure - Network 1's Internet gateway that securely provides for transaction delivery over the Internet - also was a result of Network 1's commitment to development with no risk.

"Being an acquirer, the first issue we knew we needed to address was risk management," says Wade.

While others focus on cardholder fraud, Network 1 Financial focuses on merchant fraud.

"When we looked at VISA/MC best practices, we realized that some of the tools we needed had to address the quick changes and uniqueness of the Internet environment," Wade said. "As an acquirer processor ourselves, we wanted to make sure that what we built was going to totally impress not only our merchants but also our partners. Everyone must be comfortable."

Network 1 Financial built velocity, parameters, systems and other tools that did just that.

"We enable our merchants to know what they are doing and how they are doing it," says Wade. According to Network 1, the 9,000 merchants that are serviced on its gateway are Network 1's least risky business today.

With that type of activity, Network 1 boasts lower charges on the Internet than those of physical stores. Network 1's gateway communicates instantly and also proprietarily monitors shopping cart data. Network 1's virtual system handles it all.

Embedded in its gateway is a "Webchecker," which evaluates data and observes any changes as well as illegal activities. Somewhat of a Big Brother, to be sure, but according to Wade, "It keeps our merchants happy and keeps the illegitimate ones away. We find crooks quickly."

Network 1 Financial extends that fiduciary responsibility to its ISO partners as well. "We provide tools that keep risks down for all ISOs that do business with us," says Wade.

With its core competency of a one-stop-shop solution, Network 1 has seven sponsored ISOs and between 40 and 50 affiliate offices, most of which are exclusive, employee representatives.

"What we have seen is that in order for merchants to get these one-stop- shop solutions, most competitors have to use multiple vendors and force their merchants to deal with multiple vendors," Wade says. "We offer a broad, interrelated range of services all under one roof."

In fact, the only portion of Network 1 Financial that is outsourced is its equipment deployment, handled through Tasq. All other proprietary products and services, including customer and partner support, are housed within the walls of Network 1.

With a large telemarketing operation in Atlanta, Network 1 supports all of its exclusive endorsement contracts with a 24/7 customer help desk that has 50 sales managers wrapped around it. Network 1 also has a group of "relationship managers" - the eyes, ears and heartbeat of Network 1's ISO partners, whose sole job is focused on the special needs of ISOs.

With an impressive suite of services, quality support and strong development goals, what's next for Network 1 Financial? According to Wade, the next level of technology will be seen in EFTVirtualCheck. Considered Network 1's hottest product to date, EFTVirtualCheck will address the authentication situation merchants are facing daily.

Network 1 does a lot of velocity work, and those services are being governed by a new regulation that calls for certain types of authentication. To stay in compliance when accepting an ACH transaction, the merchant must get authentication of the consumer's identity. Network 1 provides that authentication step through its EFT VirtualCheck and is already enjoying success with its merchant response to this new service.

"It is not unusual for us to get bouquets of flowers from merchants who realized fraud was prevented through our EFTVirtualCheck," Wade says. How often are you getting flowers?

Network 1 is also getting into another mode - an acquisition mode. According to Wade, it is looking at buying portfolios of companies that will bring in technologies to complement Network 1's existing offering, considering the fact that the cost to dollars that contributed to the development of Network 1's products and services came from selling merchant portfolios.

In 1996, Network 1 started selling off a small number of portfolios - 7 total - to raise cash for its technology. In 1999, Network 1 made a conscious decision based on the fact that it had not matured the technology or reaped its rewards. It decided to bring in venture-capital money with the hopes to grow the company organically at that point.

It paid off, and now Network 1 is in the market of buying. Its business is attractive enough that the financial community is interested in giving money to purchase high grade portfolios of both retail and virtual merchants that have the capacity to cross over their services.

Looking to add to this strong program, Network 1 also has an ISO acquisition plan in the mix.

"When ISOs build a business with us, if they want us to take over ownership, we'll buy the account and pay out funds up front," says Wade. "We regularly evaluate accounts and offer acquiring prices to qualified ISOs."

As is the case with other companies that are enjoying financial success in a depressed economy, a number of companies have taken a run at Network 1. According to Wade, "We really don't want to get bought right now. There's too many positive things going on for us at the moment, not to mention the state of the economy in general. If we sit tight, our company will become one of the larger players in this industry. Because of that, we have an interest in maintaining ourselves privately for the next few years."

It would appear that Network 1 won't have too much of a problem maintaining that position. With capital resources that can be matched up with complementary outsourced funding, Network 1 already has completed two large acquisitions and nearly 20 small portfolios during the last two years. Wade said the company plans to maintain a growth rate of 50 to70 percent over the next three to five years through internal sales distribution, acquisitions and leveraging of our product base.

Having started 12 years ago with three employees, Network 1 is 125 strong today. Its management team is not only strong, it is very focused, according to Wade.

"Everyone needs to be realistic," he says. "This is not a perfect world. The people who do best with us are those that complement what we do - those who fit in our niche over the long haul."

Network 1 approaches that niche by establishing credit lines, leverage lines and equity partners. In fact, Wade says 50% of his time is spent just developing those channels.

"We have been leading edge," he says Wade. "We see a lot of people bleeding edge. Bleeding edge is very dangerous to the health of a company."