Hobko said there was strong business case for Sunstar to hook up structurally with CUNA

<p>TAMPA, Fla. – CUNA’s for-profit arm, now known as CUNA Strategic Services, Inc., has had its share of business failures over the years, but CUNA Network Services President John Hobko said the strategy CSSI has taken with CNS is the polar opposite of yesteryear. Hobko is one of the founders of Sunstar IP Communications, whose principles are the majority owners in CNS, an e-com company. While they are the majority stakeholder, now with 64% ownership (CUNA Strategic Services, Inc. has 36 %), the deal calls for CSSI to retain a bigger ownership percentage in the future, eventually becoming the majority owner. Prior to CNS, Sunstar was CSSI’s main partner in its e-com venture. Its core products were Web site hosting, Virtual Private Networks, Internet Service Provider service, and others. Sunstar’s roots are what got it involved with credit unions in the first place. Its original board was comprised of some members of the Armed Forces Financial Network, which included credit union CEOs. Hobko knows he’s putting a lot of faith in the CUNA name and CSSI to keep CNS on the right track. “If you look outside the forest looking in, CUNA has had good ideas that they’ve turned into businesses in the past where they put all the resources and effort into them in-house. When CUNA started this thing maybe they didn’t have as clear a picture going in, but now they’ve gone in the reverse of the past by partnering with people who have 20 years history in the business. We’re used to doing things in a quick-paced fashion and turning every nickel into a dime or a quarter,” said Hobko. He also said it’s not fair to say that most of CUNA’s for-profit businesses have not succeeded, because some fetched top dollar in a sale or remain in place. He cited U.S. Central’s CUNA origins as one example as one that survived. Hobko said CNS has the best of both worlds in the entrepreneurial and tech experience of Sunstar and the credit union knowledge of CUNA. Still, he said at times it is a challenge to get CUNA folks to recognize the entrepreneurial aspect needed in the e-com realm. Of CNS’ seven-member board, four are from CUNA. “We move at a fast-pace as an entrepreneurial organization. The challenge is keeping everyone informed, so we can make quick decisions.” So what made Sunstar’s board decide to make such a long-term commitment to CNS? Sunstar went with CUNA, said Hobko, because it felt it needed some ownership from the credit union market, and that credit unions wanted to deal with a vendor that would be true to the CU market. The board also felt there was a big enough upside with CUs to sustain a long-term business. Also, there are no dreams of taking this tech company public like many in the tech industry have. “I’m not looking for an IPO here. This is not a business that in three years there aren’t going to be big upsides for an IPO investor group. The investors that came in all had the same view. This is not some short-term investment with exiting strategies. This company will create annual revenue payback for its investor groups long-term,” said Hobko. “The marketplace is large enough to facilitate a nice size business. We’ll never be a tremendously big company.” In partnering with CUNA, Sunstar has to play by some traditional CUNA rules. One is that the Leagues come into play in sharing revenue. Hobko said CNS has marketing agreements with about 30 leagues, and those leagues receive revenue based on how many CNS products were sold to CUs in their state. At press time CNS had 48 ISP clients; about 250 CUs for Web hosting; 500 CUs on the Carfax program; and a handful for Net banking. CNS is now going full-steam ahead with smart cards, a product that has yet to take off in the U.S. “Clearly we have expertise in smart cards. Credit unions have issued about 70 million credit cards. Eventually they’ll have to offer smart cards,” he said. While not many smart card programs have succeeded, Hobko was involved with one that did. Some of the primary investors for Sunstar came from the AFFN and Touch Technology, a smart card company in Phoenix, both of which were key in the successful smart card program on military bases in Hawaii. He said smart cards must have a value proposition for members, and be easy to use. CNS will deploy them via USB keys that can be plugged into a USB port. It has partnered with SchlumbergerSema to help bring them to market. SchlumbergerSema invested $400,000 in CNS. Other investors include EDS, which committed $750,000, and is providing Net banking technology to CNS. The California CU League has invested $250,000 in CNS, and the Colorado League $50,000. CNS’ goal is $5 million. [email protected]</p>