It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity.

Do you recognize that quotation? It has been standard fare for most junior high or high school English Lit classes for decades. Of course, it is the opening line from Charles Dickens' A Tale Of Two Cities!

However, this month we are not going to be talking about London and Paris during the time leading up to the French Revolution. Since this quotation could easily be applied to the Dot Com boom years, we wanted to use it as a preamble for this month's column. Instead of a book review, we will discuss some recent developments in the Transaction Processing Industry that revolve around Alpharetta and Norcross. And, oh how different are the two tales that emanate from our very own two cities! Only we are dealing with true stories, not fiction, but classics nevertheless!!

What I want to examine in this month's column are the sagas of Alpharetta-based NetBank and of Norcross-based CheckFree………what went wrong and what went right.

By means of full disclosure, I once owned stock in both companies and I did business with both of them. I know several of the principals of both organizations, and I have followed these enterprises closely for a long time.

Back in the early 1980s, I ran Georgia's first electronic bill payment service for now defunct Fulton Federal Savings & Loan, long before there was a CheckFree. As a co-founder of Security First Network Bank, I worked closely with CheckFree to develop a new bill payment model where the bank did the debiting of the customer's bank account instead of CheckFree itself.

I also knew NetBank when it was first called Atlanta Internet Bank and when its original business plan was to be owned by 20 or so different community banks, with each bank owning 4-5% of the parent bank. As a pioneer in Internet banking, I watched NetBank rise to great successes, only to fall and to eventually fail.

Recently, Checkfree announced that it was being acquired by FiServ for $4.4 billion in an all-cash transaction, making multi-millionaires out of many of many of its shareholders. Not long after that news, NetBank closed its doors for good, leaving its shareholders with zilch, nada, squat!

What went wrong in Alpharetta and what went right in Norcross?

After months of trying to keep itself afloat, Alpharetta-based NetBank was shut down by federal regulators on Friday, September 28th, becoming Georgia's largest failed bank ever. Meanwhile, its parent company filed for bankruptcy protection.

Another Internet-only institution, Dutch banking giant ING Direct, assumed $1.5 billion of NetBank's deposits and those customers will be ING accountholders beginning Monday. Talk about bargain basement shopping, ING paid the feds only a penny for each dollar of deposits!

With roughly $2.5 billion in total assets, NetBank is the 58th-largest bank failure in FDIC history in addition to being Georgia's largest.

During its heyday, NetBank was superb in attracting consumer deposits. In the end, it was old-fashioned business problems -- bad management, questionable investments and poor timing - that did NetBank in.

What case studies will show is that while there was a time where a stand-alone Internet bank could thrive, as more traditional and larger banks began subscribing to the Internet as a banking delivery channel, this business model was not sustainable. When all is said and done, an Internet bank is still a bank, and banks make their money on their asset deployment strategies, not on their ability to attract checking accounts.

NetBank bet heavily on the mortgage markets, even leaving the virtual world to develop physical mortgage lending facilities. Unfortunately, this strategy failed to pan out and NetBank's balance sheet grew weaker and weaker over time. When EverBank pulled out of its deal to acquire NetBank's deposit accounts in early September, most industry observers realized that their time was limited. Let's keep an eye on ING and hope that they treat NetBank's customers well.

Down the street in Norcross, the news is much more pleasant, especially if you were a Checkfree shareholder!

While it is disappointing that metro Atlanta has lost the headquarters of yet another major company, this time one from our own Transaction Processing Industry, the combination of Checkfree with FiServ creates quite the formidable behemoth.

I like the deal from a strategic perspective. Fiserv could use a credible, high-end Internet banking product with an integrated bill pay solution, which it will get via CheckFree's own recent acquisition of Corillian. Fiserv's high end commercial cash management products could also benefit from CheckFree's powerful payment modules. While I don't see CheckFree opening many doors for Fiserv at the big banks, Fiserv can definitely move some CheckFree product through its thousands of financial institution clients.

Just to put this transaction in perspective, the $4.4 billion/$48 per share deal represents:

• Somewhere between 11X and 13X forward EBITDA
• Roughly $5 per share more than analyst consensus price targets and a 30% premium over CheckFree's pre-announcement price
• In the ballpark of 50% of Fiserv's total market capitalization
• Over 4X CheckFree revenues

Or to put it personal terms, this deal will bring over $230 million for CheckFree Chairman Pete Kight and over $45 million for Vice Chairman Mark Johnson. Not too shabby!

What CheckFree did right was to do what it did best and to do it well, over and over again. The company made judicious use of the cash it raised in its IPO to invest in its products and services and to make some key acquisitions in the Transaction Processing and Payments Systems arenas. Even without being acquired by FiServ, CheckFree was a force to be reckoned with in our industry!

The original A Tale Of Two Cities closes with the following comment from its hero: "It is a far, far better thing that I do, than I have ever done."

That quotation could also ring true coming from the Board at CheckFree for its shareholders!

While I was sad but not surprised to see NetBank bite the dust, I am not at all taken back by the wealth that CheckFree has created over the years. Let's all wish our friends at Checkfree the best as they go through this merger with FiServ.

So what do you think about the tales of these two companies? What could have NetBank done differently to survive? Did CheckFree sell out too soon?

We at TPAtlanta would love to hear from you and learn your thoughts on these transactions.

Let us hear from you!

Calvin D. Johnson, Publisher
publisher@tpatlanta.com
Trans Atlantic Systems, Inc.