Once upon a time, there were local banks that offered a few basic services to entrepreneurs. Nothing fancy, but the service was good. Now many have been replaced by financial "supermarkets" that may be too big to focus on small-business needs. Under the circumstances, some entrepreneurs might want to do without banks altogether.

That's the premise behind 15-month-old OneCore.com, an Internet financial-services company geared to small businesses. OneCore is a middleman: It bundles the small-business financial services of a number of companies into a single package accessible on one Web site, something few Net companies have been able to offer so far. It makes its money by taking a percentage of the revenues from the products and services it resells.

OneCore's basic service -- which all customers must take for a fee of $25 per month -- is an interest-bearing checking or sweep account, called the Core Account, administered by mutual-fund company Scudder Financial Services Inc. Aside from that, services are a la carte. Other offerings include payroll processing by Computer Resources Inc., bill payment through CheckFree Corp., 401(k) administration by Bankers Systems Inc., merchant card services from Michigan National Bank, and equipment-leasing loans from BankVest Inc. All transactions are handled online, and clients can download transaction information into their accounting programs. The system is compatible with a number of software packages, including Quicken and Quickbooks.

OneCore was founded by entrepreneur Barry Star, a former executive at Fidelity Investments who was fed up with his bank. What sent him over the edge was an 85-cent charge for a $100,000 check he deposited into his business account. "I had come from Fidelity, where the rule is: 'Do what you can to bring the assets in.' I said, 'There has got to be a better way.'" So Star assembled a team of other disgruntled entrepreneurs and launched the company in 1998. "Our expertise is in this small-business marketplace," says Jack Littman-Quinn, president and CEO of the company. "We understand the needs of these businesses."

The tiny OneCore, which has fewer than 1,000 customers and $1 million in revenues, isn't the only nonbank selling financial services to small business on the Internet. Its competition comes from two main areas: Merrill Lynch, which says it has 600,000 customers for its two small-business service packages, and Internet banks, among them the recently launched Ebank.com of Atlanta, which is targeting entrepreneurs with cash accounts and loans. (See "An Upstart Jumps into the Small-Biz Banking Breach," Business Week frontier Online, June 14, 1999).

How can OneCore compete against Net banks? First, OneCore, which is based in Woburn, Mass., has a geographic advantage over newcomers because the company (which until March, 1999, was called Boston Financial Network) is chartered as a broker-dealer. That permitted it to operate immediately in all 50 states, unlike banks that need to register in each state where they do business.

OneCore's other strength is its array of services. Most Net banks offer little more than online checking accounts, says Octavio Marenzi, research director at Meridien Research Inc. in Newton, Mass. The small ones typically can't get large financial-services providers to partner with them because of the time and technical effort involved in setting up a pipeline for the institutions to exchange customer data. That's a very complicated process, notes Littman-Quinn. Large banks may have the services, Marenzi says, but they're not set up to provide them online.

Tackling Merrill Lynch promises to be more of a challenge for OneCore. The brokerage's Working Capital Management Account and Retirement Cash Management Account offer many services similar to OneCore's. These include a cash account (fee: $150 a year), 401(k) plan administration, and merchant card services. Littman-Quinn says OneCore's advantages are its Web site, which he claims is easier to use than Merrill's, and clients' ability to download transactions into their own accounting systems.

There's ample evidence that small businesses want better service. PSI Global Inc., a Tampa market-research firm, found that nearly 75% of entrepreneurs it surveyed earlier this year had watched their banks merge in the past 12 months. A third of them said that service had worsened in the same period, and 10% were so annoyed they took their business elsewhere. Some 14% said they plan to switch banks in the next 12 months, the highest percentage in the 11 years that PSI has been doing its annual survey. Entrepreneurs' disaffection has opened up a big market. Meridien predicts that small businesses will spend $61 billion a year on banking services by 2001, up from more than $40 billion in 1998.

Sandra King, senior vice-president for sales and marketing at BankVest in Marlboro, Mass., a $300 million-a-year equipment-leasing company and OneCore partner, says it signed with the upstart to provide loans for equipment purchases because its goal is to do half of its business online. "It will give us access to small businesses that are electronically focused," King says. She adds that it only took one month for the two companies to hammer out an agreement, which would have been unlikely with a large company. OneCore's concept has attracted venture capital. In the past year, it has received two rounds of financing totaling $10.5 million from the likes of @Ventures, a CMGI venture-capital affiliate.

OneCore's clients include highly mobile entrepreneurs, such as advertising photographer Clint Clemens. His office is in Rhode Island, his bookkeeper is in New Hampshire, his production facility is in Los Angeles, and his agents are in New York and Italy. He travels about 150,000 miles annually.

He has used OneCore since the spring of 1999 to pay bills and handle his payroll. The online access to his business accounts is indispensable, he says. OneCore has saved him a small fortune on overnight packages containing checks and other financial documents that needed his immediate signature. "It allows me to have personal control of the signing of checks, checking the performance on the accounts, and approving all the money that gets spent out of the company," says Clemens. That's about all any highly mobile modern entrepreneur can ask of his nonbank Internet financial-services company these days.

By Jeremy Quittner in New York
jeremy_quittner@businessweek.com

To: FINANCE