“It is Not the Technology that is a Threat to Your Business. The Threat Is Your Decision Not to Adapt ” – Kris Kovacs
RALEIGH – You may not have heard of Kris Kovacs or expected a credit union to be a leader in digital banking. No more. Kovacs is spearheading a digital platform that might transform credit unions, and he’s reaping awards: Coastal Credit Union and several partners recently spun out a new venture led by Kovacs that has just landed $3 million in new venture capital.
Here’s the back story about the emerging success of Constellation Digital Partners, led by Kovas who was the “catalyst” for development within. Coastal and a group of other CUs as well as service providers have already pumped some $9 million into the venture after each of the nine provided $200,000 in seed funding.
A tweet from Kovacs cited above reflects the commitment he and Coastal have made in the launching of the new venture, which came out of stealth mode in May. After the debut on May 2, Kovacs was named CEO later in the month.
The venture deal disclosed Tuesday reflects the rapid start by the company, which under Kovacs’ direction has developed technology that Coastal believes will transform credit unions into digital players.
So how did this all come about? And why did Coastal run the risk of investing in new technology? Why pick Kovacs?
The Skinny talked recently with Joe Mecca, a vice president with Coastal, about the Constellation story.
Mecca notes that Kovacs had served as chief information officer for Coastal and had led development of the Constellation platform for three years.
Here’s our Q&A:
- How did CCU come to be involved in the project? Did it finance development/launch?
The project started here, with Kris as its catalyst.
Three years ago, Coastal partnered with nine other organizations to fund the R&D that produced the technology. We each invested $200,000 into that seed round. That seed money was used to develop the proof of concept to demo the new technology, funded the creation of the development materials to move to a production platform, and built the go-to-market plan for the new company.
After that, we partnered with eight organizations to form the company. Our investment is $3 million.
Constellation will be based out of our headquarters for the foreseeable future, with Coastal providing some back office support. Kris will hire a Raleigh-based team, with a bit of development also happening in Atlanta.
- Why wasn’t Kovacs named CEO from the start?
It was just a function of timing and the order of operations. Once we were issued the patent, we officially formed the company, which we quickly announced on May 9.
After the company formed, the new board finalized the formal job offer, which Kris accepted.
- When did the other investors/backers come on board? Can you tell much how much the investment is and what each investor contributed?
Kris led the effort to raise $19M in capital from credit unions and credit union service providers. Over the last 14 months, he brought on board seven credit unions (including Coastal) and two service providers, who have invested in the platform so far.
We’re continuing to raise an additional $9 million in capital, which would make Constellation he largest single round capital raise in credit union history.
- Just to be clear, who owns the company?
The nine partners organizations own Constellation, which is structured as a credit union service organization.
The partners are Coastal Credit Union (Raleigh), CFCU Community Credit Union (Ithaca, NY), Meritrust Credit Union (Wichita), Farmers Insurance Federal Credit Union (Los Angeles), Georgia’s Own Credit Union (Atlanta), Affinity Federal Credit Union (Basking Ridge, NJ), Nusenda Credit Union (Albuquerque), CO-OP Financial Services (Ranch Cucamonga, CA) and CUNA Mutual (Madison, WI).
- What are the pain points this technology touches/solves for credit unions?
It changes way credit unions buy and implement digital services. Instead of buying monolithic solutions form a limited number of providers, it provides a marketplace of smaller, more innovative solutions and quicker implementation times.
Traditionally, online and mobile banking integration is often painfully slow and clunky, and adding new services to existing systems is expensive. Constellation provides a platform that solves this problem with an “Integrate Once; Innovate Often” model that will allow credit unions to keep up with, and even lead in, the latest fintech advancements.
The Digital Services Platform works by integrating directly with credit unions’ core systems, and then credit unions and their service providers can create an endless number of services that integrate to the platform. It allows for a greater variety of services, with much faster rollout times. Essentially, once a service is available to the digital service platform, it becomes available to all credit unions that are Constellation clients.