Who'll get the lion's share of the electronic banking business? - Integrion Financial Network - Company Business and Marketing

Software Magazine, March, 1997 by Julekha Dash

IBM and a pride of bank giants band together to fight off advances from personal financial software vendors who are determined to dominate the market for home banking servicesIf you've watched your share of National Geographic specials you know how lions behave when a wily hyena encroaches on their territory. They bare their teeth, extend their claws and, acting as one, chase the enemy away.

A similar scenario exists in the business world.

Large, well-established companies, fearing that an outsider is invading their market space, often react fiercely. They may get defensive and forge partnerships with other players in their industry to leverage their collective strength and defeat their competitors.

Such was the case when IBM and 16 of the nation's largest banks moved to form the Integrion Financial Network in January. The goal of Integrion is to supply partner banks with a common network infrastructure for home banking services. Its membership includes Banc One, NationsBank and other leading banks, which represent 23% of the banking assets in the U.S. and Canada and serve about one half of the consumer population in North America -- the equivalent of 60 million households. IBM and each bank own an equal share of Integrion and contributed $4 million a piece to fund it.

The "hyenas" in this particular survival-of-the-fittest drama are independent software developers, primarily Microsoft Corp., Redmond, Wash., and Intuit Inc., Menlo Park, Calif., whose personal financial management software is threatening to undermine banks' control of the electronic banking channel. The formation of Integrion represents a unique move for banks because they are taking a proactive stand against other players threatening their domain, explains Ira Morrow, an analyst with the Gartner Group, Stamford, Conn. Historically, banks have been assailed by non-bank fin- ancial services companies, such as credit-card providers or mutual fund companies, which ended up controlling services that banks previously dominated. Integrion is an attempt, according to Morrow, to leverage technology and keep electronic banking from following in the footsteps of these other services.

A big part of this push is Integrion's desire to control transactions for the home banking market, which represents a considerable customer base. Today, an estimated two million U.S. households are connected electronically to their banks, and according to the Tower Group, a bank technology advisory firm in Wellesley, Mass., the number of North American customers performing banking tasks at home is expected to grow 75% annually through the Year 2000.

Still, with their popular front-end access packages, Microsoft, Intuit and others have already made substantial inroads into the electronic banking space, and have many banks scrambling to catch up. In fact, several Integrion banks, including Bank of America, NationsBank and Royal Bank of Canada, bought MECA Software, Fairfield, Conn., maker of the Managing Your Money (MYM) front-end package, so they could provide copies of the personal financial software to customers.

To maintain a foothold in this market, Integrion will have to work hard to establish electronic commerce standards for the PC home banking industry. Bruce Luecke, vice president of electronic banking for Banc One, Columbus, Ohio, which, along with NationsBank, Charlotte, N.C., will pilot Integrion-enabled services this year, says banks face numerous headaches due to the lack of standards in electronic banking.

"Depending upon whom we wanted to deal with, whether it was Microsoft or Intuit or CheckFree or whomever, they all have different ways of doing business, different protocols. It drives our costs way up because we have to do things multiple ways. You had to have three or four different ways to process transactions. So it becomes expensive," he says.

Adds Gartner's Morrow, "There are multiple different standards and approaches for linking bank to consumer. Microsoft has one, Visa has one, Intuit has one. There's no single approach to doing this."

Banks not only hated the hassle but feared that the software developers, or some other third party, would establish proprietary standards that would link banks to their consumers, resulting in their loss of control over the electronic payment process. "Integrion is going to be open published APIs. Anyone can use it. But the key is a third party doesn't control the proprietary standard," says Morrow.

"It's still possible that a non-bank can offer some tremendously innovative technology using Integrion and let the market decide, but [for these financial institutions] it's a market decision as opposed to waking up one morning and finding that somebody has sliced off even more of the asset pie," he adds.

There are moves afoot that indicate some convergence in the electronic commerce standards space. Microsoft, Intuit and CheckFree, Atlanta, announced in mid- January that they will create a specification, called Open Financial Exchange (OFE), that allows financial institutions, businesses and consumers to conduct transactions electronically over the Internet. To create OFE, the three companies merged Microsoft's Open Financial Connectivity, Intuit's OpenExchange and CheckFree's electronic banking and payment protocols. OFE- enabled software will be able to link to the Integrion Financial Services platform and its Gold Message Standard, a messaging format for electronic transactions.