Internet banking software and service vendors: change agents

Computer Industry Report, Jan 22, 1999

The steep growth of the online banking applications market is likely to continue for another 18 to 24 months. One reason is that some of these projects could take as long as six months to complete, depending on the complexity of a bank's operations and its requirements. Other vendors are hoping to accelerate growth through quick deployment. First Data, for example, is touting its capability of building a fully transactional bank Web site in 30 business days for $30,000.

There are an estimated 9,000 banks and 11,000 credit unions in the United States. IDC projects that 42% of them will have fully transactional Web sites by the end of 1999 [ILLUSTRATION FOR FIGURE 3 OMITTED].

Although there will be continued consolidation in the banking industry, the pace is expected to moderate because of the emergence of technologies that provide a more effective and cheaper means for banks to expand. By relying on the Internet, banks are able to sell products in faraway markets - and end previously achievable only through the acquisition of local banks or by building expensive branches and ATM machines.

The bottom line is that online banking applications may well be a powerful tool for banks seeking to attack their weaker competitors while fending off threats from anyone that tries to invade their territory.

The biggest competition for online banking applications companies and service providers remains in-house development efforts. Conservative financial institutions have long considered internal technology development a sacred part of their operations because of its strategic importance. However, the need to compress time to market, the shortage of skilled programmers, and the trend toward outsourcing are all making internal development an increasingly unattractive option for banks.

For those financial institutions that are willing to use commercial applications, the payoff could be substantial. Security First, a major Internet banking vendor, estimates savings of at least 50% for banks that go with an off-the-shelf package rather than building their own Internet banking solutions.

INTERNET BANKING APPLICATIONS VENDORS

Internet banking applications vendors include companies such as Broadvision, Corillian, Edify, Home Account, Home Financial Network, Jack Henry & Associates, Open Solutions, Phoenix International, and Prologic. These vendors typically charge at least $100,000 to set up a bank Web site. Jack Henry is the exception; it charges $40,000 for its Net Teller module, which can only be run on its proprietary core processing system.

After the launch of a site, these vendors do not charge a recurring fee for each bank customer who uses the Web site. Instead, they charge an ongoing maintenance fee that ranges between 15% and 18% of the price of the applications.

These vendors will build a Web interface for the banks, focusing on such qualities as personalization, product differentiation, and customer relationship management.

THE WINDOWS NT FACTOR

As an increasing number of banks are severing their ties to mainframe systems by adopting a distributed computing environment, new opportunities have arisen for companies such as Corillian, Open Solutions, Phoenix International, and Prologic. With their NT-based client/server solutions, these vendors have transformed the core processing operations at scores of banks and credit unions. "Core processing" refers to the way banking software handles a bank's core accounting functions (such as general ledger). The need to deliver real-time data to their customers online has reinforced banks' commitment to run their data centers with powerful relational databases like SQL Server and Oracle.