After mostly uneventful forays into Web financial services in recent years, Intuit is making a sudden new leap into online banking with its acquisition of Digital Insight - a well-nested vendor with over 1,700 hosted institutional clients - and plans for a "killer app" to bridge the usability gap of Internet banking services with small businesses.
Intuit's $1.35 billion purchase of DI, upon closing in early 2007, will immediately vault the software firm into the industry's most prevalent online platform for community banks and credit unions, Digital Insight's bread-and-butter market segment. Intuit will absorb seven million enrolled retail and business banking customers and 1.7 million bill-pay end users, plus prepare to launch a basic personal financial management solution-in industry parlance, a "PFM Lite" - that could extend Intuit's core Quicken and QuickBooks products to millions of new customers captured through banking relationships rather than retail shelves.
"This allows us to broaden our reach and solutions through financial institutions to acquire more customers," says Intuit president and CEO Steve Bennett. "That's the biggest opportunity."
Digital Insight, whose management and operations move virtually intact into the Intuit fold, boosts its own expansion goals to include moving farther upstream to larger institutions and fix lagging bill pay penetration among its customer base, currently at only five percent. With Intuit's market reach, Digital Insight chief Jeff Stiefler believes DI's expected 2006 revenue of about $245 million level could bulge to "north of $600 million" just from driving bill-pay adoption through its current installed base, he told analysts in a Nov. 30 conference call.
Even with the boost of Digital Insight's revenue, Intuit doesn't expect the deal to be accretive to its own earnings until 2009, given the few redundancies to be sliced and the expense of the purchase. Online banking vendors have been stressed in the past year as cash flows have dwindled and several have been forced to expand their demographic footprint or service offerings. Large-bank specialist Corillian now offers a credit union solution; ASP-oriented Online Resources began catering to in-house preferences and purchased online bill-pay provider Princeton eCom; and struggling S1 dumped subscription pricing.
Intuit's move is one few analysts found surprising, if not expected. "I was always wondering why they weren't creating more partnerships in that space," says George Tubin, TowerGroup senior analyst for delivery channels. [Intuit added another deal in December with the purchase of payments processor Electronic Clearing House]. Online banking continues to gain adoption, but the industry has been slow to add online funding, bill pay aggregation and financial management tools to services. According to Tubin, Wells Fargo led the pack last year when it went live with its My Spending feature allowing payment categorization and budgeting tools similar to Quicken or Microsoft Money. Most of these solutions, however, aren't enough for businesses that need Web-based invoicing, billing, payroll and expense tracking linked to accounts.
Another problem for microbusinesses is that financial automation tools are usually available only in full-throttled business banking or accounting software products geared for CPAs and corporate treasuries. "There are a lot of small businesses where that is over their heads," says Celent senior banking analyst Bob Meara. "What's a 'controlled disbursement account'? I just want to pay my bills."
By adding the new business line and DI's distribution channel, Bennett and Stiefler see a market of 22 million potential users for a "small and simple" business banking product. That was the goal of a joint project the two firms began working on in early 2006. How Intuit bundles it depends on what packaged features banking clients want-such as remote deposit capture services that to date have catered only to mid-level and large corporate customers. "This marriage is around thinking about Quicken, QuickBooks, TurboTax and the like as content linked to our delivery system, rather than as product distributed in present form to financial institutions," says Stiefler. "That's a distinction I'm not sure we've drawn as clearly as we might.
"There's a whole library of proprietary intellectual property at Intuit that gives us the opportunity to create integrated, linked suites of applications that are bundled and delivered [online]," says Stiefler.
Intuit's previous online finance tactics were curtailed during 2001-02, by selling off tech-bubble trysts like QuickenBill Manager to Princeton eCom and QuickenMortgage to private investors.
What may be the first hurdle for Intuit in 2007 is showing banks that it's here to help, not disintermediate, the customer relationships. "One thing they'll have to do," says Corillian CEO Alex Hart, "is reassure [banks] that Intuit's historical focus on dealing with small business or consumers on a direct basis will not get in the way or create channel conflict with those financial institutions they want to work with."
The deal is not expected to affect any of Digital Insight's existing relationships with third parties, which include work with core processors Fiserv, Fidelity and Metavante, plus a bill-pay reselling agreement with CheckFree. "We see those players as benefiting from this transaction as we bring new functionality, new capabilities to them and to their clients," says Stiefler.
