Corillian Corp. said second-quarter sales of its online banking software were slow, but demand for its security product remained strong.
Security “is a key area of growth and strategic importance in the online channel,” Alex Hart, the Hillsboro, Ore., company’s president and chief executive, said last week in a conference call with analysts. “We had our most successful quarter to date in terms of financial institutions adopting Intelligent Authentication,” the fraud detection product it began selling last summer.
Corillian’s revenue rose 19% from the same period last year, to $14.6 million. For the quarter it reported a net loss of nearly $1.5 million, compared with a $2.1 million profit a year earlier.
Other online banking software providers have reported earnings declines this year. Online Resources Corp. of Reston, Va., said its second-quarter net income dropped 11%, to $1.4 million. S1 Corp. lost $1 million in the first quarter, versus a $720,000 profit a year earlier. The Atlanta vendor has not said when it plans to release its second-quarter results.
S1 has said that security was an important part of its sales mix. In February it announced an agreement to offer software from PassMark Security Inc., which RSA Security Inc. bought in April. S1 said the partnership would be a catalyst for online banking sales and upgrades, as the Federal Financial Institutions Examination Council has required banks to improve their online banking security this year.
Corillian’s strategy with Intelligent Authentication has been to expand its overall user base beyond banking, rather than using it as a carrot to get current customers to upgrade, Mr. Hart said.
However, John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said that with the FFIEC’s deadline nearing, interest in security software may have eclipsed interest in online banking software at some institutions.
Intelligent Authentication looks at online banking users’ behavior and their hardware and network connections. If any one of these factors is different from what the software recognizes as typical for a specific user, it can present challenge questions before granting the user access to the Web site.
In the second quarter Corillian sold Intelligent Authentication to nine clients, including three top-100 banks. Mr. Hart said it was the product’s most successful quarter, and “we have many more in the pipeline.”
A total of 31 customers use Intelligent Authentication.
Demand for authentication products is heating up and has led to several deals for security companies, he said. Entrust Inc. bought Business Signatures Corp. this month to add session monitoring to its authentication product. RSA bought Cyota Inc. in December to add similar features to its offerings.
Unlike S1 and some other competitors, Corillian has developed its own authentication product, Mr. Hart said. “We do see a lot of value being placed on the types of assets we’ve built over the past couple of years.”
In April, Corillian introduced a premium online banking product, which included features more common to personal financial management software such as Intuit Inc.’s Quicken or Microsoft Corp.’s Money. Corillian sold its product to four customers in the second quarter.
But its consumer online banking product had lackluster results. Corillian signed up four customers for the product, but “we expected to close more of them before the quarter ended,” Mr. Hart said. He stressed that these deals have not fallen through, and that he expects them to close within months.
Mr. Kraft, who owns shares of Corillian, said that even though the results were unimpressive, they indicate that the vendor is on track to improve itself.
Corillian has increased its revenue and is working to cut costs and become profitable again, he said; its online security product is an important contributor to its revenue, though security is drawing potential customers’ attention away from online banking.
“There is, basically, guidance saying you need to get on this” and buy a security product, Mr. Kraft said. “That sort of moves security concerns to the top priority. There’s no guidance, obviously, saying you have to get Internet banking.”
Because security concerns constantly evolve, banking companies likely will return to Corillian to get a product to address the next big fraud trend, he said.
The security product produces a shallower, less lucrative relationship than Corillian would get from online banking, Mr. Kraft said. However, “even if they’re not making a killing on that product itself, it brings them some visibility, some exposure, and helps them get in the door.”
