With Integrion Financial Network's "acquisition" of Visa Interactive-Visa paid a rumored $25 million to unload the electronic banking service-and the outsourcing/equity agreement made with CheckFree, Integrion has managed to amass a significant ownership stake in the electronic banking and payments markets.

Integrion, a consortium of IBM and 18 banks representing 60 percent of the country's DDAs, had only an on-line technical standard and middleware platform five months ago. But with these deals, it's now serving Visa Interactive's home banking customers and soon will be routing CheckFree transactions over its middleware platform, arguably replacing MasterCard's remittance payment system which CheckFree currently uses.

Behind-the-scenes numbers are compelling: Integrion received $25 million for Visa Interactive, flipped operations responsibility over to CheckFree and got 10 million, 10-year warrants for CheckFree stock worth almost $100 million. That amounts to deals valued at $125 million and an equity stake in CheckFree-all in the span of 90 days.

The rub: Integrion, which pledged to develop a bank-centric funds flow processing system when it first launched, has essentially entered the electronic payments business through the back door. Other than creating a technical transaction messaging standard called Gold, Integrion has not actually developed anything. Its middleware network, the Interactive Financial Services (IFS) platform that CheckFree is adopting, was built and is operated by IBM. And the Visa Interactive system it just acquired has been farmed out to CheckFree. So rather than developing a bank-centric system, Integrion seems to be making a series of technology company partnerships. Says John Backus, CEO of InteliData, "It sold its engineers to IBM, and its operations people are now at CheckFree; so what's left are sales and marketing people. It's a storefront for IBM services." IBM has the right of first refusal for any systems the company is contracted to develop, he says. In addition, says Bill Burnham, senior research analyst of Piper Jaffray, Integrion was an expert move for IBM as a way for the technology company to enlist the entire banking industry to keep Microsoft out of banks' back offices.

Integrion's managing director Bill Fenimore has a different perspective. "Our core business is to provide a range of products and services to our bank customers. If you view us as a 'sourcer' for the industry to provide features and functions and products at the most efficient cost, that would be one good example of what Integrion is. The fact that we don't run the process doesn't mean that we are not responsible for it. By using the collective strength of (Integrion and CheckFree), we're able to put together very attractive terms and conditions to make products like bill payment available."

And with the support of these 18 banks, the Integrion-CheckFree combination has the potential to achieve critical mass and scale to lower processing fees for its customers. "I'm now dealing collectively with banks that represent more than half the DDAs in the country," says CheckFree CEO Peter Kight, whose company some say was floundering before landing the deal that's gained it "preferred processor" status. Says Piper Jaffray's Burnham, "This is not good news for MSFDC." J.Bers

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