Was it artful staging above all? Certainly Corillian Corp. couldn't resist the publicity opportunity that is RDS to announce that Wachovia Corp. was switching to it from
S1 Corp.-although the decision to switch was made more than a year ago.
The Winston-Salem, NC, bank was the mystery bank behind Internet banking performance results Corillian and Microsoft Corp. disclosed at last year's Retail Delivery Show, banking's biggest conference held every year in December by the Bank Administration Institute. Intending to prove that NT (on which Corillian's Voyager application runs) is an "industry- strength" operating system for banks, the duo disclosed results from Hewlett-Packard Lab tests in which a Corillian customer hosted more than three times as many online users as any bank had then. (Interestingly, another contender for the largest banks' Internet business announced better performance results at the recent RDS: Financial Fusion Inc. said it could potentially support 8.5 million Web banking customers.)
As for the significance of Corillian winning former S1 customers- Wachovia, Huntington Bancshares, and parts of Citigroup and Chase Manhattan Corp.- S1 argued at the show that itself and Corillian are not in the same league and, therefore, not really competitors, while Corillian suggested that it is surpassing its main rival. S1 claims not to count Corillian as its main rival.
Corillian's argument is supported by Pacific Crest Securities in a report published late last year, which Corillian eagerly distributed. The accompanying table shows Corillian has five of the Top 20 banks as Internet banking customers while S1 has just two. However, Corillian has just 400 employees while S1 has 1,850.
Atlanta-based S1 is increasingly a global company. Chip Mahan, outgoing chief executive and now chairman of S1, told BTN that international business now accounts for between one-sixth and one-fifth of S1's revenues and is S1's "hottest growth area. FICS really took us global," Mahan added, referring to the Belgian-based wholesale banking software specialist S1 acquired last year.
"The U.S. is very price competitive," Mahan continued. "That's why we're losing deals to Corillian."
However, Lawrence Baxter, executive vice president of Wachovia, told BTN, "Cost was not a factor in the switch (from S1)." In fact, he said, Wachovia wasn't even paying full rate (yet) because it had been one of the founders of pioneer Internet bank SFNB, from which S1 was spun off.
Wachovia's decision was based on its desire "to control the customer experience," said Baxter. "We wanted to work with someone who would let us get inside their code and make changes." Asked if its difficulty with S1 was that the company had software that is proprietary in that it doesn't use open industry standards or if the difficulty was S1's unwillingness to disclose its source code to Wachovia, Baxter said it was "more the latter."
In announcing the appointment of its new CEO, Jaime Ellertson, S1 emphasized both S1's forthcoming move to open standards (a version based on the open Java programming language is in development) and Ellertson's proven ability to make companies "high growth."
Asked about S1's ailing stock price, Ellertson dismissed it as part of a general slide among Internet companies. Mahan (speaking in early December) added, "Yeah, our stock is down 88%, but Amazon is down 80% and Yahoo 85%."
Ellertson noted, "Analysts have us moving to cash flow positive in the next quarter."
He also addressed the perception of S1 as a service bureau. "Our product happens to be an application we run in a service bureau. As we present ourselves going forward, we offer two platforms, one of which is licensed."
S1 had appeared to complement its Unix-based service bureau offering by buying licensed Internet banking software provider Edify Corp., Santa Clara, CA-part of its acquisition roll in 1999. However, Herve Couturier, senior vice president of S1, noted, "We've stopped the development of the Edify platform." (S1 did, however, keep a separate call center that Edify developed.)
Chase, one client win Corillian claims, had been on that Edify system.
Wachovia had roughly 23% of its retail banking customer base, or 500,000 individuals, using the S1 product. Until recently, Baxter noted in conversation at RDS, Wachovia had the highest customer penetration of Internet banking, but it slipped to third place, according to a ranking done by DLJ Credit Suisse analyst Susan Roth. In subsequent correspondence Baxter said, "I would be surprised if we really did move from number
one," explaining that Wachovia is conservative in counting online banking customers. "You cannot tell...whether other institutions are being this rigorous," he says.
Even if Wachovia slipped in its share of the online banking population, this was not a factor in its move off of S1's product, he said. "We decided to move from S1 about 15 months ago, so penetration rates had nothing to do with the decision."
"We found Corillian to be both cost effective and flexible...The experience has paid off dramatically," added Baxter, who is head of Wachovia's e-business division. Many industry observers describe S1's system as proprietary.
Wachovia is the 16th largest U.S. bank in assets, but ranks 7th or 8th in its numbers of online banking customers, Baxter says. Within three weeks of launching its Corillian-based Web site, (on Nov. 26) Baxter said 20,000 bank customers had signed up. Wachovia hopes all of its online banking customers will remain active Web bankers.
"It wasn't necessarily a technology contest," said S1's Ellertson of losing Wachovia to Corillian. "Our biggest competitor is a bank that wants to do it themselves...something which a lot of toolkit vendors want you to believe is reasonable."
Mahan contended "Wachovia spent a couple of million dollars customizing Corillian's tool."
Baxter rejected that: "I cannot imagine how Mr. Mahan would have any idea what we spent at Wachovia. His guess bears no relationship to the facts." Besides, he adds, there would be some (unspecified) integration costs involved in using either S1 or Corillian's systems.
Continuing his characterization of the role S1 plays in the Internet banking market, Mahan said, "We're not in the business of selling a $1- or 2-million platform and moving on." By contrast, he added, "Our relationship with Zurich (Financial Services Group) is a $100-million relationship."
If S1 is moving into Corillian's traditional sphere-software licensing- then Corillian is moving into S1's traditional sphere of application hosting. Matt Cone, marketing manager of Corillian, said, "The majority of the top 80 banks in the U.S. have in-house core processing systems and separate application software for the branch and call center that they run in their data centers. As Internet banking becomes more mature, it's expected that they will buy software from Corillian and others to run in their data centers. Examples of institutions that have done that are Wachovia Corp., Bank One, Sun Trust and Chase."
Cone was also loath to classify the contest between S1 and Corillian as one of superior technology. If not that, what then was the basis of banks' decisions to switch? "It's about flexibility," Cone said.
Corillian has 40 financial institutions as its customers, 33 of which run Corillian software in their own data centers. The other seven have Corillian run its application in its Portland, OR, data center/headquarters, but on servers owned by the bank. The idea is that the role of running Internet banking could easily revert to the bank.
Effectively a hedging strategy for banks, it allows them to farm out Internet banking while it is so small an element of their business as to be insignificant, but to quickly regain control of it, if it becomes sizeable.
Mahan insists that Corillian isn't
even a competitor: "Corillian is not in the same business we're in.
"Seybold is the one that keeps me awake at night," he says, referring to the vendor known for customer relationship management software, but which helped develop a new Internet banking system
for PNC Bancorp when the Pittsburgh-based bank moved off
of the Integrion Financial Network. (S1 got a number of refugees from the failed consortium.)
S1 announced version 5.2 of its Consumer Banking application at the show, suggesting imminent availability. "During 2001," S1 executives say, the company will be rewriting its software to Sun Microsystem's JE2 standard. "The industry states it's open," says Ellertson, adding that the move will save clients from having to write extensions for Java applications they might want. It also means, he said, "We now have the only application that scales from a desktop to a mainframe."
The latest software enables wireless banking. "Wireless is going to have an enormous impact on everybody," says Ellertson, adding that he worked with some of the world's largest wireless implementations.
Banks using other electronic banking vendors will have to write different applications for all the wireless devices on which they run, Ellertson contends. "There are 45 different wireless devices in the U.S. today. There'll be over 200 within the next year. S1 will write to all, with no add-on work for the bank."