- Top Financial Institutions and Online Banking Providers
Who powers the Web sites of the 80 largest banks
It was last November and if it were a football game, Ted Spooner, Andrew White and Steven Sipowicz would have been kissing each other. It was like winning the Super Bowl. The characters are Corillian's top management and they had just snatched a huge client--Chase Manhattan Corp.--from archrival, S1 Corp.Founded in 1997 as a spinoff of Checkfree, Corillian is a relative upstart in the online banking software game. Although S1 was founded only three years earlier, it is seen as the veteran after creating the first Internet bank. It has 1,850 employees and offers software for a variety of banking operations.
In contrast, Corillian has 400 employees and a one-track mind: the provision of software for online banking. In the past year, Corillian, headquarted in Beaverton, OR, has made great strides, giving giant S1 a real run for its money.
Corillian now provides online banking software to five of the nation's top 20 financial institutions, compared with only two for S1. (Boston-based S1 remains the paramount supplier to big financial institutions outside the U.S.)
Making comparisons is not easy, however. For example, New York's Citibank is counted among Corillian's five customers in the Big 20, but uses Corillian products for only an eighth of its online operation; the rest consists of in-house products.
Among the U.S. behemoths, Corillian's client banks have combined assets of about $1.96 trillion, including Citi, compared with $857.1 billion for S1.
Corillian's drive began just at the start of 2000, when it became clear that Y2K would end up being a crisis that wasn't. As a result, banks began snapping up software for the 21st century. As one executive states, "The floodgates were opened--everything was fair game."
Some experts think that Corillian's deal with the $707.5 billion-asset Chase signals the changing of the guard in the battle of Internet banking vendors. Chase has not been the only convert. Other financial institutions that recently moved to Corillian from S1 include Citibank; Huntington Bank, based in Columbus, OH; Wachovia Bank of Winston-Salem, NC: and Hughes Aircraft Credit Union in Manhattan Beach, CA.
"Our goal is to have every financial services institution in the United States operating on our system," says Matthew Cone, Corillian's chief marketing officer.
Outside observers offer several reasons why the newer company has come on so strong. "Part of its success can be attributed to what Corillian is doing, and the other has to do with what S1 is not," says Octavio Marenzi, managing director of Celent Communications, an e-finance consulting and research firm in Boston. "S1 needs to execute better."
But S1 executives are confident heading into 2001. Charles W. Ogilvie 3d, S1's executive vice president for corporate strategy, says the competition was even tougher when S1 started out in 1994. There were more companies, all hoping to develop "the next best thing." Many of the companies that S1 began competing with no longer are in operation. And some former competitors, such as Edify and Q Up, are now S1 subsidiaries.
"I would say we certainly are the folks who crafted the marketplace," says Ogilvie. It is this "staying power" and additional products and services that will drive S1 to become more of a global force, he contends.
Internet banking accounts for only 15% to 20% of S1's overall business. It has roughly 900 customers worldwide.
When asked about competitors prying customers away from S1, Ogilvie says that at times bankers "work the vendors over," obtaining bargain-basement prices in return for allowing an Internet banking vendor to announce the signing up of a big name. "Our focus is on profits, not press releases," he says.
But getting big names to sign up is a key part of the game. "It's definitely important for a relatively new vendor to get the big names," says Anthony Piniella, senior vice president of New York-based Enterprise Engineering, which provides Internet banking platforms for investment banks, including Goldman Sachs Group and J.P. Morgan & Co.
Nonetheless, S1's Ogilvie takes his company's losses of clients in stride. "When you're the largest provider on the planet, you stand to lose the most." And, he adds, "Internet banking is a yawn."
Could that be sour grapes? Some think so. Marenzi and other analysts say Corillian deserves its recent string of successes. A year ago, Celent ranked Corillian as the No. 1 U.S. vendor of Web banking products for large and medium-size banks. Financial Fusion Inc., based in Boston, was second in both categories.
When Celent first issued its rankings, "everybody told me we were crazy," says Marenzi. At the time, S1's stock was soaring, breaking through the $100-per-share barrier in January 2000 and peaking at $142.25 in February. But since then, S1's stock has plummeted, closing at $5.50 on Dec. 11.
Marenzi and others foresaw troubles for S1. In 1999, S1 began buying smaller online banking vendors, among them Edify, a popular brand. Some bankers say the lines were "hazy" within S1.
Lawrence Baxter, head of Wachovia's e-business division, says that his bank decided to switch from S1 to Corillian in mid-1999 after having difficulties with S1 software. Wachovia was unsure which platform S1 would be providing: its own or Edify's. With S1, "you could not customize the platform in any way possible," he says. The S1 platform was too slow, and Wachovia was searching for a "highly scalable and very flexible platform."
Another primary problem is that S1's Internet banking platforms operate through off-site data centers, which also support several other S1 products. Baxter says that among the reasons Wachovia left S1 was its discomfort with having its Internet bank operate off-site.
S1 "may have shot themselves in the foot," says Celent's Marenzi. Corillian, in contrast, focuses on software that financial institutions can operate themselves.
Competition is expected to be especially keen this year because some big players have been dropping out of the game, and the remaining ones will want to pick up the pieces. In March, Integrion Financial Network folded. Among its clients were Bank of America, PNC Financial Services Group and LaSalle National Corp.
Corillian's Cone said his firm is gunning for Bank of America's basic Internet banking business. S1 already runs the Charlotte-based bank's military banking unit. "It's basically between us and S1," Cone says.
But others, including Marenzi, think Financial Fusion is becoming a formidable threat. "Financial Fusion is making good strides, and right now it is Corillian's toughest competition," he says.
Financial Fusion, which still has not gone public, produced revenues of $19.5 million in the first nine months of 2000, according to Christopher P. Infurchia, senior vice president. He says the company can provide both in-house and off-site services.
Financial Fusion is owned by Sybase Inc., a publicly traded software company founded in 1984 in Emeryville, CA. Sybase has 4,500 employees, and its revenues in the first nine months of 2000 were $699 million.
Infurchia is confident that Financial Fusion is becoming a major player. "It's now a two-horse race between Financial Fusion and Corillian," he says. S1 "seems to have either refocused or defocused" on Web banking, he adds.
There's no question S1 is undergoing fundamental change. In late-November it hired a new chief executive officer, Jaime Ellerton. And even before Ellerton's arrival, the company indicated that it was trying to sharpen its focus. In early November, it announced it would cut 7% of its workforce, saying the move was designed to "integrate [recent] acquisitions into a more streamlined and efficient operation."
Despite what some of its critics might say, S1 isn't out of the game yet. It estimates that its revenue in 2000 amounted to $240 million. If 15% to 20% of S1's total business stems from Internet banking, that translates to $36 to $48 million in revenue. That's still considerably above Corillian's estimate of between $28.5 and $30 million.
And who knows what end-run Ellerton might make.