Intuit Inc., an electronic banking pioneer that has largely been eclipsed by online banking, hopes to regain its prominence in that market by acquiring the technology vendor Digital Insight Corp.
The $1.35 billion deal, announced Thursday, also marks a shift for Intuit. The Mountain View, Calif., company originally focused on selling its personal financial management software directly to consumers but is now concentrating on the small-business market and aims to market its financial services products through banks.
Observers said the combination of Intuit's software with Digital Insight's ability to deliver it over the Internet would likely appeal to the small-business market, which some say is underserved.
"We had to figure out how to combine what we do with what online banking does," Steve Bennett, Intuit's president and chief executive, said in a phone interview Thursday. "For small businesses, today's online banking solutions woefully don't meet their needs."
Intuit's Quicken financial management software was once wildly popular with early converts to electronic banking, and still has many devoted users. And though Quicken has more features than many online banking services available today, the software runs on users' computers and became less prevalent as banks began offering Internet banking services, which many people found easier to use.
As Intuit's consumer product waned, the company began focusing on the small-business market with its QuickBooks software, which remains a big seller. Not only is QuickBooks designed for small businesses, it also has versions for specific industries. In contrast, online banking software for small businesses is often based on products developed for consumers or large corporations, segments with needs very different from small companies.
Banks that use Digital Insight's online banking software would be offered new versions of Intuit's software that run online. Those new version must still be developed, and are expected to be available next year. Intuit distributes its software online now, but the products still run on the desktop.
Jeff Stiefler, Digital Insight's chairman, president, and chief executive., said the combination would improve his small-business offerings significantly. "What we deliver to small businesses is relatively basic functionality," he said in a phone interview Thursday.
Digital Insight, of Calabasas, Calif., would become the foundation of a new Intuit financial institutions division headed by Mr. Stiefler as president.
Intuit has relationships with 4,400 financial companies, which provide account data and transaction records electronically that Intuit's customers use to update their financial management applications. Those relationships would be handed over to Mr. Stiefler's division, which the company said could lead to cross-selling opportunities. Digital Insight has more than 1,700 financial customers now.
Intuit's Quicken and QuickBooks brands are well known even to businesses that do not use them, Mr. Bennett said. To capitalize on that name recognition, he said, online banking sites could eventually feature a "Powered by Quicken" logo.
Intuit has been moving aggressively to take advantage of the growing number of consumers and businesses that turn to their banks for financial management software rather than going to a computer store.
Though it already offered services to banks, such as DirectConnect, which enables banks to feed account data to consumers' Quicken applications, Intuit announced in November a suite of products just for online banking. This included applications for account opening and funding, initiating automated clearing house transfers, fraud assessment, and account switching.
Some of these services resemble what Digital Insight offers through CashEdge Inc. of New York. Mr. Stiefler said he had not yet given thought to how Digital Insight's sale to Intuit would affect its relationship with his company.
The CashEdge partnership is fairly involved; as part of its deal to resell CashEdge's account-opening and funding software, Digital Insight picked up warrants to acquire 5% of CashEdge and exclusive rights to distribute the software to banks with less than $5 billion of assets and credit unions with less than $2 billion.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said Intuit is wise to target small businesses. "The needs of the small businesses are not being met," he said. "The Internet banking products out there for small businesses are jury-rigged consumer products" in most cases.
In contrast, the consumer online banking market is served by many providers, and some companies have been trying to offer more sophisticated offerings. Wells Fargo & Co. of San Francisco has offered spending reports and charts through its Web site since February 2005, and Yodlee Inc. of Redwood City, Calif., announced online banking software this year that can chart spending across several accounts.
Consumers' "needs are being met" at most banks, Mr. Kraft said.
He said one of the most important assets Intuit would get in the deal, set to close next quarter, is Digital Insight's more than 1,700 banking relationships. Businesses were once comfortable buying their financial software off the shelf of a retail store, but "now the delivery mechanism is you go to your bank," he said.
And although Intuit worked with banks to make it easier for their customers to download bank data into Quicken and QuickBooks, "it was sort of one extra step that just adds some complexity," Mr. Kraft said.
George Tubin, a senior analyst at TowerGroup Inc., a Needham, Mass., unit of MasterCard International, said that although many consumers and businesses prefer online banking, "Intuit is still the leader in personal financial tools."
"Online banking is developing to the point where they need to start offering these abilities to consumers," Mr. Tubin said. "We've advanced far enough now in online banking that we're moving from basic functionality."
