The concept of outsourcing Internet banking operations just gained two giant advocates in Citicorp and NationsBank Corp.

Security First Technologies, the soon-to-be-independent technology unit of Security First Network Bank in Atlanta, was the beneficiary in these cases, but the trend is broad and unmistakable.

Of 97 U.S. banks of all sizes with fully transactional Web sites-they include bill payment capabilities-92 turned to outside companies to manage most aspects of their sites, from site development to processing transactions, according to Gomez Advisors of Concord, Mass.

Security First and Jack Henry & Associates each assisted in 17 of the 97 Web operations. Other vendors on Gomez's list included Edify Corp., nFront Inc., Online Resources and Communications Corp., Q-Up Systems, and FundsXpress Inc.

"If a bank is devoting significant information technology resources to mergers, year-2000, and other issues regarding upgrading technology, it doesn't make sense" to also handle Internet banking, said Gomez senior consultant Chris Musto.

The buyers of outsourcing support are not just the smaller banks that historically have depended on outside vendors.

Citicorp signed a contract to let Security First, known as S1, handle a potentially large portion of its Web-based transactions.

NationsBank's military banking division also agreed to use the software and data processing services of S1.

"Every time a well-run, major company does an outsourcing deal, it makes the other companies stop and reassess what they are doing," said DuWayne Peterson, a former bank operations executive and chief information officer of Merrill Lynch & Co., now president of DuWayne Peterson Associates, Pasadena, Calif.

"You get a lot of boards asking their people whether they should do this," said Mr. Peterson.

"If Citibank is going to do it, where is it going to stop?" said Nicole Vanderbilt, an analyst with Jupiter Communications in New York. "The opportunity is large."

As its parent is being sold to Royal Bank of Canada, Security First is focusing its energies on technology and has boosted the number of banks using its software to 80.

Its data center is responsible for more than 70,000 accounts, nearly double the number six months ago.

"The data center has the potential to be very sizable," said analyst Neeraj K. Vohra of Arlington, Va.-based Friedman, Billings Ramsey & Co.

For New York-based Citicorp, Security First will process transactions generated by a new Internet product that Citicorp is building with Security First's software.

The program will run in parallel with Citicorp's existing Direct Access personal computer software, said Citicorp spokeswoman Susan Weeks.

"We want to be able to introduce something that can take a lot of capacity fast," said Ms. Weeks.

Observers have suggested that relying on Security First's data center might help Citicorp boost its estimated 300,000 on-line users into the million-account range, which no other bank has reached.

"Citibank is comfortable with the volumes and functionality" of Security First's software, said George T. Kivel of Mainspring, a Cambridge, Mass., research firm.

NationsBank's outsource move marks a departure from its past reliance on investments in the bank-owned entities Integrion Financial Network and Meca Software LLC.

The Charlotte, N.C., company will rely on Security First for its 85,000- customer military division, without discontinuing current development efforts with Integrion.

Because the military bank runs on a different system from the rest of the bank, "it was easier to go out and outsource from S1 than rewrite the interfaces to tap into NationsBank's Internet banking service," said Scott Mullen, vice president and business development manager, military banking.

"Outsourcing is a way to get into the channel and get experience without tapping into their internal information technology resources," said Charles W. Ogilvie, S1 executive vice president for sales and marketing.

"For technology leaders like Citicorp and NationsBank to trust the operations of a service bureau" demonstrates the extent to which banks are seeking all the technology help they can get, said Mr. Ogilvie.

Matthew Lawlor, chief executive officer of Online Resources and Communications, McLean, Va., said, "Citibank has always built (its own systems), while the other 99% percent of the industry likes to outsource.

"Banks don't own branches-they rent them-leaving the care to someone who has the competence to own and operate real estate," Mr. Lawlor said. "Internet banking is no different."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.