For nearly four years Intuit Inc. has offered a free Web Connect service to smaller banks, so that bank customers can access their accounts using Intuit's Quicken money management software.
The days of free access, at least for the banks, are nearly over.
Intuit has notified banks - in many cases through technology vendor intermediaries - that starting next month the service will come at a price, in many cases thousands of dollars. The move mainly affects small banks, because most large ones offer access to Quicken through the more fully-featured Direct Connect service, for which Intuit has been charging for nearly five years.
Intuit, which makes most of its money by selling shrink-wrapped software, says it is simply doing what all businesses, including banks, do: charging its customers a fee for its service.
"From the very beginning we announced that we would be pricing connectivity," said Steve Holoien, the Mountain View, Calif., vendor's director of financial institution connectivity and support. Intuit views connectivity as a benefit that it has developed, and one for which it feels it deserves to be compensated, he said.
But the move is not sitting so well with some small banks. Some have called industry trade groups to vent their frustration with the new fee, and a few others contacted at random from a list on Intuit's Web site of customers who will be affected said they were upset, too.
"This really does seem pretty outrageous to me," said a banker from the latter group, Frank Mercardante, the president of $250 million-asset Southwest Community Bank in Carlsbad, Calif. "It's something that the banks will be forced to absorb."
The move may create an opening for Quicken's chief rival, Money. Microsoft Corp. does not charge a connectivity fee for its Money software, and a few of the angry banks are threatening to stop offering Quicken after Intuit's spring cutoff deadline for paying the fee.
"We have not agreed to that charge," said Janice Pearce, the assistant vice president and Internet banking manager at Bank of the Pacific of Aberdeen, Wash.
Even if it means telling customers that they will have to drop Quicken and QuickBooks, the Intuit application aimed at small businesses, the Pacific Financial Corp. unit has decided "that we won't support it," she said.
But Quicken holds about two-thirds of the market, according to NPD Group, a Port Washington, N.Y.-based research firm, and its customer base is extremely loyal. Some bankers and industry observers say that for most banks, refusing to pay is not a viable option, because too many consumers depend on Quicken and any bank that discontinues the service risks losing customers.
"I don't want to tell my customers what to do," Mr. Mercardante said.
Both the direct connect and Web connect services allow users to download balance and transaction data from the banks' servers, where the information is stored, to their personal computers, where the Quicken software is running.
The direct version, which offers more capabilities and is used by most large banks, was introduced in 1997, and Intuit introduced a fee for the service the following year. Mr. Holoien said that back then not a single bank customer balked at the new cost.
Intuit introduced Web connect in mid-1999 in an effort to attract more bank partners, especially smaller ones. This version lets information move in only one direction, from the bank to the user, so customers cannot use it to initiate transactions from within their software applications. However, it is also easier and therefore less expensive to implement than direct connect.
The vendor says that more than 2,000 banks are using Web connect, the vast majority of them community banks and thrifts, while almost 150 institutions, including many of the country's largest banking companies, use direct connect. A handful, mostly large companies, offer both.
Starting in August 2001 Intuit began phasing in a fee structure for Web connect, and that program is just now starting to reach the smallest banks.
"In this case we did give advance notice, as much as we could," Mr. Holoien said. Responding to some complaints that customers had not received advance warning of the new charges, he said that, "whenever there's a pricing announcement, it's new the first time they hear about it."
Intuit is imposing a tiered set of annual fees for Web connect, starting at $500 for the smallest institutions, Mr. Holoien said. Banks must pay the fee once for Quicken and again for QuickBooks, and the vendor is asking them to pay now for the 18-month period that began on Jan. 1. That means the smallest institutions need to cut a check for $1,500 very soon if they plan to continue supporting both applications.
Many community banks outsource their e-banking operations to outside vendors, and some of these suppliers have negotiated fees with Intuit on behalf of their customers. Tom Walsh, an industry research manager at Jack Henry & Associates Inc., said that Intuit's Quicken newsletters first mentioned a fee for smaller banks in August and that in December his firm received notification that the Web connect fee would become effective at the start of this year.
By late last month Jack Henry had settled on terms with Intuit and sent a letter to its bank customers about the fee change and the three-tiered payment system it had arranged. Mr. Mercardante of Southwest Community says this was the first time that his bank learned that Intuit planned to start charging for Web connect.
Under the Jack Henry agreement, the top 150 U.S. banks in deposit size, must pay $20,000 a year for each Quicken application. Those that have more than $150 billion of assets but are not in the top 150 must pay $8,000, and those with less than $1 billion of assets must pay $3,000.
According to the Jack Henry letter, financial institutions have until April 18 to decide whether to pay the fee. "If a contract is not received by that date," the letter reads, "all interactivity with Intuit products will be discontinued for your customers."
Community banks working with other vendors have reported similar deals.
James Van Dyke, the founder and principal of Javelin Strategy and Research in Pleasanton, Calif., said that banks "aren't about to cut off Quicken service." For most institutions, the size of the fee was not significant, but "the exception to that is going to be small banks."
Suzanne Ricci, the chief information officer for Alliance Bank, a $375 million-asset, eight-branch institution based in Broomall, Pa., said: "Obviously, it's going to be a huge cost burden on a small institution like us."
Avivah Litan, a vice president for financial services at Gartner Inc. said the move makes sense for Intuit. It has the leverage to impose the fee and will certainly benefit from a new revenue stream, she said. "Why give the service away?"
But that does not mean the banks have to like it, Ms. Litan said. "It's always annoying when you've been getting a service for free and then you have to start paying for it. If you are a small bank, you'll probably feel totally victimized by this, because you have no choice but to pay."
Ms. Pearce of Bank of the Pacific which has $250 million of assets and 10 branches in southwest Washington, noted that, without the banks, which have developed the infrastructure to support Quicken, customers would not be able to use the software package, and Intuit's sales would fall. "I think we provide them a service."
In the short term, this fee will clearly lead to more income for the vendor, but some say the long-term effects may not be so positive.
"Slowly but surely, I think the banks will start shifting customers to Microsoft Money," Ms. Litan said.
Banks have historically been willing to support both products, but observers say they may choose to promote Money over Quicken if there is cost incentive, and customers may respond.
Warren Lewis, the managing director for the banking industry in Microsoft's financial services group, said there are no plans to add a connectivity fee. "I think this puts banks in the position of having to rethink their neutrality."
But Mr. Van Dyke said losing share over the long run may not be a big drawback, because the market for money management software is not thriving. Because of the very low growth rates in the segment, Intuit has diversified itself, and it now sees its line of tax software as its most important products.
"What's basically happening is that the market is on the way out, but as long as it's alive, Quicken owns it," he said. "Intuit is just milking the cash cow."
