Keefe, Bruyette & Woods Inc., making its first investment banking foray into banking technology, is managing a private equity offering for Online Resources and Communications Corp.
The Keefe firm said it also intends to take a significant investment position in Online Resources, the McLean, Va.-based provider of screen telephones and related support services for home banking.
Keefe is in the process of raising additional capital from institutional investors, such as money managers and insurance companies, and plans to play a role in marketing Online's services to its client banks.
The investment firm expects to identify a handful of investors by next month, said Joseph J. Spalluto, senior vice president.
The agreement with Online Resources represents a strategic departure for Keefe, which has historically worked mainly with banks and thrifts. The firm said it wants to keep pace with changes in the financial industry and is responding in its own way to banks' interest in diversifying their businesses.
"We've done work for mortgage companies and money managers and will probably do more with traditional consumer finance companies, since we see these as natural extensions to the banking industry," said Mr. Spalluto.
Although a service company such as Online Resources falls outside these categories, the diversification makes sense, said Mr. Spalluto, because the interactive financial services market is becoming increasingly important to the banking industry.
"We see the banking industry searching for solutions to deliver home banking to retail customers," he said.
While acknowledging the failures of past home banking projects - in which many banks promoted proprietary systems - Mr. Spalluto feels the industry is now at a crossroads.
"People are more comfortable with the use of technology because of their familiarity with automated teller machines and automated telephone systems," he said. "In the next year, more banks will take meaningful strides toward offering home banking."
John Duffy, Keefe's director of corporate finance, agrees that home banking is becoming critical, particularly in view of competition from outside the industry.
"Banks need to secure their customer relationships, or they'll lose them," he said. "Home banking and other remote links to customers are critical in that effort. Online Resources has the right mix of services and technology to be a long-term player in this market."
Keefe's investment banking and advisory relationships with more than 200 financial institutions will serve as an additional distribution channel for Online Resources, said Gene Riechers, senior vice president and chief financial officer at the technology company.
Mr. Spalluto said Online's products can provide real value to the client banks. Many of the banks, with less than $10 billion of assets, do not have the resources of larger institutions for technology development and research, he said.
"With Online Resources' solution, a bank can be up and running in 90 days for less than the cost of an automated teller machine," he said.
"The company has the platform, processes, strategy, and leaderhip that promise a bright future," Mr. Duffy said.
Matthew P. Lawlor, president of Online, said the Keefe endorsement has great value. "Its name commands tremendous respect in the industry," he said, adding, "together we will present a powerful business case for our services that will benefit their clients."
Online Resources provides access to home banking, bill payment, and financial management services both through conventional telephones and through its Screenphone. It has obtained a patent for its transaction processes.
The phone includes a card swipe for debit and credit transactions, and can handle a variety of telephone company services such as caller ID, call waiting, and call forwarding.
NationsBank Corp., Online's best known customer, just began marketing a new model, the Screenphone 220, in the Washington-Baltimore region.
