Despite the current buzz about Internet banking and some healthy stock valuations in the field, analysts say that the supply of the technology is still exceeding demand.
That is a prescription for a shakeout among suppliers, said Steven C. Franco, an analyst at U.S. Bancorp Piper Jaffray of Minneapolis.
Two recent transactions suggest the process is under way. Last week, Home Account Network said it will buy First Data Corp.'s direct banking unit. On April 19, Intelidata Technologies Corp. and Home Financial Network Inc. announced an agreement to merge.
"Smaller vendors are finding that in order to compete, they have to pool their competencies," Mr. Franco said.
And demand for technology services is not as strong as early enthusiasts had thought it would be at this stage, he added.
Mr. Franco said Checkfree Holdings Corp., which provides electronic billing and payment processing services to 850 financial institutions, had a "mediocre" 6% quarterly growth in number of subscribers, according to its third-quarter earnings report.
Checkfree's services are used by by 2.8 million people.
"It was in line with expectations, but the pace of growth has not accelerated on the subscriber side yet," Mr. Franco said.
Gary Craft, managing director of E-Trade Group's investment banking and research division, said there are at least nine major developers of Internet banking products, and a similar number of companies selling Internet-based processing services.
This led him to ask, "How many do you need? Most if not all of these companies have very good platforms and good technologies, but there are too many chasing too few opportunities."
One of the prominent banking service and software providers, Security First Technologies, last week reported that its first-quarter revenue had risen by 250%, to $12 million.
Security First's Internet banking technology is used by an estimated 652,000 people globally. The company lost $3.3 million from continuing operations, compared with a net loss of $8.1 million in the comparable 1998 quarter.
Mr. Franco said Security First produced 15% more in revenue than he had expected. He said the Atlanta company is on track to reach profitability by early 2000.
Its stock price fell 16% last week, closing Friday at $94.50
Mr, Franco said investors are taking profits from the mid-April run-up in Internet and electronic commerce stocks.
'The broader market is starting to get a little more strength while Internet and technology stocks are selling off again," he said. "That is healthy because they got so extended. Some sort of breather is necessary for them to get to the next level." Telebanc Financial Corp. on May 3 reported revenues of $45.3 million, a 126% increase from the 1998 first quarter. Net income jumped 186%, to $1.25 million.
Telebanc uses the Internet, telephones, and mail to interact with its customers. Its cost structure lets it offer competitive savings and checking products.
Total assets increased 160% from a year earlier, to $2.6 billion, while deposits grew 132%, to $1.3 billion.
Telebanc's stock closed Friday at $93.125, down 10%.
Intelidata, of Herndon, Va., on Wednesday reported revenues of $2.1 million, a decline of 14% from the same quarter in 1998. But the net loss narrowed to $1.5 million from $4.8 million in the 1998 period. Its share price fell 23%, to $3.9375.