Digital Insight Corp. of Calabasas, Calif., said Monday that it has an exclusive five-year agreement to distribute CashEdge Inc.'s technology for instant online opening and funding of accounts to small and midsize institutions.
Though a growing number of large banks offer such service to consumers, few smaller companies do. Digital Insight provides online banking services to 1,700 institutions, mostly credit unions and smaller banks; it already offers them CashEdge's software for funds transfer and account aggregation.
Digital Insight said it had prepaid $6.25 million to CashEdge for an inventory of transactions. It also said it would receive a warrant to buy CashEdge stock, though the terms have not been finalized.
CashEdge, of New York, deals directly with larger users, including Bank of America Corp., Citigroup Inc., the Harrisdirect online banking unit of Bank of Montreal's Harris Bank of Chicago, Royal Bank of Canada, and Vanguard Group. The Digital Insight deal would not affect such relationships.
George Tubin, a senior analyst at TowerGroup of Needham, Mass., a market research unit of MasterCard International, said eight of the nation's 10 largest banking companies already let consumers open accounts instantly online.
"Those midsize and smaller banks that Digital Insight has as customers really haven't had the ability to do this," he said. Only about a third of U.S. households bank online, Mr. Tubin said. As that number grows, so will banks' need to enable people to open accounts online immediately, he said.
Banks want to enable consumers to act "right at your point of decision-making," rather than wait several days to submit forms by mail or visit a branch, Mr. Tubin said. Each delay increases the bank's risk of losing a new account, he said.
He also noted that the Digital Insight-CashEdge system automates the verification of the applicant's identity, including checking with databases such as that of the Treasury Department's Office of Foreign Assets Control.
"To have a larger company standing behind that [verification] should bring some comfort to some of the smaller institutions that don't have the resources or the experience," Mr. Tubin said.
