Banks Fear Microsoft As Relationship Rival

Microsoft Corp.'s acquisition of Intuit Inc., announced last week, will reshape the home-banking landscape just as surely as it will change the structure of the personal-finance software market.

The two companies had been rivals in their approach to money management, bill paying, and banking via personal computers. Joining forces, they pose an even bigger threat to the bankers who had been wary of each company's power to muscle in on customer financial relationships.

At the same time, to those of an opposing school of thought -- that Intuit's dominant Quicken software or Microsoft's innovative but struggling Money product was an effective route to home-banking growth -- the combination might look even more powerfully attractive.

Regardless of the point of view, the $1.5 billion merger deal is sure to force financial institutions to take a closer look at their home banking strategies and market positions -- assuming it isn't already too late.

The announcement late Thursday by Redmond, Wash.-based Microsoft and Menlo Park, Calif.-based Intuit came just hours after Intuit confirmed rumors that the two companies had been talking. The news stunned many of. the bankers, transaction servicers, and others in the concentric and overlapping circles of interactive-service partnerships, some of which included Microsoft and Intuit.

Microsoft had worked closely with three superregional banks in developing the Money software, and is currently rumored to be close to announcing an alliance with MasterCard International's Master Banking program.

Intuit was an original development partner in Visa U.S.A.'s home-banking program, but that relationship has mostly run its course. Visa recently hooked up instead with Block Financial Corp.'s Managing Your Money software, which has about 12% of the personal finance market, saying Block's philosophy is more compatible with Visa's desire to keep banks in the center of the customer relationship.

Microsoft opted to buy the market leader -- Quicken is estimated to own 80% to 85% of the personal finance software market -- rather than continue struggling with Money. To avoid potential antitrust problems, Microsoft will sell Money to Novell Inc., which owns the Wordperfect software line.

"If you are positioned as a financial services organization, you must fear Microsoft and Intuit in the home-banking market," said one banker active in the electronic banking field, who requested anonymity. "If they offer advice and decision support, they -- not the bank -- own the relationship with the customer. And those people who are the most desirable bank customers are the target of Microsoft and Intuit."

Although Microsoft is not the only game in town, this acquisition gives it another market segment that it can call its own. Yet the company's chairman, William H. Gates 3d, has not hidden his disdain for banking and its conservative traditions. In a Newsweek article in July, Mr. Gates referred to bankers as "dinosaurs." He caught a lot of heat from bankers, but he heard not much outright disagreement.

Bruce Burchfield, chief executive officer of National Payment Clearinghouse Inc., an Intuit subsidiary, also believes his new boss had a point. But he also said some bankers are hasty in assessing Microsoft as a threat to their customer base.

"Bill Gates is moving at a pace the banking industry never moved at," said Mr. Burchfield, whose Illinois-based company was acquired by Intuit this year even though it worked closely with Microsoft on the banking and bill-paying portion of Money. "But if you look historically at what we've done, the customer is owned by the bank."

The initial banking participants in Microsoft Money were First National Bank of Chicago, Michigan National Bank, and U.S. Bank of Oregon.

Other signings were said to be imminent. A joint MicrosoftChase Manhattan Bank press conference in New York was canceled on the eve of the Intuit merger announcement.

Trace Poll, director of retail product. management for Michigan National, found Microsoft to be a cooperative partner and said the acquisition was "only likely to improve and strengthen the relationship." He added that Michigan National is trying to get "more opportunities to get the bank brand in front of the customer."

Richard Comandich, senior vice president at U.S. Bank, said he sees the arrangement as the best of possible worlds, since "we had made no secret that we intended to offer Quicken to our customers anyway." Mr. Comandich said he is "very comfortable with our brand nesting within the Microsoft brand" on the home-banking offering.

"We view this as a quicker and more efficient way to partner with financial institutions," said Richard Bray, group product manager for Microsoft. "There's certainly going to be some creativity in terms of how the players here relate to the customer."

"Microsoft is serious about getting into the electronic banking market, but I'm not quite worried about them elbowing banks out of the way," said Joseph Pendleton 3d, senior vice president for electronic banking at Meridian Bancorp. The Reading, Pa., bank is in several home-banking efforts including Prodigy Corp.'s PC-based banking service.

"Generally, it should be positive," he said of the merger. "It will introduce more of the public to direct or home banking. I don't think Microsoft is going to try to usurp the bank's role here."

"The market's still very young," said the banker who chose to remain anonymous. "But, unless as an organization, you proactively start building content for home banking, you're going to be killed by Microsoft."

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