Banks' interest in strong authentication technology is also driving sales of online banking software.
Corillian Corp., S1 Corp., and Digital Insight Corp. have all begun offering authentication software in recent months, and last week all three said banks are clamoring for it. And, they say, banks that are already in the mood to shop for security software are increasingly willing to pick up some online banking software as well.
"The cost and complexity" of installing new authentication software "is simply adding further momentum" to banks' willingness to outsource their online banking needs, said Jeff Stiefler, the chairman, president, and chief executive at Digital Insight.
The Calabasas, Calif., company, which serves small and midsize banks and credit unions, announced last August that it would integrate authentication software from TriCipher Inc. into its product line. TriCipher's software places a file on consumers' computers and looks for the file during subsequent online banking sessions to verify that a known computer is being used.
TriCipher, of San Mateo, Calif., also offers other hardware and software authentication products, including passcode-generating tokens. Next year Digital Insight plans to begin offering some that people would use to authenticate themselves for high-risk transactions; it said TriCipher has a wide range of products to offer to its diverse customer base.
Digital Insight reported first-quarter results Wednesday. It said revenue rose 12% from a year earlier, to $57.9 million, and net income rose 9%, to $6.2 million.
Mr. Stiefler said he is winning more business from large banking companies. The $12 billion-asset Valley National Bancorp of Wayne, N.J., was among the most important additions in the quarter, he said.
But he also said his company will continue to focus on smaller customers, because it does not want its revenue to depend on a few big ones.
In October the Federal Financial Institutions Examination Council issued guidelines urging financial companies to improve their authentication procedures by the end of this year by requiring more than the standard user name-and-password combination.
S1, which concentrates on midsize banks and credit unions, is also using banks' interest in better security as a sales tool. In February the Atlanta company signed a deal to offer its customers software from the online security vendor PassMark Security Inc.
James "Chip" Mahan 3d, S1's founder, chairman, and chief executive, told analysts in March that only the latest versions of its online banking software would support PassMark's strong authentication product. The idea was to make the PassMark software a "catalyst" for customers to buy newer versions of S1's.
Apparently that strategy is working. Mr. Mahan told analysts Wednesday that S1's first customers using the PassMark software would go live with it this month, and that 50 banks are in the process of upgrading to the latest version of S1's online banking software.
S1 said its first-quarter revenue rose 5%, to $48.5 million, but it posted a net loss of $1 million, against a year-earlier profit of $720,000. It blamed the loss on restructuring charges and having to list equity compensation as an expense.
PassMark's software is used to assure customers that a Web site is legitimate, not a fake created to trick people into revealing personal information. Customers select an image that is later displayed when they log in to a bank's site.
The software also checks at login whether the user is using a known computer system. Customers using an unknown system must answer challenge questions.
PassMark, of Menlo Park, Calif., was sold last week to RSA Security Inc. of Bedford, Mass.
Corillian, which focuses on midsize and large banks, developed a strong authentication product in-house. Its Intelligent Authentication software examines the consumer's hardware and network settings to determine when to grant quick access. If the settings are unusual or resemble known traits of fraudsters, a bank can ask challenge questions or block access entirely.
Intelligent Authentication was introduced in October. The Hillsboro, Ore., company says 20 financial institutions have bought it, including six in the first quarter.
Corillian said a recent test showed that a bank could use the software to authenticate 400 users a second.
In March it began pairing Intelligent Authentication with a product from StrikeForce Technologies Inc. of Edison, N.J., that verifies the user's identity by phone before allowing a risky transaction.
Corillian's first-quarter revenue rose 28%, to $14.3 million, but its bottom line, like S1's, went from a profit ($654,000) to a loss ($971,000). Corillian also blamed the expensing of equity compensation, among other factors.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that the FFIEC guidelines have become "a trigger to replacing the online banking front-end."
This is especially true for large banks, he said, because "with these new requirements, maintaining a homegrown application is becoming, increasingly, a burden."
