The online banking software vendor Digital Insight Corp. says distribution partnerships like one it has with CashEdge Inc. will be an important way for it to reap more benefit from its strong position with middle-market banks.
Jeffrey Stiefler, the Calabasas, Calif., company's chairman, president, and chief executive, said in an interview this week that the idea is to establish it as a gatekeeper; if other vendors want to sell in this hard-to-reach market, they should do so through Digital Insight.
The goal is to "own the middle market," he said. "Nobody else can do it, because nobody else has the distribution power that we have."
Digital Insight has 1,750 midsize bank and credit union customers, he said. Almost 1,000 of them have less than $1 billion of assets.
It is hard for vendors to "reach the midmarket channel," because marketing to those financial companies generally requires a large sales force, and the revenue tends to be small.
George Tubin, a senior analyst at TowerGroup Inc., a Needham, Mass., unit of MasterCard International, said, "Digital Insight certainly is the biggest player in the middle market, by far. They're absolutely in the leadership position there."
Mr. Stiefler said that position lets his company resell other companies' products. The first and best example of this type of relationship is the five-year deal Digital Insight signed in June with CashEdge, a New York provider of online account opening and funding software.
Digital Insight gets favored pricing on CashEdge's account-opening and funding software for its customers, exclusive rights to distribute the software to any bank with less than $5 billion of assets and any credit union with less than $2 billion (including those that do not use Digital Insight products). It also got warrants to acquire 5% of CashEdge.
Mr. Stiefler said he is pursuing similar distribution agreements. "We can do 30, 40, 50 such deals with other companies."
Such partnerships are preferable to acquisitions, he said, because some purchases do not work out as expected and are hard to correct. With distribution partnerships, "you only have to take what you want."
Mr. Tubin said CashEdge would not have been able to reach middle-market customers without Digital Insight. "They would have to get in and prove themselves" to each new customer, he said, but working with Digital Insight eliminates that need.
Erik Randerson, Digital Insight's director of investor relations, said that since the contract was signed, his company's sales staff have sold CashEdge's software to more than 25 financial institutions.
Neil Platt, CashEdge's vice president for sales and business development, said the distribution agreement is "a hugely important deal for us, and Digital Insight is a great partner."
Digital Insight also offers CashEdge's account-to-account transfer product, under different terms, as part of a 2002 contract.
CashEdge normally sells directly to large banking companies and has few relationships in the middle market, he said. "Digital Insight has exactly what we don't have."
The warrants that Digital Insight received are a sign of its investment in the deal's success, he said. "Not only were they making a commitment to the application, [but] they were making a commitment to the company, to helping grow CashEdge."
CashEdge has never done "anything this meaningful before," Mr. Platt said. "I'm hoping we'll continue to do more and more business together."
Still, he said he did not want to overstate the value of the agreement; CashEdge has sold its account-opening and funding product directly to 25 large financial companies, and the value of each of those contracts is "on a parallel" with the Digital Insight one.
"Digital Insight is an important part of our business, but they're definitely not a majority of our revenue," Mr. Platt said.
