Internet banking vendors are looking for every edge against each other, and it just might be channel integration.
COLUMBIA, S.C. - Has Internet banking gone from leading edge to backyard hedge? As home banking has become a standard offering for financial institutions of all sizes, it's common to hear that it has become a commodity (a definition of which, according to Merriam-Webster, is a "mass-produced unspecialized product.") Indeed, the number of companies offering Internet banking to credit unions has grown - now including core processors that provide basic transaction functionality and data processing - and the major players in credit union land are forging their own paths to survival and success. For instance, California-based Digital Insight was an early expander into cash management solutions and has been acquiring and forging partnerships to expand its e-commerce offerings. Meanwhile, Corillian Corp., which boasts a number of big credit unions as clients, has concentrated on bolstering the functionality of its flagship Voyager platform, including for the prized small business and corporate market, and has just recently partnered with NCR to offer its services in a service bureau, or ASP, environment. And Online Resources Corp. is looking to expand the adoption of bill pay and account aggregation solutions along with integration of its core Internet banking services with call center and marketing services. The competition is everywhere, and the first volleys often involve price. "There's no question that Internet banking per se is being commoditized. And certainly there are more players," says Bob Meagher, executive vice president of sales and marketing at Internet banking pioneer Digital Insight, which began in the credit union industry and now serves more than 1,100 financial institutions. "With that being said, the solutions being introduced are more generic in nature, due in large part to the downward price pressure being placed on basic service," he says. But at least one industry insider maintains that Internet banking as a basic commodity has become harder to find for many credit unions. "Gone are the days of yore when you could buy a good, basic yet flexible, inexpensive tool kit for Internet banking and it would be supported," argues Tripp Johnson, a consultant with Cornerstone Advisors of Scottsdale, Ariz., a consultancy that helps credit unions and banks sort through proposals and choose vendors. Johnson and his colleagues spend a lot of time working on core processing proposals and he says he has seen some of those companies, including some Fiserv units, for example, "implement a very good middleware platform for Internet banking, although I see more service bureau choices than there are for in-house. "Really, whoever owns the middle dictates what happens on the front and the back. That's why you see S1, for instance, trying to be the integration platform for all that." And, he says, he's been surprised by the cost from many online banking vendors, core processor and Internet specialists alike. "A couple weeks ago, I was running numbers for a credit union client and was floored by the cost of this stuff," Johnson says. "It was all over the map, from a hundred grand to $800,000. I was trying to differentiate between them, to figure out why there was such a huge delta, and I honestly couldn't come up with an answer." The delta may be in the details. "When one says Internet banking now, you're implying bill pay and a bunch of other services. I would hardly say that is commoditized," says Matt Lawlor, chairman and CEO of Online Resources, which provides Internet banking services to more than 700 financial institutions, more than 400 of them credit unions. "I like to say that Internet banking is the razor and the other services are the blades. The razor is the commodity, but how you integrate the blades is becoming increasingly important," Lawlor says. Lawlor's Virginia-based company has been on the leading edge of bill pay and electronic cash management, including with its Money HQ aggregation and money management solution. It also has just made its first acquisition, buying Incurrent Solutions, a major supplier of credit card processing technology. "We're the only provider that has a bill pay engine and Internet banking under one roof, so it's seamless and we can provide a level of skill in integrating those services and a call center and integrated relationship and marketing management that others just don't have," Lawlor says. Tough words in a crowded market. The major players, indeed, are well familiar with each other, crossing paths frequently as they work to hang on to existing clients and sign up new ones. And despite the growing competition from Internet banking platforms from core processors and smaller shops, the major opposition has remained the same for at least one of the major vendors. "Digital Insight and Online Resources are our biggest competitors," says Chuck Drake, vice president of marketing at Oregon-based Corillian, which includes 12 of the 100 largest credit unions in the country on its client list. "They traditionally have a large number of credit unions initially attracted to the ASP model, and for many smaller credit unions, the service without owning software is just what they need to provide basic online banking," Drake says. "But for midsize to large CUs trying to meet the growing needs of their members and competing with banks, they're now finding that the one-size-fits-all approach is an impediment," he says. Instead, he says, "it's no longer just about features and function, like it was in the earlier days. Now it's all about making the online channel more effective, comparing their services to Yahoo and other places that people can do business online." Meagher, the executive in charge of sales at DI, also sees a diverse marketplace competing for consumers' hearts and wallets. "I would argue that there is no single competitor who's dominating," he says. "If we look at our win-loss ratio for the past year or so, none really stand out. So even though there are more entrants, we're not really missing that many deals." Meagher also argues that the vendor's price tag is not all that matters. "Certainly some of the losses we're seeing are based very heavily on price, but I would argue that less and less people are as concerned about price as they are about having a robust offering in terms of functionality and usability," the DI executive says. Digital Insight's approach, in that regard, has been to move aggressively into cash management, bill pay and other services through in-house development and increasingly, third-party alliances. "We've gone from about 10 third-party vendor relationships to about a hundred," Meagher says. "That's just over the past few years, and for us, that's quite a big change, since we grew up as an engineer company that was all about product development. "What that allows us to do is really offer clients a best-of-breed approach, which again, is something that a lot of core processors or other home-grown application suites can't or don't want to do," he says. Johnson, the Cornerstone Advisors consultant, says they might not need to. "I've been thinking about this a lot lately, about where do we go next," he says, "and I just don't see the next killer app on the horizon in Internet banking. "We've tapped the bill pay, we've had some success with presentment, aggregation has been very hit and miss. As far as integration goes, I've seen some banks and credit unions doing OK with tying together call centers and the Internet, but I haven't seen that happen on through with the branches and ATMs. "I guess we'll see a real uptick in online enrollment in services when things are tied together better, when the same process of opening an account that takes three minutes online doesn't take an hour in the branch." Johnson also says he thinks that some smaller and regional players, such as 450-client HomeCU and corporate CUSO MemberStreet, are getting renewed attention as smaller credit unions look for simplicity and savings in their Internet banking. "My bigger credit union clients are desperately looking for a tool kit to be able to do it themselves, easily and affordably," he adds. -