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CALABASAS, Calif. and DALLAS – Online banking services provider Digital Insight Corp. (DI) and Advancial Federal Credit Union are close to finalizing an out-of-court settlement for an undisclosed amount to a breach of contract lawsuit filed by DI on August 13, 2002 in the Superior Court of California, Los Angeles County. The suit alleges that Advancial failed to meet its obligations as defined in a contract with DI for online banking services. The amount of damages sought is undisclosed, but the case’s assignment to a general jurisdiction court indicates the sum is larger than $25,000. Advancial’s original contract was not with DI, but was with Indianapolis, Ind.-based Virtual Financial Services LLC (ViFi), which was acquired by DI in January 2002. According to Advancial COO Brent Sheffield, “The DI system did not have the same features or interface integration and did not work as well with our host system as the ViFi system. It did not meet the credit union’s business needs or members’ needs as well.” Advancial had approximately three years remaining of a five-year contract when it terminated services with DI, according to Sheffield. Digital Insight confirmed that the company has a “pending lawsuit with a former credit union customer to collect unpaid termination fees” and said they were “unable to comment further at this time.” Advancial’s COO said he was not aware of any other credit unions currently fighting this type of lawsuit with DI, but he acknowledged that “there may have been other credit unions that faced a difference in service because of DI’s acquisition of ViFi.” Advancial initially responded to the lawsuit by filing a motion to quash, or void, the summons on grounds that the suit was filed in California, where DI is based, not in Indiana or Texas, the two jurisdictions where ViFi and Advancial were conducting business operations when the contract was signed. The motion was denied. The companies have since spent over two months in mediation trying to reach a settlement. The case was “deemed settled” June 13 at a settlement conference and a notice regarding dismissal of the case was filed with the court June 16 by Digital Insight’s attorney, so the case is “virtually closed,” according to credit union officials. A jury trial date had been set for July 24. Going It on Its Own Following Advancial’s termination of DI services, the credit union contracted with another online banking service provider. But in October 2002, Advancial determined the credit union needed to develop its own system to get the level of service it wanted. “We got help from an outside consulting group for the high technology and the rest we did internally. Our product was built with our core processor – RDS – in mind,” Sheffield said. “It’s a fairly open system that has a cyber channel conduit into the processing system for added functionality. It allows certain functions to be written directly to the host system. Transactions occur on the host without employee interaction. For example, members can change PINs, addresses, phone numbers, and e-mail addresses and can set up account nicknames in real time.” One of best features of Advancial’s system is the ability to open an account online, Sheffield said. Advancial members also can open loans online, and soon will be able to open checking accounts. Currently, the program has a “bridge” to other vendors that allows members to initiate mortgage loans, credit cards, and soon check orders. Through I-Transfer, members can transfer funds between accounts at other institutions and Advancial. They also can transfer funds to another person by email. Bill payment has been very popular, according to Sheffield. “Our system is unique in that most financial institutions don’t charge for the service if you use their checking account. With ours, members can pay bills from their Advancial accounts and from checking accounts at other financial institutions.” Why would Advancial want members to have the option to pay bills from another institution’s checking account? “It’s convenient, and it makes us that much more sticky,” Sheffield said. “Hopefully, we’ll eventually cross them over. Maybe they’ll think, `I don’t even need that other financial institution.’ ” “ The key with this product is to maintain efficiency,” Sheffield said. “We are a $600 million credit union with 105 employees. We have 10 branches in three states. Most institutions look at home banking as a loss leader. We don’t. We consider the Internet a branch. We have overhead costs, but no employees.” Online bill presentment is expected to be available by third quarter 2003. The credit union is examining the possibility of making its home banking product available to other financial institutions. “We have looked in detail at the marketplace, exploring opportunities to position our home banking product for credit unions or other financial institutions. We would target highly innovative, progressive, larger institutions that could benefit from the added robustness that we’re enjoying now,” Sheffield said. At least one credit union has already shown interest in the product, according to Sheffield. -

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