Intuit Seeks Bigger Piece Of Online Banking Through Digital Insight Purchase

Nov 30, 2006 (01:11 PM EST)

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Intuit is looking to give bank customers many of the capabilities found in its popular financial software. That's why Intuit agreed to buy online banking service provider Digital Insight for $1.35 billion cash.

Intuit announced the acquisition plans on Thursday shortly before financial markets opened. The deal, which is expected to close in the first quarter of next year, would add 1,760 financial institutions to Intuit's customer base, and $214 million in annual revenues. Intuit's sales for the fiscal year ended July 31 were $2.3 billion.

Intuit hopes to convince Digital Insight customers to add online capabilities that would appeal to small businesses and consumers. Today, banks primarily offer services that relate to what people have already done -- checks written, deposits made or bills paid. Intuit wants to help them offer more. "Consumers and small businesses want something different, and the banks want to offer them something different," Martha Deevy, vice president of Intuit's financial institutions group, said.

What would be different for small businesses could, for example, include creating, sending and tracking invoices; as well as having customers send payments, all done online. "All of a sudden, you start viewing your bank as more of a partner in your business," Paul Rosenfeld, director of product marketing for Intuit's financial institutions group, said.

For consumers, Intuit could help banks provide better online tools for numerous financial chores, such as tracking spending, or planning for retirement, taxes or college tuition.

Intuit believes banks would be receptive, given that many already outsource their online services to companies like Digital Insight. "The banking industry is shifting from doing a lot of things themselves to outsourcing," Deevy said. "We're just riding the wave of momentum that's already underway."

Digital Insight is strongest among mid-size banks, which would offer an immediate opportunity for Intuit, Sonal Gandhi, analyst for JupiterResearch said. "If anyone can convince banks that they know small businesses, it's Intuit. Small businesses are their bread and butter, and they serve them well."

Overall, online banking is maturing, with annual growth in the low single digits, according to JupiterResearch. Large banks have done a better job at taking people to the Web, with 65 percent of their online customers using banking services through the Internet. For smaller banks, the figure is 45 percent, so their still playing catch up, JupiterResearch analyst Asaf Buchner said. The Digital Insight deal could help Intuit get into large banks, by enabling the software maker to offer capabilities that could draw more bank customers online.

Today, no banks offer consumers personal financial management software similar to Intuit's or its competitors, which include Microsoft., Buchner said. "No one offers scaled-down versions that banks can offer to their customers."

For the last several years, Intuit has been moving to the Web, particularly in the area of tax return preparation. Last year, more people used the company's online version of TurboTax, than the desktop version, Rosenfeld said. Today, 7 million small businesses use Intuit's QuickBooks software, and 15 million consumers its Quicken product.

Intuit has agreed to pay $39 per share in cash for each Digital Insight common share for a total purchase price of $1.35 billion. The deal is subject to approval from regulators and Digital Insight shareholders. Digital Insight would continue to operate from its headquarters in Calabasas, Calif.