Atlanta-based e-commerce services provider CheckFree last week announced plans to acquire online banking solutions company Corillian (Portland, Ore.) in a deal worth about $245 million dollars. The acquisition will bring together Corillian's online banking platform and complementary suite of financial applications, and CheckFree's electronic billing and payment, and online transaction services.
According to Steve Olsen, CheckFree's COO, the union will help the company reach further into the online channel as it attempts to expand its client relationships and help those banks it serves do the same. "Online banking is becoming increasingly integral to banks' relationships with their customers, and the Internet is increasingly the point of interaction where services are delivered," says Olsen. "CheckFree's strategy is focused on helping banks optimize the online channel because it's the path to deeper and more profitable relationships with consumers and small businesses."
Maggie Scarborough, a research manager with Financial Insight's (Framingham, Mass.) corporate banking practice, "channel optimization" are the buzzwords of this acquisition. "CheckFree bought the channel for the delivery of its payments to consumers and small businesses; including consumer and business bill presentment and payment. The idea is that plugging directly into the channels gives CheckFree the opportunity to sell more services to Corillian's expanding customer base, including fraud services, bill payment, and business bill payment and invoice presentment."
CheckFree isn't the only one benefiting from this deal, she continues. This move is also to Corillian's advantage as well as the company can further expand its potential for sales of online banking, small business banking, cash management, warehousing and fraud sales to CheckFree's financial institution clients. "Corillian has the potential to offer greater flexibility to its customers through direct CheckFree bill payment, plus its own warehousing and least cost routing. From CheckFree's point of view, they now have a channel representing 35 million end-users to which some of the largest banks in the U.S. are attached—a delivery channel for CheckFree (and banks) to deliver new more-integrated financial services and garner greater adoption of consumer and small business payments."
The deal sounds reminiscent of another such announcement made earlier this year when financial management products provider Intuit announced its plans to buy online banking company Digital Insight. Experts are not so sure that the CheckFree announcement is a direct challenge to Intuit, however. "The CheckFree-Corillian combo is an exclamation point on a series of channel acquisitions that places value on end-to-end payments, more of a European model," Scarborough explains. She cites the acquisition of cash management player Politzer & Haney in November by e-payments solutions provider ACI and Intuit's acquisition of online banking vendor Digital Insight, which just completed this month. CheckFree's announcement did not quite surprise her since she says this was something that had been in the works "for a while."
"We had already established our momentum toward online channel optimization," states CheckFree's Olsen. "We were building what we believe our customers needed and found that we shared a common vision with Corillian."
Once the deal receives final approval, Olsen says the combined companies can look toward building out their product synergies to the benefit of their respective bank clients. "Electronic billing and payment has historically been our core competency. The potential of combining this infrastructure and expertise with Corillian's online banking platform, and working with their talented team, carries the opportunity to deliver a more efficient and complete consumer and small business user experience," he relates. "For our customers, this could drive increased adoption of online banking and electronic billing and payment services. Today, consumers typically go to their bank Web site to check account balances, transfer funds or view cleared checks--and it's a separate user experience to receive and pay bills. We plan to bring together online banking and online bill payment into a more vertically integrated and efficient experience for consumers and small businesses."
Art Gillis, IT consultant to banks and technology vendors, is not so sure about the extent to which CheckFree's and Corillian's bank customers will be affected by the combination. "Instead of A + B = C (where C is greater than the sum of A & B), it will be A + B = AB," he states. "If CheckFree was a company with a track record for making acquisitions, like Fiserv, I would have said they are just fulfilling their strategy to broaden their offerings and add revenue. But CF must have had something else in mind [when it offered to buy Corillian]." Gillis says Corillian's solutions aren't unique, so he can't quite see the logic behind this particular transaction.
However, as someone who has been in the business for decades, Gillis, like Scarborough, wasn't surprised to hear about the news. "Long ago, I had predicted that all the Internet vendors were going to end their life by being acquired," he explains. Referencing figures from an annual industry report he authors, Gillis says, "In Automation in Banking - 2000, there were 33 Internet Banking vendors. In the 2007 Edition only one will appear as an independent--Online Resources Corp. So [the announcement] didn't surprise me."
Whatever the outcome of this marriage, the merger shows the increasing importance being placed on the small business segment by the financial services industry, according to Financial Insight's Scarborough. "Both the Intuit and CheckFree acquisitions highlight that small business banking is yet to be fully tapped for payments and that there is potential for the delivery of integrated banking services directly to the financial management systems of the small business."
Once the deal closes, Corillian will be integrated into CheckFree's new Electronic Commerce Division. "We have been impressed with Corillian's talent across the organization, and we look forward to working with the Corillian team on the business assimilation process. We look forward to getting started, upon consummation of the deal, as a combined organization," says Olsen. "More information [on executive roles] will become available sometime after the deal closes, which we expect to be on or around June 1."