Magazine article American Banker

Software Deal Shakes Up Home Banking; Banks Fear Microsoft as Relationship Rival

Magazine article American Banker

Software Deal Shakes Up Home Banking; Banks Fear Microsoft as Relationship Rival

Article excerpt

Banks Fear Microsoft As Relationship Rival

Microsoft Corp.'s acquisition of Intuit Inc., announced last week, will reshape the home-banking landscape just as surely as it will change the structure of the personal-finance software market.

The two companies had been rivals in their approach to money management, bill paying, and banking via personal computers. Joining forces, they pose an even bigger threat to the bankers who had been wary of each company's power to muscle in on customer financial relationships.

At the same time, to those of an opposing school of thought -- that Intuit's dominant Quicken software or Microsoft's innovative but struggling Money product was an effective route to home-banking growth -- the combination might look even more powerfully attractive.

Regardless of the point of view, the $1.5 billion merger deal is sure to force financial institutions to take a closer look at their home banking strategies and market positions -- assuming it isn't already too late.

The announcement late Thursday by Redmond, Wash.-based Microsoft and Menlo Park, Calif.-based Intuit came just hours after Intuit confirmed rumors that the two companies had been talking. The news stunned many of. the bankers, transaction servicers, and others in the concentric and overlapping circles of interactive-service partnerships, some of which included Microsoft and Intuit.

Microsoft had worked closely with three superregional banks in developing the Money software, and is currently rumored to be close to announcing an alliance with MasterCard International's Master Banking program.

Intuit was an original development partner in Visa U.S.A.'s home-banking program, but that relationship has mostly run its course. Visa recently hooked up instead with Block Financial Corp.'s Managing Your Money software, which has about 12% of the personal finance market, saying Block's philosophy is more compatible with Visa's desire to keep banks in the center of the customer relationship.

Microsoft opted to buy the market leader -- Quicken is estimated to own 80% to 85% of the personal finance software market -- rather than continue struggling with Money. To avoid potential antitrust problems, Microsoft will sell Money to Novell Inc., which owns the Wordperfect software line.

"If you are positioned as a financial services organization, you must fear Microsoft and Intuit in the home-banking market," said one banker active in the electronic banking field, who requested anonymity. "If they offer advice and decision support, they -- not the bank -- own the relationship with the customer. And those people who are the most desirable bank customers are the target of Microsoft and Intuit."

Although Microsoft is not the only game in town, this acquisition gives it another market segment that it can call its own. …

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