Fasttrack

CHRISTOPHER WOODARD Staff Reporter If you do your banking online, chances are you’ve done business with Digital Insight Corp. and didn’t even know it. The Calabasas-based company provides online banking services to hundreds of thousands of consumers on behalf of 325 community banks, credit unions and thrifts in 40 states. Digital Insight designs and sets up each institution’s Web site and then manages the accounts, recording customer transactions and passing the information along electronically to its member financial institutions. “We’re transparent. The consumer really doesn’t know who we are,” said Paul Fiore, the company’s chief executive. “We had 62 million hits last month on our servers in Calabasas, but it was on behalf of Home Savings and hundreds of other banks and credit unions like them.” While consumers may not be familiar with Digital Insight, bankers and credit-union managers are. The company commands 38 percent of the market among Internet banking vendors, with its next largest competitor commanding 18 percent of the market, according to Bank Technology News, an industry trade publication. In addition to Home Savings, the company’s clients include the credit unions of the United Nations, the U.S. Treasury Department, National Semiconductor Corp. and Lockheed Martin, among others. “Digital Insight is really a pioneer in bringing lower-cost, well-done Web sites to credit unions and banks,” said Jim Bruene, publisher of Online Banking Report, an Internet trade publication for the banking industry. “They took quite an early lead in the industry.” The privately held company maintains 200,000 consumer accounts on behalf of its banking clients, and that number is growing 10 percent a month, Fiore said. Digital Insight saw its annual revenues more than double from $1.5 million in 1996 to $4 million in 1997. Fiore is projecting that revenue will double again to $8 million in 1998 and skyrocket to $18 million in 1998. The company earns its money by charging financial institutions a fee of about $10,000 to design and create a Web site, and then a monthly charge of $2 per customer to manage the institution’s online accounts. Ninety percent of the company’s revenues come from the monthly customer fee, Fiore said. Digital’s success has made co founders Fiore and Daniel Jacoby (aged 33 and 32, respectively) millionaires “at least on paper,” says Jacoby. Not bad for Fiore, a former chief financial officer for a credit union and Jacoby, a biomechanics graduate from the University of California, Santa Barbara. The two partners attribute the company’s good fortune to being in the right place at the right time and having the necessary expertise to capitalize on what they saw as a burgeoning market for Internet banking. Fiore and Jacoby were working for a Moorpark-based company called XP Systems in 1994 when they were asked to investigate what it would take to set up an online banking service for one of XP’s customers. Fiore, who oversaw XP’s strategic planning, and Jacoby, who managed the company’s electronic development group, took on the task with the intention of partnering with an existing provider, but they soon learned that no one was making significant use of the Internet for online banking. Some of the large financial institutions were developing their own software to allow customers to tap into the bank’s own computers and access their accounts, but such a system had tremendous drawbacks, including requiring the institutions to buy rows of a huge number of phone lines to handle customer calls, said Jacoby. More importantly, with direct-dial access, a bank can only serve as many customers at a time as it has phone lines. Jacoby and Fiore knew that with the Internet made secure with encryption technology a bank could serve thousands of customers simultaneously, 24 hours a day. “We realized that through the Internet, financial institutions didn’t have to get into the business of software distribution,” said Jacoby. “You could do it through a browser.” Added Fiore: “Most of the big companies didn’t see (the advantages) so soon. I don’t know if we were smarter than them or they just had so much invested in their proprietary systems that it would be impossible for them to scrap it and go to an Internet-based system.” With seed capital from XP Systems, the duo founded Digital Insight in 1995. The company started with three employees, and generated less than $100,000 in revenue in its first year. But as online banking caught on, and the fledgling company was able to prove to its customers that Internet transactions could be made secure, the company’s fortunes took off. Today, Digital has 95 employees and seven sales offices around the country. “Early on, security over the Internet was a big talking point. People were worried about it. We always saw it more as a perception issue than a reality issue,” said Fiore. By setting up secure servers and making use of encryption, a technology that allows data to be scrambled before being sent over the Internet, the company was able to satisfy its customers’ concerns. Although the company is privately held, Fiore said it may consider going public in 1999 if the market for initial public offerings improves. To raise money for expansion, the company solicited private investment, and so far has received $11 million from venture capitalists. So what does the future hold for online banking? Jacoby believes old-fashioned bank branches will become an anachronism, as online banking takes hold. Customers who need cash will simply sign onto their online banking account and download credit directly to their smart cards, which they’ll be able to use for everything from groceries to renting skis. “When more and more merchants, people who actually send out bills, get online, the potential for different methods of payment becomes vast,” he said. “You could be sitting at home, watching a Domino’s Pizza commercial, and just click on an icon to pay for the pizza.”