Intuit Acquires Digital Insight

By Nicholas Carlson | Posted December 01, 2006

Intuit Inc, known for its Quicken, Quickbooks, and TurboTax products, bought online banking services provider Digital Insight yesterday for $1.35 billion. The company will pay $39 per share in cash for each Digital Insight common share.

"The combination of two industry leaders will put Intuit in an excellent position to bring a new generation of online banking solutions to market," Intuit President and CEO Steve Bennett said in a statement. With Digital Insight in the fold, Intuit said it would serve more than 5,000 financial institutions, nearly 25 million consumers and nearly seven million small businesses.

Back in the waning dot-com heydays of 1999, Digital Insight was one of many tech stock darlings on Wall Street. For example, in the month before November 12, 1999 the company's stock price rose by 54.2 percent.

As late as 2003, optimism still remained high for online banking providers, when analysts predicted the number of online banking households would grow at a 14 percent compound annual growth rate over the next five years.

Since then, adoption growth has declined as many customers lost faith in online banking's security. Online banking adoption increased only three percent in 2005, according to eMarketer, a research firm that specializes in online trends. "Security is not a luxury to online banking users, and it cannot be for online banks," said Lisa Phillips, eMarketer analyst and author of the report.

Whether online banking will reach its growth potential — whether Intuit's acquisition will be judged a success — depends largely on how the industry responds to consumer concern with security. That's the challenge facing the Intuit-Digital Insight merger.

Avivah Litan, an analyst at Gartner research, said the answer is transparency. Banks have to make it clear to their customers that their funds are safe, Litan said.

Intuit said that Digital Insight's business operations will continue from its existing facilities in California and Georgia, but that it would form a new financial institutions business division within Intuit. Jeff Stiefle, former Digital Insight chairman, president and CEO will serve as that unit's president.

For the time being the transaction remains subject to regulatory review, Digital Insight shareholder approval and other customary closing conditions. The companies said, however, that the transaction closing is expected in the first calendar quarter of 2007.

Adapted from Internetnews.com.

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