By Nadja Rogoszynski
NEW YORK, June 4 (Reuters) - Newly public Web banking
services company Online Resources & Communications Corp.
<ORCC.O> has yet to turn an operating profit after years of
investing in a technology it hopes will not change.
The company, which priced 3.1 million shares at $14 each
late Thursday in an initial public offering, connects customers
with their financial institutions using the decade old ATM
network banks are logged into.
Online Resources can connect clients via ATM machines as
well as personal computers directly to small community banks
with the help of its patented technology using the ATM network.
This network is a decade old closed system, such as in the
New York area -- the NICE system, that chief executive officer
Matthew Lawlor does not believe will change in its essential
structure anytime soon.
"The complexity of the systems, the high fixed costs took
an enormous amount of investment and time on our part," Lawlor
said.
The company reported a loss of $15.3 million on revenue of
$2.2 million in 1998 versus a loss of $13.04 million on
revenues of $1.01 million the prior year.
"This ATM infrastructure is 20 to 30 years old and may
evolve, but not change essentially anytime soon," Lawlor said.
Online Resources provides smaller community banks with the
technology to offer more advanced services via ATM machines or
PCs, such as paying bills, as some of the larger banks,
including Citibank, have offered. But some analysts believe the
company's access to the ATM network may be only a temporary
advantage as the system may be changing sometime in the future.
"They have access to the closed ATM network, which is an
advantage. They have patents for their technology, so small
banks don't have to develop expensive systems on their own,"
said Randall Roth at Renaissance Capital's IPO Plus Aftermarket
Fund <IPOSX.O>.
"The downside is that this was designed for the last
generation," Roth added. "This was a good idea five years ago,
but I believe the ATM network is moving toward a more open
standards platform."
Roth believes that the ATM network may become a more open
system in the near future, with the help of the Internet,
allowing more online banking services competitors to make use
of it.
But Lawlor believes that his company is flexible enough to
adjust to any evolving changes, to outperform competition and
feels that Online Resources has graduated from the
developmental stage at this point in time.
"We are beyond the developmental stage. Now it is time to
help our institutional clients in getting more customers, to
promoting their services," Lawlor said.
Lawlor does not consider consolidation in the banking
industry to be a major threat to Online Resources.
"Today there are 22,000 banks, thrifts and credit unions
out there. About five years ago there were 24,000. The
consolidation is going on but a lot less than meets the eye,"
he added.
CheckFree Corp <CKFR.O>, Transpoint and Edify Corp are some
of the companies that also offer online banking services but
Lawlor feels that only some of their services overlap with his
company's.
"The competition has pieces of what we have, like online
bill paying, but none of these are direct competitors," he
said.
Shares were flat at $14 Friday afternoon.
859 1896))
REUTERS
Rtr 17:26 06-04-99
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