The Federal Reserve Board, opening up some potentially lucrative businesses to the industry, has allowed a bank to offer data processing services that have nothing to do with banking.
The Fed ruled Monday that Compagnie Financiere de Paribas of Paris can prepare customer bills for a cellular phone company, even though it will prepare several reports that are not closely related to banking.
The order, which sets a roadmap for future Fed action, represents a marked change in policy.
The Fed previously had ruled that holding companies only could offer data processing services that were closely linked to banking. This has limited holding companies to operating payroll and similar systems. The new ruling will allow them to compete in a wide range of information processing activities, banking lawyers said.
"This is a really big step," said Melanie Fein, a partner at the Washington law firm of Arnold & Porter. "This is a statement that the Fed is willing to interpret the data processing activities broadly for bank holding companies. This opens the door for all kinds of possibilities."
Though the ruling applies directly to data processing, it also could help banks in their drive to offer consumers nonfinancial services, such as on-line shopping. John Voss, the chief technology officer at Huntington Bancshares, said some of his company's efforts in this area had been hampered by the requirement that the services be linked to banking.
"This could open up a very broad landscape for commercial banks in the United States," Mr. Voss said. "We can bring value to the customer in ways that we were not allowed to in the past. It is definitely beneficial to the banking industry in terms of our competitive posture."
Banks have long sought to profit from their excess data processing capacity. But federal rules so stifled these businesses that many banks sold their data processing units during the 1980s. The remaining bank data processors compete against nonbanks that don't have to link their services to a banking function.
While the dollar value of the potential new business is unclear, experts agree that the future of banking is closely linked to the ability to vie for data processing work.
"This could be seen as allowing banks to get into information processing," said James McLaughlin, director of regulatory and trust affairs at the American Bankers Association. "It is really needed if banks are going to be able to compete."
David Roderer, a partner at the Washington law firm of Winston & Strawn, said the Fed has become increasingly concerned that foreign banks were plowing full-steam into data processing. It feared U.S. banks would be left behind, he said.
Also, he said the Fed has worried that nonbanks would dominate the data processing industry. They would only turn to banks to settle accounts. That would leave the Fed without control over much of the payment system, he said.
Compagnie Financiere de Paribas will offer the accounting product to digital mobile phone networks. The software calculates a bill based on the date, time, duration, and destination of a customer's call. It also factors in the consumer's billing agreement and outstanding account balance. The bank also will provide customer identification and account information to phone companies.
Compagnie Financiere de Paribas, with $282.5 billion in assets, is the 29th-largest bank in the world.
