First American Corp., an $8 billion-asset banking company in Nashville, has signed up its first customer for electronic data interchange services.

The deal is a sign that electronic data interchange - a cash management service in which banks automate exchanges of payments and related information with corporate customers - is slowly gaining appeal for small and midsize companies. Historically, the service has been the domain of the largest corporate banking clients.

First American has begun providing services to BCE Investments Inc. and hopes to secure other deals in coming weeks.

"Most companies, regardless of their size, see a lot of advantages in conducting business using EDI," said Rhonda C. Engel, a vice president with First American.

BCE Investments, with annual sales of about $15 million, is a relatively small business customer, which argues against "the popular belief that EDI is only for large companies," she said.

First American's optimism toward the business of electronic data interchange is welcome news to cash managers.

Electronic data interchange has long been expected to become a fee-based money-maker for the banking industry. However, only a few dozen banks offer full services for electronic data interchange.

Banks have been reluctant to offer the service mainly because the demand has not been strong enough to justify investing in the technology.

But, given reports of increasing demand and news that early entrants in the business are beginning to turn a profit, many financial institutions are taking a longer look at the process.

Meanwhile, corporations increasingly are weighing the electronic data interchange capabilities of both their banks and their trading partners when making operational decisions.

A firm's EDI capabilities represent one component of a corporation's selection process, said Susan Skerritt, a principal with Morgan Stanley & Co., New York, and a former cash management consultant with Ernst & Young, New York.

But she noted that as the "payment stream of a corporation increasingly uses EDI, then yes, it becomes an important component of a banking relationship."

Ms. Engel cited similar factors in explaining First American's decision to offer the service. The bank has more than 3,000 corporate customers to which it can market electronic data interchange.

The company hopes that some of these clients will follow the example of BCE Investments.

The company manufactures seating and side interior panels for the boating industry and Peterbilt trucks.

Under its deal with BCE, First American will help the company with weekly payroll disbursements for about 200 employees.

BCE Investments transmits payroll information, in the form weekly electronic data files, to the bank. The bank receives the file on-line.

The EDI software separates transactions for direct deposit from those that require printed paychecks.

The direct deposit transactions are transmitted electronically through the automated clearing house network, while instructions for checks are sent electronically to the bank's printing facilities. Checks are delivered the next day by an overnight courier.

Later, First American transmits to BCE Investments the account reconciliation files, which are used to track those checks that have cleared and those that are outstanding.

Finally, the bank archives the payroll checks as they are presented for collection.

Thomas Tucker, a senior vice president at the Chicago Clearing House Association, which operates the EDI Bank Alliance Network, a start-up payment system devoted to electronic data interchange, noted that although most banks have exited the payroll processing business, "banks are interested in doing more reconcilement."

"Processing payments through electronic data interchange would allow them to do that," he said.

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