The Arizona Clearing House Association may break its industry's not- for-profit mold by forming a profit-seeking subsidiary.

The Phoenix-based clearing house, which provides check and automated clearing house services, has hired Ernst & Young to help it study how the unit would be set up and how it would be taxed.

The subsidiary would sell automated clearing house services to nonmember institutions outside Arizona - an activity not permitted under the existing association charter.

The for-profit structure would permit profit distributions and dividend payouts. By contrast, nonprofits are limited in their use of any operating surpluses, which might hamper an entrepreneurial, technology-based opportunity like the marketing of automated clearing house services.

"We are looking at diversifying and putting the appropriate structure in place to secure a strong future," said Holly Merrill, president of the Arizona Clearing House. "We've taken the first step toward approving the concept."

The 92-bank organization has a history of transaction-processing innovations. The subsidiary would be the first of its kind among the regional automated clearing house associations, though the same kind of step has been taken by other banking trade groups, notably the Independent Bankers Association of America.

Serving a banking community that is smaller and more closely knit than those in more populous areas, the Arizona group used its automated clearing house to clear retail debit card transactions - in contrast to other regional systems that used on-line interchange systems.

The Arizona Clearing House is also one of only three automated clearing house operators to do its processing independent of the Federal Reserve System. The other private-sector processors are the New York Clearing House Association and Visa U.S.A.

The Arizona Clearing House relies on Deluxe Data Services to support its switching and settlement services to banks and credit unions in the state.

In its traditional business, the Arizona Clearing House handles more than 25 million local checks each month.

A profit-making enterprise conceivably could lower the cost of clearing house transactions to member banks, which include Arizona affiliates of BankAmerica Corp., First Interstate Bancorp, Banc One Corp., and Norwest Corp. - all among the largest originators of automated clearing house payments.

The New York Clearing House provides services to many institutions outside its region, but as a nonprofit it cannot rebate profits to its bank owners. Instead, it lowers fees for all participants when revenues exceed expenses.

"We are a different setup," said George Thomas, senior vice president with the New York group. "We can't exceed our reserves, because then we get into tax problems, so we lower our prices for everybody."

The New York group also operates Chips - the Clearing House Interbank Payments System - which handles large-value electronic funds transfers totaling more than $1 trillion on an average day.

John F. Good, president of MidAmerica Automated Payments System, the Cleveland-based automated clearing house, said an association's primary mission may be education, for example. But if it earned excess revenues from ancillary services, he said, "The IRS may say, 'Wait a minute, you are making a profit on that and its beyond what you are chartered to do.'"

But the Arizona association isn't the only one considering establishing a for-profit unit. Joyce Carelli, network services director for Payment Systems Network Inc., Maitland, Fla., said, "It's something we're exploring," though she added her firm hasn't made any decisions yet.

She said other automated clearing house associations might consider "separating core services from other services" that can be expanded to other markets for profit.

It "makes sense to do it on a for-profit basis" if it benefits association members, Ms. Carelli said.

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