BankAmerica Corp. and First Union Corp. have joined the list of cash managers offering Windows-based software packages to initiate electronic payments.
The new products allow corporate treasurers to initiate automated clearing house transactions from their workstations.
Banks giving corporate customers direct access to electronic payment capabilities is not new. Many large cash management players allow customers to initiate transactions on Fed Wire, the Federal Reserve's electronic funds transfer network.
But ever since First Chicago Corp. launched in 1993 FirstWindow 2000 - the first Windows-based electronic funds transfer product - a growing number of banks have moved to provide the services in the familiar operating system from Microsoft.
Banks credit Windows-based systems with increasing the use of a range of payments, including payroll, account transfers, and corporate trading partner payments.
The proliferation of easy-to-use electronic payments software has several driving factors, including the new federal law requiring the Internal Revenue Service to collect corporate taxes electronically.
The law - a result of the North American Free Trade Agreement, or Nafta - was signed in January 1994.
Its aim is to speed up the tax collection process and to alleviate the burden of processing the massive volume of paper checks and associated remittance information.
The first phase of the electronic tax filing mandate is already under way, affecting some 800 corporations with tax bills in excess of $78 million.
This threshold will drop gradually until 1999. Then corporations with more than $20,000 in taxes will be required to file electronically. Approximately 94% of businesses - or nearly six million companies - will be filing taxes electronically by 2000, experts say.
Observers believe the electronic filing requirement will indirectly boost demand for banks' electronic cash management services. It will also increase use of the automated clearing house network.
"There are different forces at work for electronic payments, and taxes are a good example," said Chris Haney, president of Politzer and Haney, a Cambridge, Mass.-based provider of automated clearing house software.
The rising transaction volume from electronic tax payments prompted the Treasury Department to award First Chicago and NationsBank with contracts in October 1994 to become its fiscal agents in the collection of corporate tax payments.
Forecasts call for increases between 80 million and 100 million automated clearing house transactions once the electronic tax collection project is completed in 1999.
The two superregionals have joined with other banks to build specialized tax data processing sites and will begin operating later this year.
"Our only customer in this business is the U.S. Treasury and the IRS," said Mike Manion, vice president with First Chicago/Mercantile LLC. "We are set up as a separate subsidiary equally owned by First Chicago and Mercantile Bank of St. Louis."
NationsBank will soon take control of the tax processing system, known as Taxlink. First Maryland Bancorp., Baltimore, and First Data Corp., Hackensack, N.J. - which together handle the tax processing now - will become subcontractors, as will Decision Systems Technology, Greenvale, N.C.
In addition to bringing new volume to the ACH and giving new business opportunities to banks, electronic tax filings could be a boon to other financial service providers.
Corporations with many employees may begin to look to third-party providers of tax services, such as Systems Tax Services, a Fountain Valley, Calif.-based unit of Ceridian Employer Services Inc., Minneapolis.
"We are finding a lot of interest right now because of the new mandate," said Tami Rippon, vice president with the company.
She noted that banks are also looking to make sure they have the services necessary to offer their corporate clients.
"Banks want to have something up and running prior to everybody being mandated," she said.
Systems Tax Services has over 20 banks as clients, including First Chicago, NationsBank, and Chemical Banking Corp., New York.
Its product, called Taxtel, is an electronic payroll tax deposit system. It calculates the IRS' due dates and puts those funds into an impound account, which is then sent to a Federal Reserve bank.
Such services are coming into demand quickly, because corporations are moving aggressively to comply with the new federal mandates.
"Participation rates have increased much faster than the U.S. Treasury envisioned," said Elliot C. McEntee, president and CEO of the National Automated Clearing House Association.
Over 32,000 businesses are enrolled in the Taxlink program, far more than are required to participate.
