A few years ago, Norwest Bank product manager Keith Theisen set the seemingly quixotic goal of overtaking Chase Manhattan Bank as the biggest originator of automated clearing house payments.

It would have been a big upset, an affirmation of technology's ability to knock money-center institutions off their historical pedestal.

It wasn't to be. Chase revived itself from a slumber last year and widened its lead over Norwest in private-sector clearing house activity, a measure of prowess in commercial banking services and transaction processing. (See industry rankings on facing page.)

With automatic payroll deposits and bill payments becoming increasingly concentrated among a handful of elite competitors, the automated clearing house listings in today's American Banker also can stand as a proxy for banking consolidation and back-office economies of scale.

The recently completed merger of Chase Manhattan Corp. and Chemical Banking Corp. is only the most obvious manifestation. Their combined volume makes Chase even more imposing, responsible for 300 million, or 13%, of the 2.3 billion debits and credits initiated in the private sector. (That total, calculated by the National Automated Clearing House Association, rose 17% last year and passed two billion for the first time. Including federal government payments, the system handled 2.89 billion items, 14% more than in 1994.)

In 1994, Chase alone generated 9.6%, or 187 million, of the 1.95 billion private-sector items, and Norwest was beginning to nip at its heels. Norwest Corp.'s consolidated volume came within 35 million of Chase's.

In 1995, Chase Manhattan, at 228 million, opened a 46 million- transaction margin over Norwest Corp. That becomes a whopping 118 million if Chemical Bank in New York and its affiliates in Delaware and Texas are added.

"I was looking forward to passing Chase in a couple of years," Mr. Theisen said in a telephone interview last week. "Now it looks like it might take a little longer."

When it was suggested that Norwest might close the gap by merging with Minneapolis-based rival First Bank System - which cracked the top-20 holding company list because other big banks disappeared through mergers - Mr. Theisen laughed. "You never know what might happen," he said.

Mr. Theisen can afford to see humor in the situation. He has the technology, the scale, and the track record to compete against and often beat the likes of Chase, Banc One Corp.'s Springfield, Ill., subsidiary, and a few others that tend to bid for the most sought-after, big-volume programs.

Norwest, as is typical among the elite, has invested heavily in its automated clearing house infrastructure and is playing for keeps. On top of what might be termed internal growth - the lead subsidiary in Minnesota increased automated clearing house originations 27% last year, five points better than at Chase Manhattan Bank and 10 points above the private-sector norm - Mr. Theisen said Norwest is exploring new applications and does not want to let any growth opportunity slip away.

But Chase has a new resolve to build on its leadership. Officials there even talk about domination. The intensity of competition can only be a boon to the corporate customer community.

"We looked at ourselves about a year and a half ago and it was clear that if we did nothing, we'd be losing our No. 1 position to Norwest," said senior vice president Deborah Talbot. "We set a goal of doubling our volume, and 1995 showed the results of the first year of that effort."

Ms. Talbot acknowledged that Chase, comfortably atop the clearing house charts for two decades, had begun to "coast." While the business that made Chase No. 1 - automatic payments of insurance policy premiums and other direct recurring debits - stayed intact and is still growing, the bank had to focus on the broader range of electronic transactions that promise to expand the overall pie.

"If it has anything to do with the ACH, we want to be in the bidding," Ms. Talbot said. "We are committed to growth and going after huge volume producers that are coming along, such as consumer bill payment companies."

Ms. Talbot is also responsible for developing businesses in areas such as health care processing, which she expects to generate significant clearing house volumes.

And she has the luxury of what she calls "an incredible ACH machine" - the processing center in Tampa that promises to become even more efficient with the addition of Chemical's activity, taking economies of scale to new heights.

"We are looking at doubling volume, but with a less than 2% increase in people," Ms. Talbot said. "Our software does one million transactions a day and we are targeting one million an hour."

Not to be outdone, Mr. Theisen at Norwest said, "Our system has been benchmarked at two million items an hour."

"Having your own software is critical in this business," he said. "Control of the system gives us a competitive advantage."

Mr. Theisen and other observers said some banks have not been able to upgrade their installed software packages fast enough to meet growing demand, leaving some smaller competitors unable to bid for sizable contracts that might overtax the systems.

Occasional local-newspaper headlines about glitches and delays in direct payroll deposit schedules, as happened a few weeks ago at BankAmerica Corp. in California, may be symptomatic.

Post-merger conversions can also slow the marketing pace, creating openings for banks with more "seamless" operations.

"We know that some of the larger banks doing consolidations have run into capacity problems," Mr. Theisen said. "Some may eventually look to outsourcing."

Outsourcing has yet take hold in automated clearing house processing, though it happened after a fashion last year when United States Trust Company of New York sold its back office - including an ACH program - to Chase.

Mr. Theisen at Norwest said he can offer outsourcing support to smaller banks, if they come calling.

At the same time, the automated clearing house network is open to all, regardless of size. The processing fee charged by the Federal Reserve, or by its competitors at Visa U.S.A. and the New York and Arizona clearing houses, can go as low as a penny per transaction. Many smaller institutions hang on in the business for the same reasons of economics that attract the biggest players.

National promotions of direct deposit and corporate payment opportunities can filter down to banks of all sizes. Based on the data gathered for this report, about 150 financial institutions originated at least a million automated clearing house payments last year, 20 to 30 more than in 1994.

Still, market concentration increased at the top. The five biggest individual bank originators (from the table on facing page) boosted their aggregate share of the commercial automated clearing house market to 26.65% from 25.89. Chase Manhattan Bank made most of the difference, rising 40 basis points to 9.99%. That did not include Chemical.

Within the top five, Wachovia Bank of Georgia climbed into third place from fifth in 1994, and Bank One Springfield in Illinois, the flagship in Banc One Corp.'s decentralized automated clearing house armada, dropped from third to fourth. Both exceeded the industry average growth rate, unlike fifth-place Bank of America, which showed a 6% decline.

But individual-bank changes can be deceptive. Bank of America's Seafirst affiliate doubled its volume, helping BankAmerica as a whole to grow 9% and maintain its fourth position on the consolidated holding company list (as adjusted for mergers - see page 8).

Shifts of processing venues and consolidations of far-flung operations pushed units of NationsBank Corp., U.S. Bancorp of Oregon, and First Interstate Bancorp (prior to its 1996 merger with Wells Fargo & Co.) considerably higher on the single-bank table. Their year-to-year comparisons therefore become meaningful only on the holding company chart; U.S. Bancorp does not make the top 20 there.

Not included in the American Banker tabulations are on-us transactions - those that clear within one banking organization. On- us business can be substantial at superregionals. Norwest Corp. would have increased its volume by 25.3 million, or 14%, if on-us transactions were included; NationsBank of Texas by 9 million, or about a third.

Associated Banc-Corp, Green Bay, Wis., showed up in the top 100 for the first time, at 4.9 million items, through consolidated reporting for its community bank subsidiaries.

Another Wisconsin company, First Financial Bank of Stevens Point, also joined the list. The thrift's 5.7 million debits came mainly from its Visa debit card program, using the low-cost automated clearing house method for settlements.

First Financial's origination total is about the same as that of the only other thrift in the top 100, USAA Federal Savings Bank of San Antonio.

Despite the big-bank concentration, automated clearing house institutions in the middle and lower tiers seem able to stay viable when they want to.

Boatmen's Bancshares, No. 15 among holding companies and the owner of several banks in the top 100, still sees "a lot of untapped markets in the Midwest," said product manager Raymond Podraza.

"There hasn't been a big push for utility bill payments in St. Louis, and we expect that in the next 12 to 15 months," he said. Newspaper subscriptions, water and sewer bills, and the bank's own payroll are on the to-do list.

"We are the biggest bank in five of the nine states we are in, which gives us a lot of leverage," Mr. Podraza said.

Bank South operations manager Paul Gibbs, who is being restructured out of a job by the merger with NationsBank, thinks he can stay in the clearing house business by helping smaller institutions.

"They have a need for expertise and I'm afraid the software is getting so expensive that they won't be able to keep originating," Mr. Gibbs said. "There have to be opportunities for smaller banks; some of the big ones can't keep up with all the growth."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.