Nynex Corp. has launched an automated bill payment program with Chase Manhattan Corp.

Chase is providing New York-based Nynex with electronic processing services through the bank's Customer Electronic Payment System, or Ceps, which uses an automated clearing house network to extract payments electronically from consumer bank accounts.

The program - which aims to convert 5% of the Baby Bell's customers to electronic bill payment over the next three years - is an example of the strides banks and corporations are making toward reducing paper-based payments.

"I think direct debit has proven itself as a reliable technology," said Art Williams, director of billing at Nynex.

Nynex receives 13 million payments monthly, about two million of which are handled at walk-up teller locations.

But more than 25,000 customers have already signed up to pay bills electronically. Nynex said it hopes the fact that the service is free will convert more customers to electronic transactions.

The history of Nynex's direct-payment option began in March 1995, when the Federal Reserve banks and the National Automated Clearing House Association joined forces in a promotional campaign aimed at reducing the number of checks written.

Paul Connolly, first vice president at the Federal Reserve Bank of Boston, said he and other central bank officials sent personal letters to thousands of corporate chief executive officers.

"We started this almost two years ago and we are starting to see some fruit from it," Mr. Connolly said.

The promotional effort - which "helped to bubble up the interest from corporate treasury managers," according to Steven Bernstein, vice president at Chase - aided banks by giving a boost to fee-based services they provide corporate clients.

Direct payments have benefits for corporations as well: They reduce postage and can improve cash flows, experts said.

The payments typically are done via telephone or PC, but Nynex also said it hopes to offer the service through automated teller machines, which could stem the tide of customers who pay bills at walk-up windows.

David Ayres, director of billing operations at Nynex, is overseeing a project in New York's Chinatown that uses ATMs for bill collection.

He said Nynex and Consolidated Edison, a New York gas and electric utility, are in discussions that could "spread the costs" of deploying ATMs that process cash, checks, and on-line debit payments.

"We are going to lease ... with an undisclosed leasing company ... machines manufactured by Diebold," Mr. Ayres said.

"We will gradually get away from using tellers, just like banks have done," Mr. Ayres said. "We have to test it and see how the economics are, but it looks good."

"Maybe five or 10 years from now, banks will be doing this as a line of business," he added.

Chase appears to agree.

Officials say they hope to process about 100 million consumer bill payments annually within three years.

The bank already originates about 500,000 monthly debits for the 13 million telephone customers of Chicago-based Ameritech Corp.

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