A leading electronic bill payment company plans to start phasing out its use of the automated clearing house for processing transactions, moving them instead to the Cirrus automated teller clearing house network.

Checkfree Corp., Westerville, Ohio, is making the transition to speed payment processing and take advantage of a new alliance with MasterCard International, which runs Cirrus.

Checkfree's plan is bad news for automated clearing houses, which want to boost payment volume by handling more consumer bill payments.

Not a Major Threat

"We want to grow volume in that area," said Elliott McEntee, president and chief executive of the National Automated Clearing House Association

But the move is not a major threat, since customer-initiated bill payments were only a tiny portion of the nearly 2 billion clearing house transactions made last year.

The clearing house system has been most popular for electronic deposits of Social Security payments and paychecks, and corporate funds transfers.

The alliance, announced in April, calls for Checkfree to process electronic bill payments for Masterbanking, a new electronic home banking service MasterCard is marketing.

Fraught with Delays

Checkfree now handles more than three million consumer bill payments a month that are initiated on personal computers or touch-tone telephones.

The process it now uses to pay merchants is so fraught with delays that consumers must initiate payments at least four days before the the money is delivered to the merchant.

Checkfree would like to make it possible for consumers to use its service to pay at least some of their merchants in a single day.

Debit Role for Cirrus

This is why the privately held company is planning by next year to migrate from the clearing house to Cirrus, said Mark A. Johnson, executive vice president of business development.

Currently, Checkfree uses the clearing house to transfer money from consumer accounts to its own. Then, for about two-thirds of the payments, it cuts a check and mails it to the merchant.

Most of the remaining payments are made electronically through a MasterCard-run electronic bill-paying system, the Remittance Processing Service.

Checkfree wants to use Cirrus to debit funds from consumer accounts, instead of the clearing house. This will enable Checkfree to speed up its service because the Cirrus network can move funds immediately from consumer accounts to the Checkfree account, while the clearing house takes one or two days to do this.

Modifications Needed

If the payment is then shuttled to the merchant electronically through the Remittance Processing Service, Checkfree can guarantee payment within one business day, Mr. Johnson said.

But first, banks and MasterCard will have to make substantial technical modifications to Cirrus, which has never handled electronic bill payments.

The pace at which these modifications are made will determine. how quickly Checkfree switches from the clearing house to Cirrus, Mr. Johnson said.

Planned as Standard Feature

Under the most conservative scenario, next year a handful of banks will be able to let Checkfree debit funds from a consumer's account using Cirrus. These banks could then offer next day payment as an option to the MasterBanking service.

Eventually, however, Checkfree wants to make next-day payment a standard feature available to all of its customers, Mr. Johnson said.

One drawback to the change is that whereas Checkfree pays about two cents per clearing house transaction, it would have to pay about 10 to use Cirrus. At the current volume, this would add about $2.88 million to the firm's annual operating costs.

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