Checkfree Corp. said it would soon offer automated clearing house transaction processing to financial institutions.
The Columbus, Ohio-based company has provided ACH software to banks since its acquisition of Servantis Systems Inc. this year.
But observers said there is unsatisfied demand for ACH outsourcing services, and Checkfree smells opportunity.
"A lot of banks view the ACH business as a necessary evil," said Gary R. Craft, an analyst at Friedman, Billings, Ramsey & Co., Arlington, Va. "I don't think they particularly care to do it."
Checkfree, best known as a processor of bill payment transactions, has plenty of experience in handling large volumes of financial transactions.
It offers outsourcing for home banking, bill payment, and small-business banking services, and it indirectly provides bill payment services to about 500,000 retail bank customers.
Processing of ACH transactions, such as direct deposit of payroll and electronic tax payments, typically has been done by banks themselves.
However, such processing increasingly is seen as a commoditized process that could best be done by a third party.
Checkfree is not the first to offer such a service, but it could become a significant player because of the market clout of its acquired ACH software.
About 85% of the top 300 banks use its Paperless Entry Processing system, or Pep+. This software would lie at the heart of the new outsourcing service.
In conjunction with its new service, Checkfree is upgrading Pep+. ACH experts said the upgrading is needed to improve transaction volumes the software can handle.
Checkfree faces some significant competition in ACH processing.
For starters, several of the largest ACH banks, including Chase Manhattan Corp., Wachovia Corp., and Norwest Corp., have excess capacity in their proprietary processing systems that is used to process for other financial institutions.
"The ACH is one of our top products, and in fact we have the scale to be very successful," said Keith Theisen, vice president and manager of ACH services at Norwest.
Norwest has built a proprietary system that can process about two million transactions an hour. When the bank is processing its peak transaction load, the system is operating at only about 40% of its capacity. "It has a lot of room for expansion," Mr. Theisen said.
In addition to banks, National Data Corp., based in Atlanta, and Intranet Inc., based in Newton, Mass., are in the hunt for ACH processing business.
Checkfree officials said they plan to meet with more than a dozen banks this month to discuss the software upgrading and possible outsourcing relationships.
Company officials have said they are close to signing a contract with a bank they declined to name.
Checkfree did not say when it plans to launch its new service officially or what it would be named.