Competition is nothing new to marketers of automated clearing house services, but last year it reached propertions not seen in the 20-year history of the paperless payment system.

Chase Manhattan Corp., in its customary position at the top of the consolidated ACH volume table (as was its lead bank among individual institutions), was joined for the first time by two other companies with more than 100 million originated transactions.

Norwest Corp. increased its consolidated volume by almost 30 million items, 80% of the gain attributable to its lead bank in Minneapolis. That brought the banking company to within 35 million of Chase's 163.4 million.

Banc One Corp. came in third with 115.6 million. Eight subsidiary banks each initiated at least one million interbank payments through the automated clearing house, and two of the banks were among the top 10 individual originators.

Norwest and Banc One, among other major supperregional banks, clearly exceeded the 16.4% national growth rate in private-sector interbank ACH originations, increasing their market shares and industry rankings at the expense of slower-moving competitors.

The 16.4% benchmark, down from 19.6% in 1992, came as a disappointment to officials of the National Automated Clearing House association and other observers, who were not satisfied even with 25% and better growth rates in the 1980s.

The On-Us Factor

National volumes, as reported here and included in the national association's count of 1.66 billion commercial transactions for 1993, do not include on-us, or intrabank, transactions, which do not clear through the Federal Reserve or its competitors. Interbank statistics thus understate the true size of the ACH business.

The national association estimated there were 402 million on-us transactions last year, equal to about a fourth of private-sector volume and 18% of the 2.22 billion total ACH transactions. The latter number, up 13% from 1992, includes 554 million originated by the federal government programs led by Social Security.

Norwest said its holding company volume would have been 12% higher, at 144.4 million, including on-us.

Elliott McEntee, president of the national association, takes heart from the on-us activity and predicts that government-mandated usage, such as tax depositing system for corporations, will eventually make even Chase's volume seem relatively puny. (See interview with Mr. McEntee and the national association's chairman, Sam Cerverizzo, on page 16.)


But the lagging overall growth numbers make annual increases like Norwest Corp.'s 30%, Norwest Bank Minnesota's 34%, Wachovia Corp.'s 27%, and Wachovia Bank of Georgia's 35% seem especially impressive.

Expressions of Pride

When presented the results of the most recent American Banker automated clearing house survey, including the holding company leaders on this page and the bank listing on page 15, several members of the ACH elite did not at first blow their own horns. They congratulated each other for having jointly created a profitable growth business out of such services as direct payroll deposits, automatic bill payments, and corporate trade payments.

"It wasn't too long ago that you'd have to add the second, third, fourth, and even fifth banks [in ACH volume] to equal Chase's" said Robert DalSanto of Bank One springfield, Ill., Banc One Corp.'s biggest ACH originator and No. 3 among

individual banks.

Mr. DalSanto had sportsman-like praise for the Norwest, which as a holding company piled a 30% transaction growth in 1993 on top of 41% in 1992.

Mr. SalSanto was also pleased with his own bank's 17% growth, the same as for the Banc One holding company and in line with the 20% of 1992.

"Our growth has been consistent over seven or eight years, and we see that as a measure of our success," said Mr. DalSanto, who helped build Bank One Springfield's sizable insurance-premium debt business when it was known as Marine Bank.

"We are continuing to reinvest in ACH systems, features, and functionality, which is critical," he said, sounding a theme commonly heard among the leaders. Meanwhile, some other parts of the Banc One empire are drawing on the Springfield affiliate for ACH expertise, or at least inspiration. Bank One Texas, for example, doubled its transaction volume in 1993.

More Room at the Top

As recently as 1989, Chase Manhattan Bank controlled 12% of commercial ACH activity, about a percentage point less than the combined shares of the second- through fifth-ranked originators.

Chase, through it never stopped growing numerically, has not been able to keep up with the industry's percentage growth. The bank's market share fell to 10% in 1990, 9.8% in 1991, and 9.6% in 1992 and 1993.

Banks 2 through 5 -- for the last two years, subsidiaries of Norwest, Banc One, BankAmerica Corp., and Wachovia -- had aggregate shares of 13% in 1989 and 1990, 13.6% in 1991, 15.4% in 1992, and 15.95% in 1993.

"We actually had a higher volume growth in 1993," 22.5 million items compared with 19.9 million in 1992, said James J. Hopes, a Chase vice president and president of its ACH unit. Yet the percentage increase was down to 16% from 17%.

"It is more difficult to maintain percentage growth when your volume is large."

A Breed Apart

One measure of the New York bank's sway over the ACH business -- which it has held has held since pioneering direct debits of insurance premiums in the 1970s -- is that its 1993 increase in originations exceeded the total volumes of all but 12 banks, or all but 15 holdings companies when subsidiaries' volumes are consolidated.

In other words, Chase is as consumed as any other bank in the heat of the battle, but the others still have a lot of distance to travel to catch up.

Chase is a big player in both broad segments of the market. It is by far No. 1 in originated debits, led by insurance premiums but increasingly including inter-company and point of sale payments. Chase's 129.5 million debits led No. 2 bank One Springfield by 71.2 million.

In credits such as direct payroll deposits, which do not have a dominant provider like Chase in debits, only three banks originated more than Chase's 30.2 million. Chase's credits grew 25% in 1993 and 20% in 1992; debits grew 15% last year and 16% in 1992.

Keith Theisen, the Norwest Bank Minnesota vice president and ACH product manager who is fond of borrowing Avis Rent a Car's "We're No. 2, we try harder" slogan, said the leading banks' commitments to the ACH market serve to keep each other honest while delivering prices and service levels that please the corporate community.

"It has become common for corporations to have bidders conferences for ACH services," Mr. Theisen said last week after returning from one such contest with nine major competitors at a Texas company. "That tells you how far this business has come, and the competition has gotten very tough.

"We feel we offer a product and price advantages, based on a high-performance, in-house system we developed that allows us to offer better deadlines than other banks using standard packages," Mr. Theisen said.

He is obviously not alone in making such a claim. Some 10 to 12 banks or holding companies, which occupy the top rungs of the respective rankings, continuously pursue processing contracts like the one up for bid in Texas.

Meanwhile, banks can thrive in the middle and lower tiers of the ACH market, originating anywhere from two million to 20 million direct debits and credits a year. One from this group, United Missouri Bank of Kansas, registered the largest 1993 percentage gain of any in the top 100 -- 115%, to just under 10 million items.

United Missouri, which had been steadily adding insurance and mutual fund customers, got an extra couple of million credits last year from the nationwide payroll deposit program for J.C. Penney Co. store employees.

Picking Niches

There are other satisfied mid-size players like Compass Bank of Birmingham, Ala., which burst into the top 100 in 1992 after stealing a major customer from rival AmSouth Bank and signing up corporations outside its home base. Compass grew another 37% in 1993.

AmSouth, after a 20% decline in 1992, bounced back last year with a 13% increase, while Birmingham-based rival SouthTrust Bank jumped 79%.

And there are pure niche players.

USAA Federal Savings Bank an affiliaqte of a mutual insurance company, United Services Automobile Association, that began originating insurance debits about three years ago, increased its ACH total in 1993 by 46% to 4 million.

AAL Member Credit Union of Appleton, Wis., which is affiliated with the Aid Association for Lutherans and made its first debit-fueled appearance in the top 100 for 1992, jumped another 22% last year to 3.3 million.

First Premier Bank joined two other denizens of Sioux Falls, S.D. -- Citibank (South Dakota) and Western Bank -- in the top 100. Most of its 10 million items were credit-card-related payments to retail merchants, an increasingly popular use of the ACH.

Lori Kueter of First Premier, which was previously known as First Interstate of South Dakota, said the bank provides MasterCard and Visa settlements to 70,000 merchant locations.

"Getting payments quickly to merchants can be a competitive advantage," said Mr. Theisen of Norwest Minnesota, whose Iowa affiliate grew 70% last year thanks to credit-card and mortgage-related transactions. "The ACH is a cheap and efficient way to get that done."

Regional Considerations

Firstar Bank of Wisconsin added 24% to its 1992 total, continuing a string of several years in the 25% range, to rank 17th among originating banks. Like other larger regionals and supperregionals, the Firstar Corp. unit has benefited from a mix of new business and acquisitions.

"We are serving some sizable mortgage and insurance companies," said Mark Sowinski, the Firstar operations officer who oversees the ACH. "We also have a personal-computer product for corporations that gives them access to our computers, and they are running a lot of payroll applications."

Several other Midwest banks had a strong years.

Continental Bank of Chicago, building on its national corporate banking relationships, increased ACH volume by 66% to 16.6 million, and fell just shy of the top 20 after placing 36th in 1992. Corporate products officer William Bressie credited the bank's "client-focused marketing approach, relationship-banking approach to all products, and willingness to customize."

NBD Bank of Detroit was up 29% to 13.2 million, partly due to its consolidation of NBD Indianapolis, formerly INB National Bank. Before the conversion in November, the Indiana bank racked up 3.2 million debits and credits, enough to be 91st on the bank list.

Apart from Comerica Bank in Detroit, which had a slight decline, all the other major Michigan originators had banner years: Michigan National Bank (No. 42) was up 31%, First of America Bank (94) was up 46%, and Old Kent Bank and Trust (102) was up 36%.

William Thornton, president of the Michigan Automated Clearing House Association, said the banks are united in support of joint marketing and promotion initiatives that go well beyond the generic materials supplied from the national association. The state's banks have generated significant direct deposit volume in recent years and are branching out into customer-initiated bill-paying and point of sale debiting.

The Michigan group has a full-time marketing director and does consultative selling to utilities and other potential corporate originators, referring them to the banks when there is tangible interest in a payment service.

"Our thrust has become less operational and more marketing-educational," Mr. Thornton said. "You need a board that recognizes the benefits and supports the program 100%. They see the association as an extra selling arm of the banks."

North Carolina Stars

Each of the big three North Carolina-based superregionals -- Wachovia, NationsBank Corp., and First Union Corp. -- were star performers. While subsidiary banks may vary -- NationsBank had a 1% decline in its Virginia bank but a 25% increase in North Carolina -- their companywide double-digit growth and their places among the holding company top 10 indicate they are forces to reckon with.

Cosolidations of merged institutions played a part in the 59% increase at First Union of North of Florida, but so did the recovery economy, said First Union executive lee Madden. The enhanced scale of its operation promises to make First Union even stronger in future years.

Consolidations and economic growth also fueled ACH increases of 99% at Bank One Texas, the second-best percentage gain among the top 100 banks, and 46% at Chemical Banking Corp.'s Texas Commerce Bank. Chemical Bank Delaware was up 65% and the New York holding company's three originators together were up 16%.

Data gathered by American Banker from the regional automated clearing house associations and their member banks also revealed the following:

* At least 146 individual financial institutions, including one thrift (USAA) and two credit unions (AAL Member and Kansas Blue Cross Blue Shield of Topeka) generated one million or more debits plus credits in 1993. The comparable figure was 109 in 1992 and only 80 in 1989.

* A bank needed about 2.7 million originations in 1993 to rank among the top 100, 8% more than in 1992.

* Forty banks originated at least 10 million transactions, 13 more than in 1992. It is a sign that the big are getting bigger faster: The number of over-10 million originators in 1992 was up by only three over 1991. In 1989, only 10 banks originated 10 million or more paperless entries.

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