Electronic Clearing House Inc., a credit card and check processor, has withdrawn its applications for a bank charter, saying its slumping stock price and an unwarranted association with Internet-only banking had hurt its prospects.

Echo, which serves more than 58,000 merchants and U-Haul dealers, applied in 1999 to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. for a bank charter so it could hold deposits for those customers. On Wednesday the Agoura Hills, Calif., company announced that it had given up.

It said that it had intended to use the Internet to communicate with the bank's merchant customers, but that regulators mistakenly believed it wanted to use the Internet to attract depositors. Many Internet banks have struggled in recent months.

"We weren't a true Internet bank, but we were getting lumped together with Internet banks," said Jack Wilson, senior vice president of Echo. "There was a thin line, and it became a little bit blurred."

If Echo applies again it will be much more specific about how it plans to use the Internet, he said.

Another problem was Echo's wavering stock price, Mr. Wilson said. "When we initially applied the market conditions were pretty good and our stock value was pretty good, but in the time it has taken the process the entire market has declined," he said. "We are concerned about the treatment of our current shareholders."

Echo's stock traded at about $2.81 at the end of December 1999, when it applied for the charter. It got as high as $5.80 in March 2000 and was trading midday Thursday at $1.01.

Mr. Wilson said the company was surprised to be waiting so long for regulators to grant it a charter. "We knew it was going to take a little longer … because we had a special purpose, but we weren't expecting it to take this long."

Echo has no immediate plan to reapply for a charter or pursue other banking opportunities, Mr. Wilson said. "But given the nature of our business and the deposits that it generates for our partner banks, there is a lot of interest."

Internet banking has not looked very attractive lately. CompuBank, one of the first national Internet banks to form, announced this month that it had agreed to sell its customer accounts to NetBank. Also this month, USABancshares.com, an Internet banking innovator, said it would refocus on community banking and away from national Internet banking

Echo also announced Wednesday that its merchant customers will no longer need a special terminal to process electronic check conversion transactions.

Echo will use GO Software's PCCharge for the processing. "More and more retail merchants use personal computers to swipe credit card transactions using GO Software," Mr. Wilson said. "Now with that same personal computer they can also process electronic check conversions."

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