Quarterly results for Electronic Clearing House Inc., a credit card software company, proved strong, but not strong enough to divert it from its plan to open an Internet bank to protect it from tightening margins in its credit card business.

The Agoura Hills, Calif., company increased net income 54% from a year earlier, to $321,000, in the quarter that ended June 30, the third of its fiscal year.

Revenue increased 31%, to $8 million. Most came from a huge contract with U-Haul, which bought 3,100 credit card terminals, helping to boost terminal sales to $1.4 million, from $346,000. Bank card processing and transaction revenues increased 15%, to $6.5 million.

Officials say the company can generate more money by adding deposit services to the card processing and electronic check clearing it already offers its 41,000 merchant customers.

"Banking is a natural extension of what we do and there is an increasing demand for deposits, which are generating millions of dollars, yet we are seeing no benefit of that," said Joel Barry, chairman and chief executive officer of Electronic Clearing House.

The company applied in December to the Office of the Comptroller of the Currency for a bank charter. It applied to the Federal Deposit Insurance Corp. in January and expects to receive approval from both agencies in the next 60 days.

The Internet-only banking model is particularly attractive to Electronic Clearing House because it already provides its electronic check reporting on the Internet and it has clients throughout the United States.

"We are very Internet capable and savvy and we don't want the cost of a brick-and-mortar model," said Jack Wilson, vice president of Electronic Clearing House and the proposed president and chief executive officer of the bank.

Electronic Clearing House would not need to provide physical locations for deposits. "We are already a merchant processor so we solve the problem of how we get the money," Mr. Barry said.

Chris Musto, director of financial services for Gomez Advisors, deemed such a plan sound. "The card issuer is sending the money minus the interchange so what you have is an account that is readily funded with merchants who could be more receptive to use the Internet to manage their money," he said.

Electronic Clearing House plans to apply to become a financial holding company under the Gramm Leach Bliley Act of 1999.

Once Electronic Clearing House receives its charter, banking services would become part of a portal that would link to a variety of merchants services, such office supply providers, insurers, and lenders.

"We want the portal to provide a link to anything a merchant would logically need," Mr. Barry said.


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