WHEN OFFERING cash management services to local businesses, First Commercial Bank believes that bigger is not necessary better.

The Sacramento, Calif.-based bank is targeting a largely untapped segment of the market-- small businesses.

With fee income all the rage these days, many banks are chasing after the large-market and middle-market bastions of corporate America in the hope of producing huge transaction volumes. But this quest has caused many to pass over an important chunk of the market.

First Commercial, with $335 million in assets, has found a way to go after the little guys. The bank offers a cash management product that, among other features, provides small companies with access to automated clearing house services.

"We found a niche in the market with small businesses," said Rebecca A. Reynolds, vice president, senior operations administrator, and compliance officer.

First Commercial is using Maxx-banker, a complete PC-based cash management product line, which the bank also offers its clients. Marketed by San Francisco-based Maxxus Inc., the system affords small businesses many of the same types of services provided by money-center banks, but at a lower cost.

When First Commercial first opened its cash management program to mom-and-pop shops two years ago, it found the cost prohibitive in light of the meager potential for fee income.

"The cash management service we were offering was expensive and we could only offer it to larger customers with large transaction numbers," Ms. Reynolds said. "We were charging them $1,200 to $1,500 per month."

Today, First Commercial is able to design and offer cash management services to small businesses for as little as $49 per month.

The bank is focusing on solidifying its customer base and shoring up profitability. Hit hard by the weak West Coast economy and problem real estate, the bank posted a $327,000 loss in 1992, and has placed increased emphasis on serving its customers.

"We've given our customers their own bank branch at their desk," Ms. Reynolds said.

"The system allows us to provide our small to mediumsized customers with services normally provided to the biggest firms: to manage their business portfolio and see how much they have on a daily basis."

The cash management system is modular in design. Modules include balance reporting, account reconciliation, stop payments, book transfers, and electronic mail.

The key component for many of First Commercial's small-businesses clients is the MAXX-ACH module. The microcomputer-based unit allows banks to offer automated clearing house origination capabilities to a broad customer base. It gives clients access to a full range of cash management tools, from payroll to more sophisticated strategies, while sparing the bank the high cost of developing hardware and software.

"It's opened a new market for banks and small businesses that they haven't had opened to them before," said Blake Williams, vice president at J.D. Carreker and Associates Inc., a payment systems consultancy in Dallas.

That's certainly true for the bank. First Commercial gets access to new fee income and account relationships.

"It allows us to get our foot in the door with companies," Ms. Reynolds said. "It's a domino effect. We help companies out with direct deposit and we get access to their customers, market share, and fee income."

So far First Commercial has signed up 45 local companies for its automated clearing house offering, which includes employee expense reimbursement, electronic payment of taxes, automated collection of payroll processing fees, and collection of payments, fees, and dues.

For small businesses, offering ACH helps to develop and strengthen customer relationships by providing cost effective solutions for their customers' funds transfer and cash management needs.

Furthermore, smaller companies - many of whom could not offer ACH services before - no longer have to turn away customers and can compete with larger companies.

"It's made [our customers] more competitive," said Monica Darling, assistant manager of the California Pacific Federal Credit Union.

The credit union, based in Pleasant Hill, Calif., provides direct deposit of payroll for two dozen service stations and their 1,300 employees.

"To our customers paperwork is a real problem and ACH cuts out another chore for them," Ms. Darling added.

With $2 million in assets and a small staff, Pacific Federal lacks the resources to support its own automated delinquency notification system and previously had to track accounts manually.

But with MaxxBanker, the credit union is able to automatically download account balance and activity records. Therefore, the system saves Ms. Darling and her staff valuable time and energy while reducing risk.

"ACH is cheaper for firms to use and much safer," Carreker's Mr. Williams said. "If a company can take in less checks and automate the payment collection process they can avoid risk."

Another user is Life Inc., a nonprofit social services agency based in Sacramento. It administers social security payments for 450 individuals who are unable to manage their own money. Life and its three employees depend on First Commercial's cash management offering to serve their customer base.

"For a company our size, having a way to move and account for money without dealing with checks has been a lifesaver," said Tracy M. Stein, director of financial services for the agency. MAXX-Banker has saved Life a healthy chunk of money. Without automated clearing house capabilities, the agency would have to cut and distribute about 3,000 checks per month. Armed with the ability to transfer funds electronically, Life is able to keep staffing and costs to a minimum. The system also enables Ms. Stein to download account information onto the PC, significantly reducing the amount of time it takes her to maintain records.

Ms. Stein has also found the balance reporting module useful. MAXX-Banker includes a wide variety of on-line inquiry and reporting options.

First Commercial is currently setting up its cash management services in eight new member companies and negotiating deals with several others.

"We're giving our customers what they want, regardless of their size," Ms. Reynolds said. Sometimes good things come in small packages.

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