The effects of banking industry consolidation are writ large in the corporate payment services business, as reflected in American Banker's annual survey of automated clearing house activity.

In one of the more precise available measures of commercial bank market concentration, the five biggest competitors were responsible for 49% of the 3.5 billion paperless credits and debits originated in the private sector last year.

That was up from 40% in 1997, which was viewed at the time-amid a flurry of megamergers-as a breakthrough level. Payment processing is a scale business, with unit-cost advantages accruing to the biggest banks, which in turn are in the best position to provide economical enhancements to their large numbers of business banking relationships.

The consummation in 1998 of mergers such as Wells Fargo & Co. with Norwest Corp., Bank One Corp. with First Chicago NBD Corp., and BankAmerica Corp. with NationsBank Corp. made the automated clearing house elite even more tightly packed at the top.

The five-company penetration of 49% and the 10-company total of 63% are probably more accurate signs of big-bank domination than can be gleaned from basic deposit and asset calculations. They begin to approach levels seen in credit cards and in other areas where scale economies operate.

"It is phenomenal, this consolidation," said Lawrence Forman, a cash management analyst at Ernst & Young in New York. "The major players are continuing to grow faster."

The ACH totals stem from banks' actual work for customers. This includes originations of customer-account debits on behalf of payees, such as insurance premium collections or cash management maneuverings by large corporations, and credit items, most prominently direct payroll deposits.

As banking companies expand geographically-the new BankAmerica typifies the trend, with its coast-to-coast reach-the big-bank concentration gets even more pronounced. The bigger a bank is, the more likely it is to capture payments in-house, serving as both originator and receiver of an ACH transaction.

The National Automated Clearing House Association estimated that on top of the 3.5 billion interbank ACH items in 1998, which grew 17%, there were 1.1 billion of these on-us transactions, up 23%. (The American Banker survey focuses on the interbank total.)

The longtime leader in the ACH business, Chase Manhattan Corp., did not match the market's percentage gain last year. It increased 12%, to 483.1 million. But that 12% represented 53 million additional payments-and only 15 bank holding companies, including Chase, had total interbank originations exceeding that number.

Chase continued to lead the debit category by a wide margin. Its 310.5 million items were 50% more than Bank One's.

Norwest Corp., Chase's closest rival in recent years, closed the gap with the addition of Wells Fargo, the name the former Minneapolis holding company now does business under. The old Norwest's figure of 240.1 million for 1997 was 51% higher in 1998, at 363.5 million.

Adjusting for the merger, the Wells-Norwest increase last year was 18%, which senior product manager Keith Theisen attributed mostly to internal growth.

The bank continued "promoting the ACH for standard applications like direct deposit and direct debit," Mr. Theisen said. "There is a still a long way to go to make a dent into check volume."

Third-place Bank One Corp. also grew an absolute 59%, to stay about 40 million behind Wells. Adjusting for the totals of the old Banc One and First Chicago NBD, the increase was 15%.

BankAmerica Corp. moved up two places to become the fourth-largest originator, moving ahead of First Union Corp. In one other move not reflected on the Top 50 table for 1998, No. 8 Fleet Financial Group would edge past No. 6 Northern Trust Corp.-and become the eighth originator to join the nine-figure class-with the completion of its recently announced merger with BankBoston Corp.

Though NationsBank, now BankAmerica, almost doubled because of its merger and solidified its Top 5 standing, at 298.9 million items, its adjusted growth rate was a mere 5%. That could be a sign of merger-related distractions, though Barbara Konecky, a vice president, noted there were 105 million on-us transactions-a substantial 10% of the national total.

First Union took the fifth spot, enjoying a boost from its acquisition of CoreStates Financial Corp. of Philadelphia. It grew 27%, placing 255.7 million entries into the ACH network.

Mark Havlik, vice president and manager of First Union's global electronic payments group, said the ACH has gone mainstream after years of struggling. He said the availability of Internet-based cash management services has opened the door to a larger market of retail and corporate customers.

"Finally, the whole concept of using electronic payments is no longer the province of just the large corporations," Mr. Havlik said. "We have all been talking about this for years."

The national, private-sector benchmark growth rate of 17% has held fairly constant for five years, the National Automated Clearing House Association said. But with an increase in the government growth rate last year, the ACH system as a whole boosted transactions by 17.5%, the highest percentage since 1991.

The private-sector dollar volume of $14.4 billion, which includes interbank and on-us, was up 16% last year.

Direct deposit transactions, not including on-us, increased 16%, to 2.2 billion items. Nacha said the participation level among private-sector employees was 56%.

Direct consumer payments for recurring bills and other debits, an area of much hopeful anticipation, rose at the 17% average rate, to 1.21 billion transactions.

Observers said growth factors include the healthy economy, acceptance of electronic payments by consumers, and use of increasingly affordable cash management services by smaller companies.

"An awful lot of corporations are just beginning to use the ACH for corporate-to-corporate payments," Mr. Forman said. "Consumers are just starting to receive their first electronic transactions."

Chase, an industry pioneer that continues to build on its early strength in the insurance-debit market, commanded a 13.7% share of the private- sector originations, down about half a point.

It got a volume boost in 1998 from sales of its Internet-browser-based cash management services to middle-market customers. Marcie Haitema, vice president and division executive of Chase's ACH operations in Tampa, also credited direct deposit and direct payment campaigns for maintaining growth.

"Middle-market companies are coming on strong with the use of direct deposit of payroll," Ms. Haitema said.

U.S. consumers are growing accustomed to electronic payment systems, she added, because they encounter them at work, through disbursements from Social Security and other government programs, and through home banking and electronic bill payments.

Kevin Kaufman, ACH product manager at BankAmerica, said it is seeing growth from such directions as the official mandate for electronic corporate tax payments and corporate receipts of government-initiated ACH transactions.

"NationsBank was one of the EFTPS (Electronic Federal Tax Payment System) banks, and those volumes have grown tremendously," he said. (In 1994, NationsBank and First Chicago NBD were selected as fiscal agents by the U.S. Treasury's Financial Management Service.)

The government collected 85% of all tax obligations electronically in 1998, compared to 48% in 1997, said Kim Snell, a product manager at Treasury's FMS in Washington.

Laura J. Listwan, vice president of LaSalle National Bank, a unit of ABN Amro in Chicago, pointed to other potential growth opportunities such as converting checks at the point of sale into electronic transactions.

She said the U.S. remains a check-based society, but organizations like the Federal Reserve Banks, Nacha, and individual banks and corporations are sowing the seeds for future automated payments growth.

ABN Amro's aggressive U.S. corporate service operations, which include European American Bancorp of New York, ranked 24th in American Banker's survey, up two notches from the previous year. The bank was 55th in 1996 and 94th in 1995.

"We have been outpacing the market the last several years, due to new customer growth rather than acquisitions," Ms. Listwan said.

SunTrust Banks Inc., which merged at yearend with Crestar Financial Corp., grew 50%, up five places among holding companies, to 13th place.

Huntington Bancshares improved 31%, up five places, to No. 30. Robert Sega, vice president in the Columbus, Ohio, bank's treasury management operation, said smaller and middle-market companies are increasingly embracing ACH services.

"Large companies also are taking advantage of the cost savings," he said. "Customers are finding more uses."

BankBoston Corp. advanced four places, to No. 15. It merged in 1996 with BayBanks Inc., whose volumes were not recorded in last year's survey, said ACH product manager Stephen Devine.

Further growth came from adding "some high-volume originators outside of our region," he said. BankBoston also took on more volume when Automatic Data Processing Inc. reduced the number of originating banks in its payroll services program. The Boston bank was one of the survivors.

New this year in American Banker's Top 50 were BOK Financial Corp. of Tulsa, Okla., Cullen/Frost Bankers Inc. of San Antonio, Universal Savings Bank of Milwaukee, and HSBC Holdings USA.

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