First Interstate Bancorp and a department store are testing a service meant to help stores reconcile payments made to them through home banking.
The service uses electronic data interchange - a technology normally used only for business-to-business payments - to reduce keyboard input at accounts-receivable departments.
Los Angeles-based First Interstate said the Electronic Consumer Collection service is being tested at a Nordstrom's Inc. department store in California.
Electronic data interchange is the exchange of trade-related documents in standard computer formats.
"EDI traditionally has been used for corporate-to-corporate payments," said Vince Hruska, a vice president at the bank. "We are taking an existing product and customizing it to something that's very easily adapted and used by our billers" to consumers, such as department stores and utility companies.
Although volumes are still quite modest - about 2.5 million payments last year, Mr. Hruska estimated - experts are predicting that home-banking transactions will grow 40% a year during the next several years.
And yet, despite representing only a minute fraction of all consumer payments, home banking's gradual growth in recent years has begun to expose shortcomings in many merchants' payment processing schemes.
Large and middle-market retailers are just beginning to realize the potential nightmare they are facing, Mr. Hruska said.
If merchants fail to automate, home-banking payments are likely to be the only transaction that begins as electronic message, only to end up as a labor-intensive paper transaction, a paradox after bankers' years of work to eliminate paper.
Mr. Hruska said the problem merchants face is that many now receive home-banking-based payments in "check and list" form - a single check accompanied by a long list of payers and billing account numbers.
Merchants must re-key these individual transactions and hope they match to the paper check's total. Any discrepancy results in tedious research and delays in collections.
Randy Kahn, manager of corporate electronic products at First Interstate, said there's a "growing group" of merchants who thought the process "was crazy."
Many of his large merchant customers were being "swamped" with check and lists from bill payment companies, Mr. Kahn said.
Their grumblings, he said, precipitated the bank's EDI modifications to allow it to "just funnel these electronic consumer transactions into our EDI system and then to work them into the lockbox format."
Mr. Kahn said the service has been working flawlessly, and taht other merchants are eager to sign up.
"We have already got a line of customers out the door," he said. "We hope to have it in full production very shortly."
First Interstate's EDI translation system is Advantis' Netpay, running on a Digital Equipment Corp. computer, which is used for many specialized EDI applications.
Bank officials say the system can help home banking grow. First Interstate also plans to monitor competing services now being tested, including those of Visa U.S.A., San Mateo, Calif., and MasterCard International, New York.
First Interstate is also interviewing vendors to buy a new EDI translator to "make sure that our capacity can address the needs of the corporate community," Mr. Hruska said.
