In a bid to jump start the stalled use of financial electronic data interchange in banking, the National Automated Clearing House Association has enlisted MCI Communications Corp. to develop a low-cost service.

In April, the Herndon, Va.-based payments trade group asked vendors to develop and market an affordable remittance-handling service for small and medium-sized banks. Of the nearly 11,000 commercial banks in the nation, only a fraction have committed the considerable technical resources required to develop such a service.

Though terms of the deal have not been finalized, association officials characterized it as a multimillion dollar contract.

"There were many outstanding proposals," said Elliot McEntee, president and CEO of the association. "A lot of vendors put forth proposals that provided all the services we were looking for, so it wasn't an easy job."

Financial EDI is the payment-related communication of business documents in standard electronic formats. The cash-management services associated with it are recognized as a potentially lucrative market.

Banks' corporate customers could use the remittance information attached to automated clearing house transfers to update and reconcile accounts receivable when receiving payments.

In providing the service, Washington D.C.-based MCI formed an alliance with Maxxus Inc., a cash-management software developer. The two companies will work in tandem to develop a combined service that has several delivery options for banks and their customers.

As automated clearing house transactions are processed, the service will glean accompanying remittance information which will then be either faxed or sent electronically to the receiving company using MCI's E-mail capabilities.

"The NACHA bid, I personally believe is quite significant," said Martha A. Hanlon, director of electronic commerce product management for San Jose, Calif.-based MCI. She said her company was chosen because of its ability to mass market the new service to both businesses and banks.

But the most significant factor was the joint involvement between the phone company and the banking industry, she added, something that had been "difficult for nonbanks" in the past.

The association's attempt to spur the growth of financial EDI comes as a result of years of anticipated growth that has yet to materialize. That's because small and mid-sized banks heard through the grapevine of die disappointing returns that large cash management players had realize after spending large sums to develop the service.

Smaller banks naturally adopted the wait-and-see approach, leading to the industry quip, "EDI is the wave of the future - and always will be."

"Honestly, I think the number is somewhere between 20 and 50 banks that are able to provide a full EDI service to their customers," said Harry Carlsson, senior vice president of U.S. Bancorp, Portland, Ore., and chairman of the clearing house association review committee that recommended MCI.

The factor that led association officials to issue the request was the realization that greater electronic data interchange usage was dependent upon widespread participation by the commercial banks.

"There are a lot of commercial banks out there," said William B. Nelson, executive vice president of the clearing house association. "This enables us to really reach out to that 95%, 96% of banks that don't pass that remittance information by providing some inexpensive software."

"I think what this solution will do, and what NACHA has attempted, is to finally meet the expectations and predictions of the industry," said Jennifer Flynn, marketing director with Maxxus. "It takes away [small bank's] fear factor."

MCI and Maxxus hope to have die service in a pilot program by the second quarter of 1995 and commercially available in the following quarter.

Mr. Nelson said the national association will promote the service to regional automated clearing house associations and their member banks. Excluding possible up-front fees, officials expect the service's average cost to range between $50 and $100 monthly.

Depending on the service's success, Mr. Nelson said the association may consider a rule change by early 1996 to make electronic data interchange capability mandatory for all automated clearing house participants.

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