An alliance between MCI Communications Corp. and Maxxus Inc. to develop an affordable electronic data interchange service for community banks has all but collapsed.

At stake is a multimillion-dollar contract MCI has with the National Automated Clearing House Association to develop the service, called RapidEDI.

"We've been informed by MCI that they will not be working with Maxxus," said Maggie Scarborough, senior director with Nacha. "MCI is looking for another vendor, and we hope there will soon be a decision on who the replacement will be."

Financial EDI is the electronic transmission of payments and related documents in standard computer formats. It is seen as a potentially lucrative cash management business, though experts believe few banks are making money from it now.

EDI services are currently the domain of large banks. Service offerings like the one Nacha hoped to develop with MCI and Maxxus aim to bring EDI and its revenue opportunities to smaller institutions.

Late last year, Nacha awarded the EDI contract to Washington-based MCI, which had teamed up with Maxxus, a cash management software provider for community banks.

Maxxus was to have supplied the in-house software portion of an EDI service offering, but its relationship with MCI hit a snag in March when Maxxus was acquired by Sterling Software Inc.

Although Sterling officials declined to elaborate on the turmoil, observers said the agreement reached between MCI and Maxxus was unacceptable to Dallas-based Sterling.

Martha Hanlon, MCI's director of electronic commerce product development, confirmed that the Maxxus relationship is falling apart. "We have notified Nacha of our inability to be able to do the business with Sterling," she said.

Robert W. Heard, a vice president in Sterling's bank systems division, said he regretted the vendor's inability to "formulate a compromise position that was acceptable to MCI, Maxxus, and Sterling."

Ms. Hanlon said the two parties were unable to find a "middle ground."

"It's unfortunate, but in any negotiation, these kinds of things have a way of happening," she said.

Nacha issued a request for proposal last April for vendors to build the system. It had planned to offer in-house software for banks as well as a service bureau EDI service.

MCI stills plans to develop an EDI service for Nacha, but the imminent breakdown of its relationship with Maxxus may delay the project. The EDI services were slated to be tested this summer.

The turn of events may prove to be a major stumbling block to Nacha's plans to have a low-cost service commercially available before the clearing house group considers mandating EDI capability among its member banks.

"I don't know for a fact if there will be a delay. At this point in time we are still in the process of evaluating what our options are and how its going to affect speed to market," said Ms. Hanlon.

Maxxus' role in the project was to provide software that would enable banks to handle EDI transactions. MCI was to provide network services between the bank, cash management customers, and, where applicable, a service bureau.

Nacha officials downplayed the setback, pointing out the crumbling alliance between the two companies involved only one piece of RapidEDI.

"This might have been a problem a year ago, but there are other software providers today that can provide the service," said Elliot McEntee, Nacha's president and chief executive officer.

Many of the industry's top cash management banks have invested in electronic data interchange, but its widespread adoption, anticipated by payment systems experts for years, has yet to occur.

The reason for the slow movement is clear: EDI systems can cost as much as $500,000, and banks have been reluctant to pay such sums without evidence that the business is profitable.

Observers believe that initiatives like those at Nacha and a similar one at the New York Clearing House can go a long way toward changing the situation by creating more demand for the services from corporate customers.

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