Competition for the small-business customer is heating up, as nonbanks bore in.

Organizations ranging from technology-savvy start-ups to established nonbank competitors are launching services aimed at the 22 million businesses in the country with less than $50 million in annual sales. Services they are marketing include receivables and payables management, factoring, and payroll administration.

American Management Systems Inc., which supplies software to banks to help them support cash management and other needs of their corporate clients, says that 20% of its customers are nonbanks buying products once bought exclusively by banks.

"We are seeing a whole raft of nonbank service providers springing up in the marketplace," said Kurt Cavano, vice president of the company's corporate banking practice.

Trade Resource International Holdings Ltd. is an example of the new type of American Management client. The Bermuda-based start-up just purchased a system from the Fairfax, Va.-based company to provide receivables securitization services to small and midsize exporters.

The new nonbank competitors are flexing their muscles on the Internet as well, introducing Web-based services that appeal to the technology-savvy small-business set, Mr. Cavano said. "Will the banks be able to innovate fast enough to adopt the new technology channel of the Internet?" he asked.

The small-business market is attractive to a new wave of nonbank competitors not just because of size-it employs more than half the work force and contributes 40% of gross domestic product-but also because it is receptive to technology-based products.

Today's small businesses share a determination to concentrate on core competencies and willingly outsource extraneous or administrative functions.

"If you think there is a marketplace out there that is big and valuable, this is it," Mr. Cavano said. "Advanced technologies like the Internet are making them easier to reach," he added.

Some banks are targeting small-business interest in outsourcing, said Susan Skerritt, a partner with Treasury Strategies Inc., a Chicago-based consulting firm.

"One of the most significant trends in the treasury management arena is this concept of outsourcing," she said, adding that this is "particularly true for smaller and midsize companies."

Nonbanks such as Merrill Lynch and American Express are already targeting this market segment aggressively, she said. "What is different about them from commercial banks is they have clearer marketing strategies and clearer approaches in the way they deliver products."

Merrill Lynch is running advertisements in the Wall Street Journal for its Working Cash Management Account. It is designed to give small-business owners on-line access to credit, payment, and cash management services such as interest-bearing checking, with automated investment options and connections to financial and small-business experts. The advertisement stresses that these services are not offered by the typical bank.

Historically, banks have set their sights on larger corporations, said Francine M. Miltenberger, senior vice president at PNC Bank Corp. "I have always felt the small-business sector has been underserved from a financial services perspective."

PNC provides settlement services to Paychex, a payroll processing firm that caters to small businesses. Ms. Miltenberger credited the nonbank for "spending an enormous amount of energy" researching the niche. Paychex plans to extend its services into accounting, human resource, and benefits management.

Mary Anne Francis, vice president of National City Corp., Cleveland, said corporate payables, receivables, invoices, and the like are areas most banks have overlooked.

"Clearly, customers want help," Ms. Francis said. "If banks don't do it, customers will go somewhere else."

Mr. Cavano said, "There is so much opportunity. But it's also a huge opportunity for nonbank financial services companies."

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