enacted interstate banking legislation, Norwest Corp. has established a subsidiary to accept centralized deposits from commercial customers with operations in more than one state. Norwest National Bank, a federally chartered special purpose bank, opened for business Oct. 2. Though the bank is officially based in Colorado, there is no brick and mortar - only a modified computer system. The sole offering is a deposit-only product, Commercial Interstate Deposit Banking, meant to let retailers, fast-food restaurants, and other commercial customers dump cash collections from outlets in various states into one big corporate account. "It's a collection vehicle for companies that make branch or vault deposits," said Peggy Roush, director of cash management for Norwest. The product, believed to be the first of its kind in the country, is designed to make cash management easier and less costly for customers by eliminating the need to maintain many small accounts, Norwest officials said. Funds deposited in a Norwest national account are available at the start of the next business day, when they can be transferred to investment or disbursement accounts. "Some of these corporations have really been frustrated" by having so many accounts, said Jim Campbell, Norwest executive vice president. "This provides incredible efficiency for them." It also enables the Minneapolis-based holding company to take advantage of its 15-state affiliate network by contracting with subsidiary banks to accept deposits from retailers, restaurants, and other businesses with multiple locations. Because of some technical problems, the product is now available in only 13 of those states. Texas and New Mexico will be added later. Ms. Roush said the new bank and its product were created in response to "overwhelming" customer demand. The arrangement was made possible by a provision of the Riegle-Neal Interstate Banking and Branching Efficiency Act, which allows bank affiliates to act as transaction agents for one another when receiving deposits or loan payments. The agency clause, along with legislation easing the interstate acquisition process, took effect Sept. 29. The more far-reaching interstate branching law, which takes effect on June 1, 1997, allows states to opt out of cross-border mergers. But states cannot opt out of the agency provision. The new Norwest product is an attempt to simplify a daunting task. Big corporate customers often must use an electronic funds transfer to move money from hundreds of small, local accounts to a central collections account. The process usually takes several days, eating up the earning power of receipts and slowing payments to vendors. It is also labor-intensive, requiring extensive in-house record keeping. Deposits, returns, and other transactions are prone to mistakes, often because of something as basic as an employee writing a wrong amount on a deposit slip, and businesses lose much of the ability to manage the float in their accounts. In contrast, Norwest handles much of the paperwork with the new interstate deposit account. Each customer outlet has a unique identifier, and statements can be marked by location or other criteria a firm uses to track deposits. "We're very happy with the whole concept," said Gary Martin, director of cash management for Northwest Airlines, one of the first customers to sign on with Norwest. The Eagan, Minn.-based air carrier maintains about 160 separate accounts across the country to handle daily collections at its ticket offices. "We have a rather unwieldy number of bank accounts that we are trying to reduce," he said. "This enables us to consolidate some of those relationships." Eighteen of those accounts, formerly with Norwest branches, have been consolidated under the new bank. Mr. Martin said Northwest Airlines has maintained its relationships with those local branches, but now it also has one central contact to approach with questions. "It just makes a lot of sense for us in terms of monitoring, analyzing, and reconciling our accounts," he said. That is the whole idea, Ms. Roush said: "It's basically transparent for the customer. When they get their account information, they can see the totals, by store, by day. And if there are adjustments, those show up too. "It gives them the ability to identify each deposit, each return, each adjustment, and to do it with one centralized account," she added. "And that's what companies today really want." Another Norwest customer is The Limited Inc., which operates several national retail chains, including Victoria's Secret and Abercrombie & Fitch. Anticipating the effects of interstate banking, the Columbus, Ohio-based retailer earlier this year invited several banks to make presentations on how they could consolidate its accounts. "They have six stores in almost every shopping mall in the United States," Mr. Campbell said. "And up to now, every one of those stores has had to maintain a separate account." Perhaps the biggest problem with the accounts, Ms. Roush said, is that local branches may feel they are losing business to the new bank. To stave this off, Norwest has conducted an in-house campaign to promote the new product, and credits the branches and employees who work with those accounts for the business. Expectations for the product are high - perhaps too high. A recent survey by Norwest found that corporate customers hoped to see bank fees slide by as much as 30% with such centralized accounts. Ms. Roush said fee savings of 5% to 15% are more realistic targets. But, she added, companies can save more money by revamping their in-house accounting systems to take advantage of the new product. Northwest's Mr. Martin said he does not expect to cut any staff as a result of using Norwest's product. "But we should be able to use our time more efficiently." Mr. Martin also said that Northwest, with its high transaction and deposit volumes, expects to "ultimately have more leverage" in negotiations with banks. He said the airline is discussing products similar to Norwest's with other superregionals now, and anticipates signing at least one more such agreement by next spring. The seeds for the commercial banking product were sown last fall, after a study conducted by the Treasury Management Association showed that companies wanted uniform facilities, integrated services and the ability to bank all deposits in one account. Sixty-eight percent of national companies polled said they expected interstate banking to have a significant impact on their use of cash management services. "It's the fast-food effect," Ms. Roush said. "People are used to facilities that look the same and offer the same products no matter where they are located ... and they expect the same from banks." When the interstate banking bill passed, Norwest followed up with in- house studies of its own, including one that showed more than 21,000 companies with more than one location in more than one Norwest state. Ensuing interviews revealed that companies with locations spread across the country sometimes have trouble tracking deposits and returns. Those customers want low-cost, intra-bank funds transfers, single- balance reporting for all accounts, and integrated bank analysis statements, Ms. Roush said. "We concluded that there was a huge opportunity here," she said. But Mr. Martin said that while such products are appealing, Northwest isn't likely to shift accounts from other banks to use them. "The most important things driving our decisions are convenience and location," he said. "If there's a branch in an airport that we're pleased with, we're not going to change just to consolidate accounts."

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