NY Clearing Group Mulls Expansion

May Market Services Beyond District Boundaries to Raise Volume

The New York Clearing House Association is evaluating whether to market its automated clearing house services outside of its traditional boundaries, executives of the group said.

Officials are putting together a business case study looking at competitive factors and patterns of members' payment traffic to determine where it would be best to expand outside the Second Federal Reserve District. The district embraces New York, parts of Connecticut and New Jersey, and Puerto Rico.

John F. Lee, president of the clearing house, said that if its members are in favor, marketing outside the district would begin next year.

Such a move would make the New York Clearing House the second national competitor to the Federal Reserve in the automated clearing house arena, joining Visa U.S.A., which started nationwide processing in May.

Advantages Over Fed

A competitive advantage for Visa and the New York Clearing House is that they both operate fully electronic systems, while the Fed still accepts nonelectronic payments, which are prone to errors and delays.

"We're looking to increase our volume, and that will cut costs for our members," said John F. Lee, president of the clearing house. "We have extra capacity, and we think we provide superior service."

The Federal Reserve banks process at least 80% of all commercial automated clearing-house transactions, according to Elliott McEntee, president of the National Automated Clearing House Association.

"An additional competitor will help the banking industry and the customers of the banking industry," said Mr. McEntee. "Competition tends to keep pricing down and keep quality up."

Fully Electronic System

The New York Clearing House was the first automated clearing house association to take its more than 800 members all-electronic. Since then, the Fed has set July 1993 as its own deadline for making all links with its 16,000 members electronic.

The clearing house is not alone in its expansion plans. Deluxe Data Systems, Brown Deer, Wis., a third-party processor for the Arizona Automated Clearing House Association, is reported to be looking for other regional automated clearing house associations to sign up.

The New York group processes an average of 12 million automated clearing house items a month, up 20% from last year's average volume. In May, it processed $160 billion in payments, up nearly 12% from last year.

Visa processed about $110 million automated clearing house transactions last year.

Later Deadlines

If it expands its market, the New York Clearing House might need to provide additional services the Fed does not. Visa and the Arizona Clearing House, for example, offer much later daily processing deadlines than the Fed does.

"The clearing house could make schedules that are more attractive to banks, and in turn to their customers," said Mr. McEntee.

Automated clearing house volume is growing at 28% per year, Mr. McEntee said.

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