The New York Clearing House Association has taken a small but symbolically important step toward consolidation of payment systems.
Small Value Payments Co., a spinoff of the association, has agreed to acquire a Dallas-based company that has been instrumental in the movement toward automated check clearing.
Both Small Value Payments and the company it is to buy, Payment Solutions Network Inc., have developed electronic check presentment and return-item services aimed at lowering the costs of processing the 65 billion checks written per year in the United States.
A combination of the operations would eliminate a type of redundancy among trade associations and other joint ventures that has become an increasing concern among top bankers.
There are also high hopes that a single entity would eliminate fragmentation and be more effective in pursuit of the elusive goal of electronic check presentment.
"The bottom line is that no one wants to send the same people to two different meetings at two different companies and talk about the same thing," said Henry C. Farrar, senior vice president at the New York Clearing House Association and president and chief operating officer of Small Value Payments Co., known as SVPCo. He noted that electronic cash presentment has been promoted nationally for a decade but accounts for only 3% of volume.
The acquisition is expected to close in September. Financial terms were not disclosed.
SVPCo, which was spun off from the New York Clearing House as a for- profit entity last year, provides a multilateral netting service through which collecting banks electronically transmit check information to paying banks. Paper items follow via lower-cost delivery methods.
Since its spinoff, SVPCo has added 10 institutions, bringing the number of member-owners to 22. Payment Solutions Network is owned by eight of the largest 50 banks;seven of the eight are also members of SVPCo.
Payment Solutions' operations include its flagship service, SmartNotes, which gives collecting banks early warnings of impending return items, reducing the paying bank's chances of incurring a loss.
The merger would have an impact on Dallas-based Carreker-Antinori Inc., which provides Payment Solutions with management, sales, and software maintenance services, while Visa U.S.A. maintains a data base of returned- item information. SVPCo would take over the management of Payment Solutions and enter into new contracts with Visa and Carreker-Antinori Inc.
Mitch Christensen, executive vice president of Wells Fargo & Co., which is a member of both Payment Solutions and SVPCo, said there is room for further consolidation among bank utilities.
The three private-sector automated clearing house operators-American Clearing House, Electronic Payments Network, and VisaNet ACH Services-might be redundant, Mr. Christensen said. "Do we need all three, supported in one way or another by the banks?"
Catherine A. Allen, chief executive officer of the Banking Industry Technology Secretariat, the technology arm of the Financial Services Roundtable, called the merger agreement "great news" for the industry.
"It has been part of a BITS initiative to further reduce the number of players in these arenas so we are not being duplicative or repetitive," she said. "The banking executives are having more say in taking control and influencing how the industry is shaped."
