When PNC Bank officials looked at the future of their wholesale lockbox business in 1997, they saw a threat emerging in the form of electronic bill payment and presentment.

But the treasury management executives embraced the new phenomenon as an opportunity.

The $77 billion-asset Pittsburgh bank developed a three-part solution to ensure payments between its corporate customers and their trading partners could be executed electronically. The offering includes traditional electronic data interchange, internally developed software to address companies that do not want to invest in EDI, and a bill presentment solution. PNC will consolidate all of the resulting payments with traditional paper checks when necessary.

PNC is one of the top seven lockbox providers in volume, and one of a few with a nationwide network.

The wholesale lockbox business "is one area we thought was strategic to us," said Valerie G. Kramer, vice president of strategic business development at the PNC Bank Corp. subsidiary. PNC's three-pronged offering "falls into the whole category of receivables management, which is one of our key areas of focus in terms of market leadership," Ms. Kramer said.

PNC is in the vanguard of banks pursuing business-to-business electronic billing. Northern Trust Co. of Chicago is testing a system it developed itself, NetTransact, which lets companies present billing information to other companies and accept payments via an extranet.

Others, including Chase Manhattan Corp., BankAmerica Corp., and First Union Corp., have announced internal development efforts aimed at helping corporations send electronic bills to retail customers.

"Most of the large banks are focused on the consumer segment more than the business segment, because they think there is more revenue involved," said Avivah Litan, research director at GartnerGroup in Stamford, Conn.

"That's the right strategy for those kinds of banks," Ms. Litan said. "But if you look at PNC, they don't have as large of a consumer base. They're going after a hole in the market that is not being filled by the competition."

Ms. Kramer and her colleagues describe their three-part billing system as a pyramid.

At the top is a corporate biller's large business customers, which use electronic data interchange for transactions. PNC expects these customers to keep using traditional EDI.

The next level down is medium-size customers that do not want to make the investment required for EDI. For them PNC developed a system called Inxchange with help from Electronic Data Systems Corp. of Plano, Tex.

"Our efforts were driven out of conversations with customers about electronic data interchange," said Todd Barnhart, vice president of electronic commerce at PNC. "People said, 'You helped me with EDI. What can you do for us for customers in the middle?'"

Inxchange takes EDI-formatted data from a biller and formats it for presentment via the Internet. Recipients authorize the payments in the form of automated clearing house debits from their accounts. PNC also sends remittance data to the biller's receivables account.

Inxchange includes provisions for dispute resolution.

"Corporations don't always have a tendency to pay their bills," Mr. Barnhart said. "We built the capability to not only present a bill, but also to open up two-way communication on the Web, which allows a medium- size company to say why they're not paying."

PNC, working with Xerox Corp., is expected to complete a test of the system by June. Its development cost was not specified. The bank expects to increase its corporate customer base by targeting medium-size billers to use Inxchange.

At the bottom of PNC's billing pyramid is customers' smallest trading partners. For them PNC plans to use the electronic bill payment and presentment offering of Transpoint, a joint venture of First Data Corp., Microsoft Corp., and Citigroup. A test of Transpoint with Xerox is expected to wrap up by late summer.

As with remittance data from Inxchange users, bill payments through Transpoint will be integrated into billers' accounts receivable files.

PNC officials said they are exploring the possibility of offering "the pyramid" to other institutions for their corporate customers.

The software development effort has taken PNC beyond a bank's traditional role, said Ms. Litan of GartnerGroup. "It's not a natural role," she said. "But it's a new world, and electronic bill presentment and payment is moving banks into other areas."

Ms. Kramer said PNC could not afford to wait for software providers to develop off-the-shelf systems. Moreover, business-to-business bill presentment requires a customized approach for each biller.

"We call this financial process transformation," she said. "We're helping our customers enter the electronic commerce age."

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