Banks Are Getting Squeezed in Lucrative Check-Handling Business Electronic Data Transmitters Can Process Corporate Remittances Faster and Cheaper
James L. Tyson, writer of The Christian Science Monitor, The Christian Science Monitor
MAJOR banks are being sideswiped on the emerging "information superhighway" as corporations increasingly spurn bank checks and make payments electronically through data transmission companies.
The banks are steadily losing an estimated $500 million to $1 billion-a-year business to data transmitters, which collect and disseminate remittance information quicker, cheaper, and with greater sophistication, according to industry analysts.
The accelerating trend is imperiling the jobs of corporate bookkeepers, clerks, check handlers, and other workers who sort, record, and haul 15 billion corporate checks every year.
The shift in the remittance medium from ink to electrons has been sped up by the federal government; Washington plans to make its own procurements electronically. Most conspicuously, the Internal Revenue Service, beginning this fall, will require corporations to pay taxes and employee withholding through electronic data transmission.
Many corporations apparently do not need Uncle Sam to show them the savings and efficiency of electronic transfers. The cost of sending a check through a data transmitter is 50 cents to $2 cheaper than through a bank, says Ned Hill, a professor of business at Brigham Young University. He specializes in what is called Electronic Data Interchange (EDI).
Thirteen banks recently began a venture to safeguard their majority share in the handling of corporate remittances.
Acting with the Chicago Clearing House Association, the consortium of banks on April 18 announced an October startup for EDIBANX, a network of banks capable of sending highly detailed remittance information along with the payment.
The 13 banks, which control more than 60 percent of the market in corporate remittances using checks and electronic transfers, "feel threatened with some of the other ways that electronic payments are being made today," says JoAnn Becker, senior vice president at the clearinghouse and business manager of EDIBANX.
The banks' rivals are the data transmitting services under AT&T Corp., British Telecom, General Electric Company, and a joint venture between IBM Corporation and Sears, Roebuck & Company.
The nonbank upstarts are urging corporations to give them control of the remittance data and hire the banks only to shunt money. They are underpricing banks that charge corporations hundreds of millions of dollars to pass along the data that correspond with paper checks.
From the start, some banks have had a key advantage over their rivals because they have a hold on the corporate payment stream. …