Bank One and Mercantile Going For State Payments

The joint venture of Bank One and Mercantile Bank to collect federal tax payments electronically has done so well that the banks are looking to expand their data processing and cash management services to other federal agencies and states.

The joint venture, now called Anexsys, was formerly First Chicago/Mercantile Services, L.L.C., which formed in 1995, before First Chicago’s merger with Bank One. The company recently applied to the Office of the Comptroller of the Currency to expand the subsidiary’s powers.

The system collected about $600 billion in fiscal year 1998 for the federal government according to John McGuire, director of collections modernization for the financial management service division of the Treasury. Bank One covers predominantly the northern half of the country; NationsBank, at the time of the deal, now BankAmerica, covers the southern half of the country. The project to develop the infrastructure to do the collection was expensive, the Bank One spokesman said, although he declined to say how much it cost, calling it proprietary information.

The bank, in a letter to the OCC, gave examples of opportunities to expand the subsidiary’s business. The joint venture was recently named by the state of Kentucky as one of 15 vendors able to handle various projects, including collection of funds and the possible design of new software programs, said Harry Mueller, division manager in charge of special industries in Mercantile Bank’s corporate banking department.

The other opportunities include bidding on CA$H-LINK, a global cash concentration and information reporting system for the Treasury Financial Management Service.

However, Riggs Bank was awarded the right to be the fiscal agent for the CA$H-LINK system redesign in early February. Another opportunity Bank One cited in its letter was a request from the state of New Jersey to design, develop, implement and operate the state’s new hire directory.

The spokesman for the bank declined to discuss the bank’s plans further, again calling them proprietary.

Wachovia Joins Both Sides of E-billing War

American Banker/Bond Buyer TransPoint, the bill payment and presentment joint venture between Microsoft Corp., First Data Corp. and Citibank, garnered yet another big bank to pilot its Internet bill delivery program: Wachovia.

Under the pilot, 100 of the North Carolina-based bank’s Internet customers will receive and pay their bills on the bank Web site. The bank joins Bank One, Citibank, First Union Corp., InterWest, Key Bank, Mellon Bank Corp., Merrill Lynch, Norwest and Wells Fargo in the pilot. The venture aims to give market leader, Checkfree, a run for its money. Wachovia already uses Checkfree for electronic bill payment, and is reportedly considering piloting bill presentment with the firm also.

In related news, PNC reportedly will also be offering bill presentment to all of its customers through Checkfree by the end of the year. That would make PNC only the second or third bank after First Union Corp. to have on-line bill presentment, depending on if it can beat Bank One Corp. to the market, as reported in Financial Modernization Report’s sister publication, the American Banker. PNC is also getting ready to test bill presentment software from TransPoint.

Analysts have said that although Checkfree has a good product, banks are willing to give TransPoint a shot so as not to be "beholden" to Checkfree. One phrased the situation as banks wanting Checkfree–which has 80% of the market in bill payment with the all-important pay-anyone capability that TransPoint is still working to perfect–not to think it is the only game in town. Pay anyone means a customer can get all of his or her bills on-line through the bank Web sites whether the bank has a connection with the vendor or not.

Earlier this year, Checkfree announced its impending merger with Internet portal Yahoo! Analysts said the combination would be a potent one and tough to beat if banks didn’t have the cash to go out and strike a deal with another major Internet portal to grab the traffic. Although TransPoint’s program is still being piloted, and may develop even better bells and whistles than Checkfree’s, until it can master the pay-anyone technology, it will not be able to compete effectively, sources said.

State Bank Sub buying agency first time in illinois

First Northwest Bank is about to become the first state-chartered bank in Illinois to be approved for an insurance subsidiary owned by the bank.

Although the structure is not new nationwide–at current count 38 states allow their chartered banks to have insurance powers which exceed those of national banks and all but one state, Montana, allow state-chartered banks to sell insurance to the same extent as national banks–it is a first for Illinois, the second most populous bank state after Texas. Illinois has traditionally been stringent on allowing banks insurance powers, but last year passed legislation allowing banks to sell insurance directly.

The subsidiary of the Arlington Heights-based bank is a 50-50% partnership with the Assurance Agency of Rolling Meadows, Ill. The joint venture, called First Northwest Insurance, is under the bank, not the bank holding company.

The way the structure is set up, the bank owns 100% of First Northwest Financial, which is the 50% owner of First Northwest Insurance. The deal has been approved by the state bank controller, and is awaiting final approval by the state insurance commissioner’s office. According to bank Chairman and CEO Michael Silverman, the approval has already been "semi confirmed" by that office and is expected "any minute."

"As a relatively young bank–we were four years old on Feb. 14–we certainly need to look at non-interest income. We need to look at the bottom line. We formed a mortgage subsidiary as well. We want to be a full-service financial center for our community," said Silverman, explaining why the $110- million-asset bank chose to be the pioneer of the new legal structure. The deal was put together for the bank by Chicago law firm Barack Ferrazzano.

John Gorman, partner at Washington, D.C., law firm Luse, Lehman, Gorman, Pomerenk & Schick, said the move shows that even the most restrictive states are catching up to powers expanded for national banks through court decisions over the last five years or so.

Silverman said the bank’s management chose the Assurance Agency to partner with because a bank board member, Jerry Powell, is a principal in that company and with his background, he will be a managing partner in the joint venture.