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Banks Find Opportunity in U.S. Postal Service Woes

The U.S. bank industry, struggling to make the profits it used to, is using the struggles of another industry for its marketing: The U.S. Postal Service.

To be sure, many mid-sized businesses use check-writing software and are in no rush to install new systems, said Lex Litton, a consultant with Phoenix-Hecht, which specializes in collecting paper checks at third-party processing centers.

A little more than half of payments received by larger companies still arrive by check, said Litton. For smaller companies about three-quarters are on paper.

Overall, paper payments to businesses are decreasing by a couple of percentage points a year, Litton said, citing surveys by his firm.

One reason for slow adoption is convenience. Sending checks in envelopes can allow businesses to easily add information that clarifies what they are paying and what discounts they might be applying.

"I'm an advocate of both" paper and electronic payments, said Ron Tauscher, a senior product manager in Citigroup's Global Transaction Services business.

Tauscher said he is discussing the Postal Service issues with Citigroup's customers. "It is clearly an opportunity to talk about their receivables," he said.

For payments still sent by check, some banks offer lockbox processing centers across the United States. Citigroup, JPMorgan and Wells Fargo together account for 35 of them. Crews from the centers go to nearby Postal Service sorting facilities around the clock to pick up envelopes with checks to be deposited quickly.

Known as remittance mail, the envelopes would get special treatment under the Postal Service's plans to cut costs, noted Litton. Banks would be able to continue to pick up those envelopes seven days a week even as first-class deliveries to businesses would become less frequent.

As a result, businesses may sign up for the lockbox services, Wells Fargo's Peltz said.

Litton said remittance mail would still likely move more slowly than today, though that is not certain. Regardless, the threat of delays is useful to the banks. "This looks like an opportunity to say there is one more advantage to electronic payments," said Litton.

At Bank of America Merrill Lynch, Paul Simpson, head of global transaction services, said the bank is talking to clients about electronic payment options as well as looking at new ways to enhance and speed up deposit and lockbox services. Depending on the postal service's consolidation plans, the bank could look at partnership opportunities at post office locations, where the bank could process checks and immediately capture electronic images of these payments.

A partnership with the U.S. Postal Service could help "create revenue streams that benefit both parties," Simpson said. (Reporting by David Henry in New York and Rick Rothacker in Charlotte, N.C.; Additional reporting by Emily Stephenson in Washington; Editing by Paritosh Bansal, Alwyn Scott, Gary Hill)

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