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Who's afraid of Merrill Lynch? (
MER) Growing
numbers, it seems, as the broker moves full tilt into a broad range of financial services. Traditional banks that finance small business, for
instance, rate Merrill as the nonbank competitor they fear most, according to New York consultancy Towers Perrin.
Anxiety is likely to rise yet higher in mid-May, when Merrill unveils an aggressive online strategy to boost small-business deposits and
eventually reap more personal-banking clients. The new program, called Cash Manager, will give small-business owners online information about their
Merrill and non-Merrill accounts on one site, allow them to pay bills and payroll online--and then consolidate excess cash into high-yielding
Merrill investment accounts daily.
Already, Merrill has made big inroads into small-business banking. Since 1995, for instance, it has increased its small-business assets to $165
billion from $50 billion. Small-business lending is expected to triple again in the next three years, says John Qua, head of Merrill's Business
Financial Services.
RICH CIRCLE. And, with the help of Cash Manager, Merrill hopes to win an even bigger prize--the personal investment accounts of
small-business owners. Nearly 70% of the rich customers Merrill covets, those with more than $5 million in assets, own businesses. Catering to
their business needs could, in turn, win them over as personal customers. "We're trying to complete the circle" in Merrill's relationship with
the wealthy, says Qua.
Traditional banks that have dominated the small-business market for years could be major losers. They are scrambling to hold on to accounts as
investment banks, credit-card companies, and online startups all fight to attract their customers. Indeed, brick-and-mortar banks could be left
with such labor-intensive and low-margin crumbs as dealing directly with deposits and check-processing--while the likes of Merrill scoop up an
increased deposit base and a cheap source of funds.
Merrill will pitch the new account first to existing customers and through financial consultants in its 700 branches. Advertising later this
year will aim to pull in new customers. Crucial to the new account is the use of Banklink, a Fiserv Inc. unit that culls account data from a
network of banks daily and transfers it to Merrill. The new site asks customers to put in all their account numbers, including those from other
institutions, and then designate how much cash they want left behind in those accounts each day. Most, the theory goes, will opt to leave the
minimum account balance behind and put the rest into Merrill funds. Merrill will advise clients about investments ranging from money market funds
to Treasuries and mutual funds. Returns vary--recently, Merrill's highly liquid money-market funds have earned 4.7% to 5.2%.
Hitherto, Banklink services have been available only to large corporate customers. But with the new online service, anyone with a Merrill
business account, the Working Capital Management Account, will also be able to pay vendors and employees through direct deposit and monitor
transactions, allowing different employees varying degrees of access to the system. The account carries a $125 annual fee, and the Cash Manager
program will cost an additional $25 monthly. Of Merrill's 165,000 business accounts, only 20% so far are using its online services.
"INCREDIBLY CREATIVE." Merrill's plan to lure small-business owners with the promise of higher interest for all their excess cash is
"incredibly creative," said Kathleen C. McClave, project manager at Towers Perrin. Small businesses generally are "sloppy" managers of their
deposits, McClave says, leaving excess balances in accounts with several banks that could be consolidated and earn interest elsewhere.
Analysts say some of Merrill's bank rivals will fight back. Chase Manhattan Corp. (CMB), for one, is
said to be working on a program that allows small-business customers to sweep checking deposits into investment accounts to earn high returns. They
and other banks had best suit up quick, or they run the risk of getting trampled in the rush.
By
Heather Timmons
in New York
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