BOSTON - Mention First Data Corp., and the first thing that comes to mind is plastic.
First Data is the dominant tracker of credit card accounts for banks. It will also become a leading authorizer of credit and debit card purchases, courtesy of two huge buys expected to close early this year.
But what is less well known is that the Hackensack, N.J., company is also a giant in the mutual fund world - specifically, in the back-office work that makes mutual funds possible.
Furthermore, First Data has expansion plans in mutual funds that are a key to its future. And an acquisition expected to close this month - of mutual fund distributor 440 Financial Group - will make banks crucial allies.
"Mutual fund servicing "is going to become an increasingly important contributor to First Data, and we're doing everything we can to make that happen," said Robert F. Radin, president of the First Data unit that manages the mutual fund business.
This unit - the Shareholder Services Group - is based here in the unofficial hub of the mutual fund universe. It is, in some respects, a recovered patient of reconstructive surgery.
The group started in 1983 as a back-office servicer for American Express Co.'s mutual fund divisions. When these units were later sold off, American Express split up and sold off the back-office work.
Mutual fund administration, which includes portfolio accounting and legal filings, was sold to Mellon Bank Corp.
The transfer agency unit, which tracks shareholder records and answers shareholder inquiries, was moved to First Data. First Data was then spun off through public stock offerings.
The reassembly took place early last year, when First Data bought a chunk of Mellon's mutual fund administration business.
But Shareholder Services isn't just a shadow of its former self. It has grown through other acquisitions - a 1990 purchase of Mellon's transfer agency business, and subsequent buys of a 401(k) software vendor and a leading printer and mailer of mutual fund prospectuses.
Now Shareholder Services ranks as the country's second largest transfer agent, with 11 million shareholder accounts, according to Dalbar Publishing Inc., Boston.
The leader is DST Systems Inc., a unit of Kansas City Southern Industries, with 26 million accounts. But Shareholder provides more services to its customers than DST does, which allows it to collect more fees per shareholder account.
Transfer agency is by far Shareholder Services' largest business line, employing nearly two-thirds of its 2,100 employees.
Both Shareholder and DST are much larger than their nearest competitors in the transfer agency business. These players are Boston Financial Data Services, a joint venture of DST and State Street Boston Corp. with 6.2 million accounts, and a PNC Bank Corp. unit that is transfer agent for 3 million mutual fund accounts.
DST and Shareholder can use their scale advantage to invest in new technology that smaller rivals can't afford, thus squeezing them out of the business.
For example, Shareholder won the transfer agency business of the Dreyfus family of mutual funds in 1990 when the previous transfer agent, Bank of New York Co., exited the business.
First Data doesn't break out business line revenues. But Merrill Lynch & Co. said in November that mutual fund servicing should make up $200 million of expected 1994 revenues of $1.7 billion.
Robert J. Levenson, a First Data executive vice president, said profit margins in the mutual fund business approximate those in the credit card business, which contributes nearly half of First Data's revenues. Merrill expects First Data to report 1994 earnings per share of $1.87, a fifth above last year.
Although the mutual fund business is smaller than credit card business, it is close in size to First Data's money transfer and payment business, and much bigger than the accounts receivable and data base services that are its fourth largest business line.
The goal with First Data's mutual fund acquisitions is to sell all of the back-office services a mutual fund needs, said Mr. Radin, who has led Shareholder Services since its inception.
Mr. Radin, a collector of paintings by local artists - including a landscape in pastel colors that was commissioned for his office here - said only two empty spaces remain in this composition. One is a capability for distributing banks' mutual funds.
That element, he noted, should be added this month, if the acquisition of 440 Financial, Worcester, Mass., goes through.
This five-year-old unit of Allmerica Financial has a reputation for innovation that helped it win contracts to distribute and administer mutual funds for Fleet Financial Group, Banc One Corp., and Old Kent Financial Corp.
Like other distributors, 440 Financial handles activities off-limits to banks, namely the distribution of funds to brokers, trust officers, and financial planners, who then sell them to the public.
Terms of the 440 Financial deal have not been disclosed. But Merrill Lynch estimated 440 Financial's yearly revenues at "something under" $75 million, and the purchase price at a "similar amount," making it First Data's biggest mutual fund buy ever.
Mr. Radin said the other gap is a full-fledged custody service for mutual fund portfolios. For now, the plan is to partner more closely with custody banks.
Bundling a range of services helps Shareholder offer volume discounts in exchange for long-term contracts. These are crucial capabilities in a business under pricing pressure as mutual fund sales drop.
The expansion also links Shareholder more closely with banks, by making it heavily reliant on bank fund distribution for growth. Currently, banks comprise about a seventh of Shareholder's revenues, according to a Shareholder spokeswoman. This will grow substantially if the 440 deal closes.
"The battle is going to be won or lost on distribution," Mr. Radin said.
