Watch out, Nabanco; MCI wants a piece of your business.
Last week, the long-distance telephone power announced a major expansion of its transaction processing offerings, unveiling a complete line of services for credit card transactions.
The Washington-based company thus is mounting a challenge to leaders in credit card merchant processing like First Financial Management Corp.'s Nabanco subsidiary, First Data Corp.'s Card Establishment Services, and National City Corp.'s National City Processing Co.
The offering comes at a time when banks are reentering the merchant business after years of ceding much of it to the nonbank specialists led by Nabanco. Indeed, a bank can piggyback on MCI's infrastructure to serve its merchant accounts.
But the industry leaders have taken preemptive action. Since its acquisition of CES, First Data has been promoting "merchant-bank alliances" in which banks control the merchant relationships. In the same vein, Nabanco has announced a close working relationship with NationsBank Corp.
"How in God's name is MCI going to compete against these very established players?" asked James P. MacDonald, vice president of transaction services for MCI Telecommunications Corp.'s integrated client services division.
His answer: "Very easily. Telecommunications is a big piece of card transaction services, from authorization to draft capture and more. We see a significant opportunity for our company to leverage our core telecommunications competencies."
He added that MCI already has signed 200 customers for its transaction processing services, including CoreStates Financial Corp., BankAmerica Corp.'s Seattle-First National Bank unit, and First National Bank of Omaha.
"The merchant-acquiring business is very scale-oriented and margins are very thin," said Stephen P. White, a payment systems consultant in Atlanta with Dove Associates Inc.
"The fact that MCI already owns the telecommunications part of it is going to make them competitive on price," Mr. White said. "So they have a good chance of succeeding.
"If I were a Nabanco or a CES, I would consider this a competitive threat."
The MCI initiative includes a new transaction processing platform and services designed to provide end-to-end support of electronic financial transactions, including credit card authorizations, debit card processing, check acceptance, point of sale terminal management, and billing services.
"We think transaction services has a huge market potential, much broader than just bank card transactions," said Mr. MacDonald, who cited research showing that of the 28 billion consumer transactions conducted each year, only about 18% are done with cards.
"We want to address home bill payment, point of sale debit, and other huge growth areas," said Mr. MacDonald. "We are uniquely positioned to develop our business in this high-growth areas because of our telecommunications capacity and our networking capability."
He cited the expertise MCI acquired when it purchased British Telecom North America last year.
"The combination of both the transport and processing functions is a powerful one-two punch," said Mr. MacDonald.
MCI's product line includes MCI Transaction, the flagship offering that covers all aspects of transaction processing on an open, Unix-based computing platform; MCI Simpletran, a processing service that financial institutions can provide to their smaller merchants as they convert from paper-based transactions; and MCI Terminal Management, an outsourcing program for point of sale equipment.
"The terminal management initiative gives a bank that wants to get back into acquiring services for smaller merchants a way to do it," said Mr. White, the consultant. "I think this is a biggie because there are a lot of banks that think they've got to get back into the merchant-acquiring business."
Banks that contract with MCI for terminal management services can count on MCI staff and resources to warehouse equipment, manage inventory, deploy terminals, train users, program software, repair or replace equipment, and provide 24-hour support.
"Financial institutions no longer have to devote significant staffing and resources to the equipment side of this business," said Mr. MacDonald. "Through outsourcing, MCI is letting merchant banks concentrate their resources on what they do best."
